The SPA newswire

Mary Schapiro, vice-chairwoman of NASD, has expressed concerns over the complexity of structured investment products. Meanwhile, Canadian banks view the structured products market as a high-growth area. By Negin Janati

NASD (Washington, DC). Mary Schapiro, the vice-chairwoman of the National Association of Securities Dealers (NASD), which regulates the US's 660,000 securities brokers and dealers, has told a reporter from the Los Angeles Times that the NASD now has an "ahead-of-the-curve initiative" in which the regulator attempts to anticipate future problems.

"We gather all sorts of data and give it to a task force that uses that information to help them determine where problem areas are forming. We also talk to research analysts to learn about the trends they're seeing. And we're creating a think-tank of academic experts," she says. She indicates that the NASD is "looking at a lot of structured products, where the risks may not be clear to investors. We are concerned about hedge fund sales to individual investors and about equity-indexed annuities. These products are extremely complex. Sometimes the brokers don't even know what they're selling."

On insurance-wrapped structured products, Schapiro says: "People think that these are securities products because they're linked to a stock market return, but they're not necessarily. They are extremely complicated. They have very high commissions, and only about 10% of them are sold by broker-dealers. Those that are sold by insurance agents may not be subject to the rules and protections that apply to securities sales." The NASD's three-step approach to these issues include "new rules, enforcement and investor education".

Invesco (Atlanta). As mutual fund companies start to ramp up their presence in "structured funds", many desks are reorganising to reflect the notion of a team dedicated to structured products.

Traders magazine reported that the $54 billion money manager Invesco reorganised 18 months ago by putting Patricia Johnson in charge of trading for Invesco North America. She immediately implemented a team approach that combined the trading operations of New York, Boston, Denver and Atlanta into a single unit, which included trades for portfolio managers in offices in Boston and New York.

Managers in both New York and Boston focus on structured products, as well as derivatives. Under the new approach, Johnson is reporting significant efficiencies in assisting the managers to build structured fund products.

focus on canada

Toronto Dominion (Toronto). Toronto Dominion, Bank of Montreal and Canadian Imperial Bank of Commerce all reported earnings in August and all reported a slowdown in capital markets activity – stock and bond underwriting and advisory work on mergers and acquisitions. Profit from TD Securities was $90 million, down $38 million from the third quarter of last year.

Unlike its Canadian peers, however, TD Securities saw its results fall after booking a $30 million after-tax loss on the liquidation of a structured products portfolio, and took an additional $10 million after-tax restructuring charge to reflect that division's "repositioning". Other Canadian banks see structured products as a high-growth area, but TD is unwinding its structured products operation, due to increased competition and higher costs of regulatory compliance, according to market sources.

A spokesman for TD acknowledges there could be further losses as TD Securities liquidates its structured portfolios, but the expectation is that the impact "would not be large".

Mulvihill Capital Management (Toronto). Following the success of an earlier tranche of the Top 10 Canadian Financial Trust, Mulvihill Capital Management filed a preliminary prospectus with the securities regulatory authorities in each of the provinces of Canada in connection for a follow-on offering.

Mulvihill hopes to sell up to $150 million of units of the trust, which will be offered on a best-efforts basis by a syndicate led by RBC Dominion Securities and including CIBC World Markets, Scotia Capital, TD Securities, BMO Nesbitt Burns, National Bank Financial, Desjardins Securities, HSBC Securities (Canada), Canaccord Capital Corporation, Dundee Securities Corporation, First Associates Investments and Raymond James.

The offering price for the units will be $16.10 each and the offering is expected to close in mid-October 2005. The Trust will invest the net proceeds of the offering in a portfolio consisting of common shares of the six largest Canadian banks and the four largest Canadian life insurance companies. The Trust's investment goals are to return 7.5% per annum on the net asset value.