Emily Roostan, director at Affinity Capital, explores why secondary markets shouldn’t be a primary concern when considering structured investments.
Secondary markets are a central feature of modern trading – allowing investors to buy and sell previously issued financial instruments between each other.
However, there is a common misconception among clients that structured investments require a fully liquid secondary market in order to provide maximum flexibility to clients.
At Affinity, we don’t feel this is the case. In fact, structured investments are term trades and perform best when held until early exercise or maturity.
While we always insist on banks providing a secondary market for all the notes on which Affinity advises, unwinding structured investments should typically only be done as a last resort.
Ensuring secondary market options are available in a structured investment does, however, allow clients to keep a record of where they stand.
According to Emily Roostan, a director at Affinity, the lack of liquidity in structured investments is not a problem, but investors must be aware of the issue.
“Traditionally, structured investments are not liquid and the only market maker is the bank that sold the note, so although one can negotiate and insist on the best unwind level, one will always be at the mercy of the issuer,” she explains in the above video.
That’s not to say liquidity isn’t available, Emily adds, but it’s important to understand that structured investments are a term trade and are not designed for secondary market activity.
She says that in her experience working both alongside and within the investment-banking sector, she has never had an unwind denied.
Investors who want to trade in and out of liquid assets are unlikely to find what they are looking for in structured investments.
Nevertheless, we understand that unforeseen circumstances or a change of heart may mean unwinding a structured investment is necessary.
In these instances, it helps to work with issuers that not only give you secondary market options, but will also commit to a reasonable spread.
Having Affinity Capital on your side can help smooth the process of securing and unwinding structured investments, ensuring you receive a fair deal at both ends of the trade.
This means that while we advise against a secondary market approach, you can rest assured you’ll still receive premium guidance and services if you choose to do so.
For more information on how Affinity Capital helps investors obtain a fair buy-back price when unwinding structured investments, please contact us today.