SPA's Styrcula outlines proposed structured products standardization system

By Sheri Kasprzak

New York, Dec. 8 - Keith Styrcula, chairman of the Structured Products Association, sees changes to the structured products landscape in 2007 and says the changes will begin with a proposed system for standardizing the products.

Styrcula said in an interview Friday that U.S. investment banks have had to rely on proprietary names for their products in order to sell them over the past decade.

This, he said, may be cause for confusion when investors sit down and look at what's available to them.

Styrcula likened the nomenclature of the proposed system to brand names for ibuprofen in the drug world.

"We like to use the example of generic names for medicines," he said in Friday's interview. "For ibuprofen, you have Advil, Tylenol and all these different brand names. We want to make clear that you're buying a particular product. We don't want to hinder firms from using their marketing techniques, but we feel the investors need to know what they're buying. There needs to be a clear picture."

Under the terms of the proposed system, one term will be used to describe products from Group A, which includes principal-protected products, partial principal-protected products, buffered principal at-risk products and principal at-risk products. Then the investment banks will pick a description of their products from Group B to be used with the Group A descriptions. Group B includes synthetic convertibles, reverse convertibles, dynamic allocations, periodic cappeds, target returns and synthetic exposures.

One term will be picked for descriptions in Group C, which includes straight participation, averaging participation, variable participation and enhanced participation. Group D will refer to either variable, fixed or minimum return coupons, and Group E will refer to the callable or auto callable status of the products.

Terms chosen from Group B must only be used with descriptions from Group A, though terms in groups C through E may be used in conjunction with Group A.

A pilot program to institute the proposed system, Styrcula said, will include JPMorgan Chase & Co., which pitched the proposal to the Structured Products Association, Goldman Sachs Group Inc., UBS AG, Morgan Stanley and other investment banks in January. At least six other investment banks will join the pilot program later in 2007.

So why is there a need to standardize structured products now?

Styrcula said it has a lot to do with how fast the industry is growing.

"This industry is growing and there is a tremendous upsurge in investor interest," he said. "Along with that comes the responsibility of the industry to provide transparency and clarity to the investors. With structured products, you have an added element of complexity that other markets don't have."

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