A Study On The Innovation Of Structured Products Of Commercial Banks In China

As China's economy is growing continually and rapidly, the income level of residents continues to improve. As a result, household wealth is increasing in China. How to effectively manage the wealth has become a major problem of many families. They try to find ways to preserve and increase the value of wealth. Meanwhile, major commercial banks found the potential business opportunities in the financial market. In order to increase intermediary business revenue, they have introduced a large number of various personal financial products to meet the needs of the community. Among those financial products, structured products attract the attention of investors by its diverse portfolio structures and high yield.Structured products/structured notes are one of the mainstream products of commercial banks in China's financial market. They consist of fixed-income securities and derivative contracts. Derivative contracts include forward, futures, options and swap contracts. The related assets of derivative contracts include interest rates, exchange rates, stock prices, commodities, indexes, credit, etc. Structured products originated in the 80's of last century in the United States, but appeared in China before a few years. China Everbright Bank first launched structural foreign exchange deposits in September 2002. Then, a large number of domestic banks and foreign banks carried out this business.When China's financial market developed rapidly and investors have great enthusiasm for investment, proceeds crisis broke out in the structured products market. This sounded the alarm for investors, issuers and regulatory authorities. Structured products' zero/negative proceeds is due to Chinese banks' lack of design experience, inaccurately judging market trends, improper pre-marketing and incomplete disclosure of information. In addition, our structured products' external financial environment is still not perfect, which has to a certain extent affected the healthy development of financial market and the innovation of structured products.Based on immature status of banks' structured products in china, this paper focused on problems of banks' structured products, and tried to put forward corresponding countermeasures and suggestions in hopes of promoting the innovation of China' s structured products. According to this purpose, the paper began with the basic concepts, the development, design process and pricing technology of structured products. Then, combined with the development of structured products in China, analyzed the types and features of domestic banks' structured products. On this basis, the paper did research on the problems of structured products in China from three angles. That was product design, marketing services and external financial environment. Finally, the paper proposed corresponding countermeasures and suggestions from the above three angles. This paper included five parts.The first part was introduction. After introducing the background of this paper, the writer indicated the significance of this paper from the needs of investors, expansion of commercial banks' intermediary business revenue and the development of the financial markets. Then, the writer introduced relevant studies at home and abroad, together with the ideas and structures of the paper.The second part firstly defined the basic concepts of structured products. Then, the writer classified structured product by three criteria which are related assets, safety of principal and liquidity. Next, the writer introduced structured products in the United States, Taiwan and Hong Kong. At last, from the aspect of product design, the writer explored the elements of product design, design process and pricing.The third part focused on the existing types and features of structured products in mainland of China. First, the writer gave a brief review of development for the structured products in mainland. And then follow the classification criteria of Chapter II, the paper analyzed the existing types of structured products in the domestic market. Then, taking an exchange rate linked product issued by ABN AMRO as example, the paper analyzed the characteristics of products and summarized the overall structural characteristics of banks' structured products.The fourth part was the focus of this paper. Both from micro and macro perspectives, the writer did all-round analysis of structured products in mainland. At the micro aspect, the paper focused on the problems of product design, marketing and services of commercial banks; at the macro aspect, the paper stressed undeveloped derivatives market, unsound financial laws and regulations, the financial sub-industry business model and lack of financial supervision, which hampered the innovation of structured products, as well as the healthy development of financial markets. The fifth part was closely connected with the fourth part. For the issues raised in the fourth part, the writer explored countermeasures and suggestions for banking product innovation in mainland from the three aspects (product design, marketing and services) , as well as external financial environment. In this part, according to the Life Cycle Theory, the writer divided financial management cycle into six stages and analyzed the features of every stage.