Structured product investors hit by sharp fall in Japanese equities

Investors have likely taken hits on legacy structured trades, though bankers say it is too early to judge the full impact of the Friday earthquake on the Japanese structured equity market. There are some signs, however, that investors might already be buying in.

Investors holding legacy equity structured products based on Japanese equities look set to suffer large losses due to the free-fall in Japanese stock prices during trading early this week. Japanese structured product investors are largely short equity volatility with popular strategies in Japan designed to enable retail investors to potentially capture higher yields, often involving investors selling digital options to banks. These trades performed as long as the Nikkei 225 Index did not fall