How Structured Financial Products Work

A seasoned financial executive with extensive experience in the development of new and efficient financial structures, Seth Koppes holds multiple patents and has been recognized for his innovative contributions to the field. Since 1993, Seth Koppes has served as CEO of Bancorp Services, LLC, a firm that assists large financial institutions and Fortune 500 organizations by developing innovative structured financial products.

Structured products are complex financial instruments with values that are based on the performance of underlying assets, such as stocks, bonds, and commodities. In a structured product, the conventional payment features of investment-grade securities are converted to non-traditional payoffs that are based on asset performance rather than the issuer’s cash flow.

With structured products, retail investors have the opportunity to gain access to derivatives and interest that are linked to pre-packaged groups of assets. These assets are typically institutional-level securities that would otherwise be unavailable to entities that are not institutional investors.

Issuers of structured products pay returns when the products mature. Besides the face value of the asset, additional payments are variable. Each investor will receive a profit that is dependent on the underlying assets’ ROI.

For example, consider a bank that issues notes as structured products, with each note having a $1,000 face value. Each note has two parts – a zero-coupon bond and a call option for an underlying equity (an index-tracking ETF) with a three-year maturity. The bank requires an investor to pay the face amount of $1,000 for the product on its issuing date. Since the note is principal-protected, the investor is certain to receive the face amount when the product matures, regardless of the performance of the underlying assets. They can also earn a return on a one-for-one basis if the note has a higher value when it matures.

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The Earmarks of Structured Finance

A financial professional with over three decades of experience, Seth Koppes is the founder and CEO of Bancorp Services. Under Seth Koppes’ direction, the company assists large financial institutions and Fortune 500 organizations by developing innovative structured financial products.

Structured finance describes sophisticated financial instruments that are typically used by large companies to raise capital. Contrary to traditional securities like stocks and bonds, structured finance products are non-transferable securities. Investors don’t acquire an ownership interest in companies when they buy these products.

Investors earn passive income from the proceeds generated by the underlying assets in structured finance products. For investors, this is a new source of income and also an opportunity to gain exposure to the underlying assets. A process called securitization can help reduce the risk associated with holding these products by bundling diverse assets into a single product.

For large companies, structured finance is a cost-effective and efficient way to create a financial market for raising capital. Through the market, investors transfer funds to the company in exchange for securities that are backed by assets. Structured finance products can also be customized to the specific needs and financial goals of issuers, which include corporations, financial intermediaries, and governments.

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Insurers React to Security Issues with Certain Car Models

 

A graduate of the University of Missouri, Seth Koppes is a financial services leader committed to developing innovative financial products that meet the individual needs of his clients. Since 1993, he has served as the CEO of Bancorp Services in St. Louis, Missouri. In addition, Seth Koppes possesses a strong passion and extensive understanding of the insurance sector.

In January 2023, two American auto insurance companies (Progressive and State Farm) stopped writing policies for older Kia and Hyundai models in some states, including Colorado and Missouri. The rationale behind their action is that these older models are vulnerable to theft.

Some Kia and Hyundai models from 2015 through 2019 lack essential auto theft prevention technologies that are standard in contemporary models. One example of these features is an electronic immobilizer, which stops a car from moving if a key that does not belong to the car is used to start it. Only 26 percent of Kia and Hyundai models from 2015 through 2019 have electronic immobilizers. The CNN website's data revealed that Kias and Hyundais's theft rate spiked in the past few years.

The Hyundai Motor Group holds a significant portion of ownership in Kia, and many of the vehicles produced by Hyundai and Kia have similar engineering. To address the security issue, both automakers announced that they are developing free security software for models that originally didn't have electronic immobilizers.