Despite the inherently complex nature of structured products, firms still surprisingly rely on emails and spreadsheets to manually manage the custom structure creation process. In a previous Structured Views post, we shared four reasons why custom structure pricing needs to be automated. In this post, we are going to examine the process of custom product creation and pricing automation and how it integrates into an investment firm’s workflow.
Custom product creation is initiated through three steps. The first step, product selection, includes choosing the wrapper (a structured note, for example), and then selecting the desired layers such as the grouping, type, underlying asset(s), and other details. The second step, product details, entails assigning variables such as a buffer percentage, coupon percentages, and upside return levels. The final step, trade information, includes setting up the trade date, re-offering, sales and structuring fees, and choosing the desired issuer(s).
After the desired product has been the specified through these three steps, the bid request workflow begins. This is where the Luma platform provides some significant process efficiencies. This is a generalized example based on a similar model that Luma uses for its workflow automation.
Send Request. The workflow begins when the product request is sent to issuers for consideration. Issuers receive and review the custom structure request and reply with an offer.
Luma provides access to multiple issuers thus enabling broader product availability.
Select Response. Clients review the preliminary paperwork received from issuers and select an issuer to move forward with.
Luma creates a digital, historical log of every request to better support quality and compliance. This historical log tracks the entire process and stores details such as contact names, downloadable files, and status updates.
Finalize Term Sheet. Client and issuer confirm product and finalize term sheet. Now, the marketing period can begin.
In addition to the downloadable term sheet sent from the issuer, any notes, notional values, or updates can be maintained within the platform, eliminating the need for emails and manual tracking.
Final Notional and Legal Documents. After the marketing period has closed, client sends the final notional amount to the issuer who finalizes the trade by sending the concluding legal documents.
Once the trade has been issued, the archive stores all of the product details making it simple to review details and/or repeat the request.
Don’t let your firm get stuck with outdated processes. While manually managing the processes for custom product creation and pricing might be the common practice of today, more and more firms are starting see the benefits of using financial technology to streamline workflows, reduce manual work, and improve suitability requirements.
Interested in learning more about custom product creation and pricing automation?
Click the link below to learn about Luma’s Product Creation Tool.
This information is for distribution to institutional clients and is for broker-dealer use only. It is not intended to be distributed to individual retail clients. Any material provided is for information only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument.
