Structured securities are complex financial instruments. These are constructed by combining a bond (therefore a traditional debt instrument) with one or more derivative components, i.e. purchase and sale contracts for financial instruments whose value depends on an underlying component such as indices, shares, currencies, commodities. The derivative contract is generally optional.
The structured securities market is dominated by banks, financial institutions and supranational bodies that produce such instruments. Structured securities can be distinguished between:
- guaranteed capital securities, for which the payment of interest is linked to the performance of the underlying of the derivative part;
- non-guaranteed capital securities, for which the final repayment may be lower than the subscription amount.
Being composite securities, they carry higher risks.
Among the main types of structured securities we find bull and bear securities; callable and putable securities, drop-lock securities, reverse floater securities, index-linked, equity-linked, maximum or minimum coupon securities, credit-linked notes.
For more information: “What are structured securities? Characteristics and types”
