German Structured Note Issuers Start Adopting Price Transparency

Germany’s biggest issuers of structured notes started disclosing the fees they charge investors, becoming the first to embrace such pricing transparency in Europe.

Banks will now reveal the securities’ estimated value at the time of sale as well as detailed information on the costs, according to the German Derivatives Association in Berlin, whose members represent about 95 percent of the country’s structured products market. Note prices are usually higher than actual values because they include underwriting fees, hedging costs and other expenses involved in creating and marketing the securities.

German issuers are anticipating tougher disclosure requirements in Europe two years after the U.S. Securities and Exchange Commission asked American lenders to divulge the initial value of the structured notes they sell. Regulators from the U.K. to Mexico have criticized the securities packaging debt with derivatives for being opaque and complex.

“Investors have a need to understand the cost structure of financial products,” said Christian Vollmuth, managing director at the German Derivatives Association.

The European Parliament ruled last month that banks and brokers need to provide a basic information document when selling derivatives and structured products to retail investors.

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