Assets under management on Etracs, UBS’s exchange-traded note (ETN) platform, had risen to $7.1 billion at the start of May this year, according to analyst firm Financial Products Review, up from $6 billion at the end of 2016 and $4.4 billion at the end of 2015. That makes the bank the biggest name in US ETNs measured by assets under management, putting it ahead of Barclays with $6.4 billion.
Meanwhile UBS’s innovative Equity Investor Marketplace, a structured note platform that was described by one of this year's awards judging panel as “revolutionary”, offers straight-through processing, meaning financial advisers can execute entire Securities and Exchange Commission (SEC)-compliant trades ranging from $100,000 up to $4 million in as little as two minutes.
“This is a unique tool. It used to take a couple of hours for simple products and up to an entire day for more complex instruments. And the error rate is just seven basis points, so it’s near bullet-proof,” says Michael Nelskyla, head of investor solutions at UBS.
So, for its prominence in the ETN market and its structured note platform, UBS stands out. It has demonstrated an unmatched propensity to capture and service retail demand far beyond its rivals.
ETNs are not as popular in the US as they are in Europe; there is only a relatively small number of issuers and membership of that club is restricted to shops that are established and that possess the requisite skill set. But the bank has made impressive gains over the past four years. Its market share in the sector had grown to over 30% in 2016 from only 8% in 2012 – and less than 1% back in 2008.
The Etracs platform has also been responsible for some notably innovative products. In 2016, for example, UBS partnered with VelocityShares to launch an ETN that captures the performance of several Vix indexes – the Vix Short Volatility Index, the Vix Tail Risk Index and the Vix Variable Long/Short Index. In February that year, it also launched the OilX ETN, which is linked to the performance of the S&P GSCI Crude Oil Total Return Index.
And in combination with ProShares, the bank launched another triple-leveraged oil-linked short and long ETN, which filled the gap left by the delisting of the popular Credit Suisse VelocityShares oil-linked leveraged ETNs.
In fact, 2016 marked the debut for UBS as a provider of third-party products in addition to its in-house products, helping support its reputation as a go-to house for other ETN providers seeking maximum exposure for their notes.
But it is through the Equity Investor Marketplace structured note platform, which was launched in 2010, that the bank’s achievements are perhaps most eye-catching. More than 1,700 transactions were executed on the platform in the US last year, with a notional of $500 million, and over 62,000 globally. It offers more than 30 products based on 550 underlying stocks and indexes. Since its creation, it has issued around $3.3 billion notional across 12,630 structured note offerings.
With a minimum trade size of only $100,000, advisers can design and deliver customised notes to a range of clients while the speed and capacity of its straight-through processing continues to attract new users.
“We’ve had STP for the past 10 years, but it’s only become revolutionary in the past two years or so with additional improvements. We have the most efficient pricing and execution of any provider on the Street,” says Nelskyla.
It is also striking how narrowly UBS trades in the credit default swap market. By the close of May 12, for example, it was trading at just 45bp. This compares to 50bp for JP Morgan, 57bp for Citi and 44bp for Wells Fargo – the ne plus ultra of the established and trusted domestic names. Deutsche Bank, meanwhile, is at the other end of the spectrum at 99bp.
UBS led the league table for SEC-registered deals in 2016 with a market share of more than 17%, albeit that JP Morgan Chase Financial – the new legal entity created in mid-2016 – and JP Morgan Chase would have the biggest market share at 21% if they were combined.
While UBS’s rating and name is therefore accepted without demur by US retail buyers, its yields are not as eye-catching as those offered by other note providers. “UBS stands out as a strong credit and committed issuer, but if buyers are looking for the highest yields then they will look elsewhere,” says Nelskyla.
However, a great many retail buyers in the US clearly do look to UBS to give them what they want. This is because the bank has made the service of retail buyers a priority, and has designed systems and products with only them in mind.