Romanian brokerage firm Broker Cluj-Napoca will launch two new capital guaranteed structured products linked to the evolution of the shares of German automaker Volkswagen and American card issuer Visa in the beginning of July, said Grigore Chis, general manager of Broker Cluj.

The structured product on Volkswagen shares will protect 99 percent of the invested capital, which means that the investors stand to lose no more than 1 percent of the money they invest in this instrument. The gains will be correlated to the evolution of the company’s shares. The more Volswagen shares will grow the higher the return for investors in this instrument.

However, the gains for this instrument will not be as high as the gains in the shares, as there’s a complex formula behind it and the instrument “sacrifices” some of the gain to get the capital protection, according to a presentation made by Chis during the first Individual Investors’ Forum organized by the Bucharest Stock Exchange in the Black Sea resort of Neptun, on June 28-29.

“I would have liked Broker Cluj to be able to issue such certificates on Romanian stocks or local indexes, such as BET and BET-FI. Unfortunately we can’t,” Chis said, raising a question to the Bucharest Stock Exchange CEO about when it will be possible to have such complex instruments in the future for local shares as well.

Sobolewski answered that at this stage of development for the local capital market, simple instruments are needed that help finance the economy, before adding such complex structured products.

“Structured products are not a priority. Equities and corporate bonds should come first, for they are the basic instruments through which the capital market can help the development of the private sector and entrepreneurship,” Sobolewski said.

Grigore Chis believes that the capital market also needs leveraged instruments, futures products and securities lending and short selling in order to help investors hedge their investments on the Bucharest Stock Exchange and to increase the liquidity on the market.

“No matter how many companies come to the market, liquidity will be decreasing, because local pension funds and international institutional investors buy and hold. Back in 2007, a large volume of trading on the market was generated by arbitrage between the futures market and the spot market on the SIFs (Romanian listed investment companies – e.n.),” Chis added.

But, until such structured products will be issued on Romanian shares and indexes, local investors have an increasing range of such products on foreign shares, indexes, but also on commodities such as gold and oil, which are already trading on the Bucharest Stock Exchange. Broker Cluj, which is one of the largest local brokerage firms, joined last year the two largest Austrian banks, Erste and Raiffeisen, in offering such instruments to Romanian investors.

Andrei Chirileasa, andrei@romania-insider.com