Structured Products

To improve the development of domestic structured products and protect the interests of domestic investors, TPEx established “Structured Products” in December, 2008, disclosing information of structured products issued by domestic Securities Firms and Leverage Transaction Merchants with a number of more than ten people. The mainly functions are as follows:

• Provide investors to quickly look up the basic information, prospectus, the latest reference market value and the reporting entities’ information of structured products.
• Establish objective risk rating system of structured products.

Information Resources and Contents

The information reported by Securities Firms and Leverage Transaction Merchants on this page includes:

1. Basic information of structured products: ISIN code, product names, product types, underlying categories, underlying assets, currency, issued date and maturity date, etc.
2. Prospectus: An official document specifies detailed information including basic product information, calculation of compensation and product risks, etc.
3. The latest reference market value: The reporting entities calculate and provide the reference market values daily to the expiration or early maturity of the products based on the market conditions on reference day and the product models.
4. The entities’ basic information: The reporting entities maintain their credit ratings, telephone numbers and websites of structured products, etc.

Risk Evaluation System

TPEx authorized academic institutions to research the risk rating system of structured products, through objective empirical analysis, to identify the main factors affecting the risk of structured products, and product risk grading modules to configure the risk level of each product.

The research steps for product risk are as follows:

• Step 1: Choose current structured products and calculate Value at Risk (VaR) of each product.
• Step 2: Take risk factors such as principal guaranteed or not, interest guaranteed or not, characteristics of underlying asset, complexity of the product, maturity, etc. as the independent variables, and take the VaR as the dependent variable to proceed regression analysis as a result of establishing the function of risk factors and VaR. Factors）
• Step 3: Use the regression established by Step 2 and calculate the estimated VaR based on the conditions of each structured product.
• Step 4: Classify the estimated VaR to five categories.
• Step 5: Calculate the simulated VaR by outside samples to test and verify the regression model developed before.

Risk Evaluation Factors

The main factors affecting the level of risk of structured products based on research are as follows:

1. Underlying categories: Type of underlying assets, including interest rate, exchange rate, equity security, commodity, credit or others.
2. Product types: According to principal guaranteed at maturity or not, classify products to three categories, including 100% principal guaranteed, 80% principal guaranteed and otherwise.
3. Currency: Product pricing currency such as TWD, USD, AUD and HKD, etc.
4. Product maturity: The period from the date of product issued to the expiration date of the product.

Risk Level

Product risk is divided to five levels from low to high, as follows:

Risk Rating	Product Risk
Level 1	the lowest
Level 2	second low
Level 3	medium
Level 4	second high
Level 5	the highest

What is the issuing risk level?

Based on the product risk grading factors at the time of issue, the risk levels assigned by the product risk grading module are recognized as the risks at the time of issue.

What is the current risk level?

Based on the current product risk grading factors, and taking into account the latest reference market value of the product, and then through the risk level configured by the product risk grading module, it is the current risk level of the product.