Germany’s Derivatives Association Publishes Fairness Code

Germany’s derivatives association, the Deutscher Derivate Verband (DDV), has published a commentary on its newly-issued fairness code.

“The certificates industry is now at the leading edge in terms of the comprehensibility and transparency of its products,” said Hartmut Knüppel, DDV’s chief executive officer (CEO) and member of the board of directors. “With our new voluntary commitment we also wish to contribute to an appropriate and target-oriented regulation which offers private investors real added value.”

DDV members, who represent 95% of the certificates market in Germany adopted the key points of the new fairness code at their general meeting last week. A voluntary undertaking, it contains significantly stricter guidelines for structured securities than the previous derivatives code. This applies in particular to voluntary commitments with regards to costs and product transparency for investment certificates. 

“With the fairness code we also intend to send a strong signal with regard to the regulatory projects at European level and lead by example in Germany,” added Knüppel. The changes include an agreement that in future the issuer estimated value (IEV) should be shown as a percentage or in euro in the product information sheets of investment products. The difference between the IEV and the issue price of the product plus a front-end load, where applicable, should include all the costs of the product. These include inter alia the structuring costs, the expected hedging costs, the anticipated issuer margin and any sales commission.

“By showing the issuer estimated value we provide maximum cost transparency for private investors. In this we are the pioneers for all types of securities and financial products in Germany and other European countries,” said Christian Vollmuth, DDV’s managing director at DDV. “No other industry so far has subjected itself to such strict voluntary commitment as regards cost transparency.”

The certificates industry has agreed on a further improvement in product transparency. In future, where investment products with full capital protection are concerned which have a minimum and a maximum interest yield, the issuers are to state the respective probabilities in the product information sheet. “No other provider of capital-protected financial products has so far been willing to make this disclosure,” said Knüppel.

As part of the new code DDV members commit to design their structured securities fairly and to ensure that there is a balance between potential returns and risk. Members must also not promote any product features which only occur under very unlikely circumstances.

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