Disclosure Policies for the Issuer Estimated Value — Facts and Fiction
30 Pages Posted: 29 Jan 2019
Date Written: January 15, 2019
In 2014, the German Derivatives Association introduced the policy of disclosing an Issuer Estimated Value (IEV) for structured retail investment products. The IEV is supposed to reflect the fair value of the product. As an act of self-regulation, issuers intended this measure to meet criticism regarding their intransparent profit margins. We analyze the objectivity of the IEV for a large sample of discount certificates on the German major stock market index DAX. We find that margins based on issuerdisclosed IEVs are substantially lower than fair value margins. While deviations might be explained to some degree by a lack of precision in the definition of the IEV, most issuers seem to ignore their own bankruptcy risk in their IEV estimations.
Keywords: Regulatory disclosure, Bank margins, Cost transparency, Discount Certificates, Retail Banking
JEL Classification: G11, G21, G28
Suggested Citation: Suggested Citation