Structured products, by reverse enquiry
For Accredited Investors who come with their own view. You set the terms you want quoted. PhillipCapital, acting as broker, asks issuing banks to price them, and Isaac goes through the indicative term sheet with you by email.
For Accredited Investors, strictly by reverse enquiry. Isaac does not design, propose or promote a structured product. Everything on this page starts from your request.
How a reverse enquiry works
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Your view
You decide the product, the underlying shares, the tenure, the strike or the yield, and any knock-in or knock-out. You fix the strike or the yield, not both.
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Quotes
PhillipCapital acts as broker and asks issuing banks for indicative terms on your request. Term sheets and all communication go through formal email.
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Implement
You review the indicative term sheet and confirm by formal email acknowledgement. Derivative transactions need the Client Representation, Acknowledgement and Agreement Form signed. The note is held in your POEMS account (Phillip Custodian Account), which must be funded first, and any shares delivered at maturity go into the same account, as the contract specifies.
Risks to weigh first
- You can lose some or all of your money. These notes do not return your capital in all cases. If the share ends below the strike, you receive shares worth less than you invested. If it falls to zero, you lose the whole amount.
- The upside is capped. Your return is the coupon or the gap to face value, even if the share rises much further.
- Credit risk. You carry the credit risk of the issuing bank, and of any swap counterparty. Check the issuer's credit standing in the term sheet.
- Hard to exit early. There is usually a limited secondary market. Ending a note before maturity usually means a substantial loss.
- The issuer may redeem early. Some notes can be called by the issuer on set dates, and what you receive then can be less than you would have received at maturity.
- Worst-of baskets add risk. The outcome follows the weakest share, so a basket carries more risk than one share.
- Built with derivatives. The note contains options, so a small move in the share price can mean a larger change in the note's value.
- Read the term sheet. It sets out your rights and obligations, the fees built into the pricing, and the risks of that particular note. Ask your own tax adviser about any tax effect.
Questions
What is a reverse enquiry?
A reverse enquiry starts with you. You come to Isaac with your own view and the terms you want quoted: the product, the underlying shares, the tenure, and the strike or the yield. Isaac does not design a structured product or offer one to you. He passes your request to PhillipCapital, which acts as broker and asks issuing banks for indicative terms.
Who can make a structured product enquiry?
Accredited Investors, as defined under the Securities and Futures Act, who have opted in to be treated as one. PhillipCapital verifies Accredited Investor status before any transaction, and the product is held in your POEMS account (Phillip Custodian Account).
What is the difference between a Fixed Coupon Note and an Equity Linked Note?
A Fixed Coupon Note (FCN) is bought at its face value and pays a fixed coupon on each payment date, whatever the shares do. An Equity Linked Note (ELN) is bought below its face value, usually for a shorter tenure, and pays no coupon: the difference between what you pay and the face value is your return if the share stays at or above the strike. For both, if the share ends below the strike, you receive shares at the strike price instead of cash.
What happens if the share ends below the strike price?
If the share price observed on the observation date set in the contract is below the strike, you receive shares at the strike price instead of your cash back, delivered into your POEMS account as the contract specifies. Their market value is then below what you invested, and if the share falls to zero you lose the whole amount. With a basket, the shares delivered are those of the weakest performer.