Structured Investment Market Colour
Indicative Factsheet - For Professional Intermediaries Only –4th February2014
Indicative 6 Year Pricing Grid – assuming AA- Issuer
REFERENCE POINTS (3rd February2014) / FTSE 100 / S&P 500 / Euro Stoxx 50
Strike / 6,465 / 1,741 / 2,963
60% / 3,879 / 1,044 / 1,777
125% / 8,081 / 2,176 / 3,703
  1. PARTICIPATION STRUCTURES(pricingas of15th January is given in brackets)

UNCAPPED PARTICPIATION – ‘Accelerators’ / FTSE 100 / S&P 500 / Euro Stoxx 50*
  • Uncapped upside gearing
  • Local currency
  • 6 year term
  • Soft protection at 60% at maturity
  • Averaging in the final year for the upside gearing
/ 235% (238%) / 168% (163%) / 193% (188%)
See note below
* These pricings are in local currency. Most investors choose to remove EUR GBP FX risk via ‘quanto’ accelerators. This ‘quanto’ pricing currently results in roughly a 20% pickup to accelerator headline rates on European indices. The most recent European accelerator that traded using this method is HSBC 602 MSCI Europe ex UK Accelerator (210%) EIS
CAPPED PARTICIPATION – ‘Boosters’ * / FTSE 100 / S&P 500 / Euro Stoxx 50
  • Participation from 85% starting level up to 125% of starting level
  • Local currency
  • 6 year term
  • Soft protection at 60% at maturity
  • All optionality European
/ 196% (202%) / 170% (164%) / 190% (179%)
* Structure named ‘Call Spreads’ when participation begins from 100% of starting level
CAPITAL PROTECTED UNCAPPED PARTICIPATION / FTSE 100 / S&P 500 / Euro Stoxx 50
  • Uncapped upside gearing
  • Local currency
  • 6 year term
  • Capital protected
  • All optionality European
/ 112%(119%) / 71% (75%) / 69% (75%)
CAPITAL PROTECTED CAPPED PARTICIPATION / FTSE 100 / S&P 500 / Euro Stoxx 50
  • Participation from 100% starting level up to 150% of starting level (‘Call Spread’)
  • Local currency
  • 6 year term
  • Capital protected
  • All optionality European
/ 141% (150%) / 93% (97%) / 94% (103%)
  1. AUTOCALLS (pricing as of15th January is given in brackets)
AUTOCALLABLES / FTSE 100 / FTSE 100 / S&P 500 / FTSE 100 / Euro Stoxx 50
  • Flat Barriers
  • (100 / 100 / 100 / 100 / 100 / 100)
  • Soft Protection at 60%
/ 8.35% (7.75%) / 10.65% (9.95%) / 13.00% (11.65%)
  • 5% Dropping Barriers
  • (100 / 95 / 90 / 85 / 80 / 75)
  • Soft Protection at 60%
/ 6.20% (5.70%) / 7.70% (7.05%) / 9.15% (8.15%)
  • Large Final Barrier Drop
  • (100 / 100 / 100 / 100 / 100 / 60)
  • Soft Protection at 60%
/ 6.05% (5.55%) / 7.75% (7.10%) / 8.70% (7.85%)
  1. INCOME and SYNTHETICS
The coupons in these structures can be rolled up and paid at maturity for CGT purposes.
GUARANTEED COUPON – ‘Reverse Convertibles’ / FTSE 100 / FTSE 100 / S&P 500 / FTSE 100 / Euro Stoxx 50
  • Guaranteed coupon, paid out annually
  • GBP denominated
  • 6 year term
  • Soft protection at 60% at maturity
/ 4.83% (4.62%) / 5.42% (5.45%) / 5.94% (5.48%)
  • Coupon rolled up to maturity
  • GBP denominated
  • 6 year term
  • Soft protection at 60% at maturity
/ 30.06% (29.94%) / 36.24% (35.28%) / 37.38% (35.52%)
COUPON AT RISK – ‘Digital’ / FTSE 100 / FTSE 100 / S&P 500 / FTSE 100 / Euro Stoxx 50
  • Coupon paid out annually if the underlying(s) are above 60% of starting level
  • GBP denominated
  • 6 year term
  • Soft protection at 60% at maturity
/ 5.41% (5.35%) / 6.41% (6.63%) / 6.70% (6.63%)
  • Coupon paid out at maturity if the underlying(s) are above 60% of starting level on the Final Day
  • GBP denominated
  • 6 year term
  • Soft protection at 60% at maturity
/ 38.23% (37.60%) / 46.75% (48.0%) / 49.56% (49.0%)
COUPON DAILY ACCRUED – ‘Daily Range Accruals’ / FTSE 100 / FTSE 100 / S&P 500 / FTSE 100 / Euro Stoxx 50
  • Coupon accrued daily for every day underlying(s) close between 60% and 130% of starting level
  • GBP denominated
  • 6 year term
  • Soft protection at 60% at maturity
/ 37.17% / 47.30% / 48.26%
Sensitivity Heat-map of Popular Structures[1]
Key:
Sensitivity to underlying, e.g. 1 = moves with market spot moves

FTSE 100 Accelerator: 235% Uncapped upside gearing / Soft Protection at 60%
SpotShift / FTSE / -35% / -30% / -25% / -20% / -15% / -10% / -5% / 0% / 5% / 10% / 15% / 20% / 25% / 30% / 35% / 40%
time (months) / 3 / 53p / 59p / 65p / 71p / 78p / 85p / 92p / 100p / 108p / 116p / 125p / 134p / 143p / 153p / 163p / 173p
6 / 54p / 60p / 66p / 72p / 79p / 86p / 93p / 101p / 108p / 117p / 126p / 135p / 144p / 154p / 164p / 175p
12 / 56p / 62p / 68p / 74p / 80p / 87p / 94p / 102p / 110p / 118p / 127p / 136p / 146p / 156p / 166p / 176p
36 / 64p / 70p / 76p / 81p / 87p / 93p / 99p / 107p / 115p / 123p / 132p / 142p / 152p / 162p / 172p / 183p
60 / 78p / 84p / 88p / 91p / 93p / 96p / 100p / 105p / 112p / 122p / 132p / 143p / 155p / 166p / 178p / 190p

AutocallFlat Barriers[2]: 8.35% Snowballing Coupon / Soft Protection at 60%
SpotShift / FTSE / -35% / -30% / -25% / -20% / -15% / -10% / -5% / 0% / 5% / 10% / 15% / 20% / 25% / 30% / 35% / 40%
time (months) / 3 / 64p / 71p / 78p / 84p / 89p / 95p / 97p / 100p / 101p / 104p / 104p / 105p / 106p / 106p / 106p / 106p
6 / 64p / 72p / 78p / 84p / 89p / 94p / 98p / 101p / 103p / 105p / 106p / 106p / 106p / 107p / 107p / 107p
9 / 65p / 73p / 80p / 86p / 91p / 96p / 99p / 102p / 105p / 107p / 108p / 108p / 108p / 108p / 108p / 108p
18 / 69p / 77p / 84p / 90p / 96p / 100p / 105p / 107p / 111p / 112p / 114p / 115p / 115p / 116p / 116p / 116p
30 / 74p / 82p / 90p / 97p / 103p / 108p / 112p / 115p / 117p / 118p / 119p / 120p / 122p / 122p / 122p / 123p
42 / 79p / 88p / 97p / 105p / 112p / 118p / 121p / 125p / 127p / 130p / 130p / 130p / 131p / 131p / 131p / 131p
54 / 85p / 95p / 105p / 113p / 119p / 125p / 134p / 136p / 137p / 138p / 138p / 139p / 139p / 139p / 139p / 139p
66 / 91p / 103p / 114p / 122p / 129p / 134p / 145p / 146p / 147p / 148p / 148p / 148p / 148p / 148p / 148p / 148p

Autocall: 5% Dropping Barriers: 6.20% Snowballing Coupon / Soft Protection at 60%
Spot Shift / FTSE / -35% / -30% / -25% / -20% / -15% / -10% / -5% / 0% / 5% / 10% / 15% / 20% / 25% / 30% / 35% / 40%
time (months) / 3 / 65p / 73p / 80p / 86p / 92p / 95p / 99p / 101p / 103p / 105p / 105p / 105p / 105p / 105p / 105p / 105p
6 / 65p / 73p / 80p / 86p / 92p / 96p / 99p / 102p / 104p / 105p / 105p / 105p / 105p / 105p / 105p / 106p
9 / 65p / 73p / 81p / 87p / 92p / 97p / 101p / 103p / 105p / 105p / 106p / 106p / 106p / 106p / 106p / 106p
18 / 66p / 74p / 82p / 89p / 95p / 100p / 104p / 107p / 109p / 110p / 110p / 111p / 111p / 111p / 111p / 111p
30 / 73p / 82p / 90p / 97p / 103p / 108p / 111p / 113p / 115p / 115p / 116p / 116p / 116p / 116p / 116p / 116p
42 / 79p / 88p / 97p / 104p / 110p / 116p / 119p / 120p / 121p / 122p / 122p / 123p / 123p / 123p / 123p / 123p
54 / 84p / 95p / 104p / 112p / 118p / 122p / 124p / 125p / 126p / 126p / 126p / 127p / 127p / 127p / 127p / 127p
66 / 91p / 103p / 113p / 120p / 125p / 130p / 134p / 135p / 136p / 136p / 136p / 136p / 136p / 136p / 136p / 136p

Appendix – Rates, Credit and Volatility
Current Yields of Different Asset Classes (Annual Yield%)
Putting autocall coupons returns in perspective with where base yields and high yields are.

Falling Yields and their impact on Structures
Sterling Interest Rates
Grinding lower, 10% autocall coupon equates to 15% in 2007 (ceteris paribus)

Source: Bloomberg
Credit
  • Clients continue to chase quality

Source: Bloomberg

* Royal Bank of Canada Equivalent taken from bond yield

Volatility in a bit more detail
In our regular market colour piece we always include the graph below.
  • The red line shows the 5 year “at-the-money Impliedvol”.
Why?: this is a good rough proxy measure to use when following volatility levels in relation to how many structures such as autocall price. Briefly, autocalls are ‘short’ volatility, meaning that one would expect an increase in the headline rate of an autocall when these volatility levels are higher.
  • The “knock-in put” premiums are plotted as well to show a bit more detail on the above point. The soft protection element of structures is made up of the premium gained by selling the “knock-in put”, again as a proxy we also show how this premium pickup changes over time. As expected it is highly correlated to the volatility level.

Source: Catley Lakeman, JP Morgan Derivatives and Delta One Strategy, Bloomberg
Knock-in Put prices prior to January 2011 are retrospectively priced using prevailing market data, including but not limited to interest rates, dividend yields and implied volatility curves.

Page | 1

Assumes credit, interest rate, and implied volatility curves remain unchanged.

Autocall (Flat and Defensive versions): Path of underlying assumed to have not caused a previous autocall event when calculating path dependency

Daily Range Accrual: Path of underlying assumed to be linear from strike when calculating path dependency

Please call through if you wish to discuss the methodology of this analysis.