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Structured Products - Construction, Applications, Risks and Regulation

Duration: 3 days
  • Structured Notes and Bonds
  • Credit-Linked Structures
  • Equity-Linked Structures
  • Commodity and Currency Linked Structures
  • Advanced and Exotic Structures
  • Regulatory and Ethical Issues
The objective of this seminar is to give you a good understanding of “structured products”, how they are constructed and their uses for financing, investing and risk management purposes. For each product, we explain the product’s mechanics, uses and suitability for investors.

First, we introduce different types of “Structured Bonds and Notes” and review their risk and reward opportunities from both the investor’s perspective and that of the issuer. Examples include "Reverse Floaters", "Bear Notes", "Capital Market Floaters", “Capped Floaters” and "Fairway Bonds". We explain how these products are used to obtain leveraged investing, reduced financing costs, or to create “tailored” exposures to changes in the level or shape of the yield curve.

Next, we look at selected credit-linked structures such as credit-linked notes, leveraged credit linked notes and CDO’s. We explain how these instruments are used to “repackage” and transfer credit exposures and how they are used by investors to obtain “yield enhancement”.

Further, we look at structures with mixed interest rate/equity exposures. Examples include best of equity/interest rate and interest swaps triggered by equity level.

We then present and analyze a number of different equity-linked structures, including various examples of "Principal Protected" structures, "Guaranteed Bonds", "Reverse Convertibles" and many others.

Further, we examine some commodity and currency-linked structures. These include “Dual Currency Loans”, “Reverse Dual Currency Loans” and “Quanto” structures, where the currency risk has been hedged dynamically or using “Quanto Derivatives”.

We present and explain examples of exotic/path-dependent structures such as "Step-up Bonds", and bonds with knock-in/knock-out features etc.

Finally, we discuss some important regulatory issues in buying and selling structured products. Our main focus here will be the “Markets in Financial Instruments Directive” (MiFID) which implies a higher degree of investor protection.

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Structured Products and their Uses

  • What is a “Structured Product”?
  • Investor and Issuer Motives
  • Usefulness of Structured Products in Portfolio and Risk Management

Structured Notes and Bonds

  • Capped/Floored FRNs
    • Definitions and uses
    • Mechanics, pricing, risks and hedging
    • Case Study: Yield Enhancement with Capped Floaters
  • Leveraged-Capped Floater
  • Reverse Floaters
    • Mechanics, pricing and hedging
    • Case Study: Yield Enhancement with Reverse Floaters
  • Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Structured Notes and Bonds (cont’d)

  • Bear Notes
    • Mechanics, pricing, risks and hedging
    • Case Study: Profiting from rising yields with bear notes
  • CMS-Linked Notes
    • Definitions and uses
    • Mechanics, pricing, risks and hedging
    • Case Study: Duration neutral yield curve plays with CMS-linked notes
  • Range Floaters/”Fairway Bonds”
    • Definitions and uses
    • Mechanics, pricing, risks and hedging
    • Case Study: Profiting from sideways markets with range floaters
  • Small Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Structured Notes and Bonds (cont’d)

  • Callable Snowball Notes
    • Definitions and uses
    • Mechanics, pricing, risks, hedging
    • Example/Case Study
  • Targeted Redemption Notes
    • Definitions and uses
    • Construction, pricing, risks, hedging
    • Example/Case study
  • Credit-Linked Structures
    • Credit Linked Notes
    • Leveraged Credit Linked Notes
    • ABS, CDOs, and CBOs
    • Case Study: IDAN Notes
  • Interest Rate/Equity Hybrids
    • Interest Swaps Triggered by Equity Level
    • Equity-Linked Swaptions
  • Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Equity-Linked Structures

  • Overview of Equity-Linked Notes
  • Principal-Protected Equity Linked Notes
    • Case Study: Lehman’s “100% Guaranteed” Notes
  • Capped Principal-Protected Structures
  • Leveraged Upside Structures
  • Equity ‘Out-performance’ Bonds
  • Discount Certificates (BLOC)
  • Equity Reverse Convertibles (GOALs)
  • Kick-In GOALs
  • Super Coupon Growth Bond
  • Case Studies
  • Small Exercises

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Commodity and Currency Linked Structures

  • Commodity-Linked Notes
  • Case studies
    • Commodity-linked notes linked to the S&P GSCI® light energy
    • Buffered bullish commodity-linked notes
  • Currency-Linked structures
    • Dual currency structures
    • Quanto structures
  • USD Recovery Notes
  • Small Exercises

Some Advanced and Exotic Structures

  • Bull-Certificate with Knock-out
  • Stepped Indexation
  • Up-and-Out Indexation
  • Bonus Certificates

12.00 - 13.00 Lunch

13.00 - 16.30 Regulatory and Ethical Issues in Buying and Selling Structured Products

  • Complying with MiFID
    • Client classification
    • Marketing
    • Information about firm and services
    • Client agreements
    • Suitability and ”know your customer”
    • Appropriateness and execution-only services
    • Best execution
    • Client order handling
  • Ethics
    • Acting in the clients best interest

Evaluation and Termination of the Seminar