A wave of interest in protected equity loans has hit the Aussie market in recent weeks in the run up to fiscal year end. "We're seeing good participation," said Luke Randell, managing director in trading and derivatives at Citigroup in Sydney, explaining that given the loan interest and a portion of the premium are tax deductible, retail orders rushed in prior to the end of June, when the fiscal year closed. "We typically do about 70% of our volumes in June," said Stephen Richards, head of equity trading and risk at the Commonwealth Bank of Australia in Sydney.
The loans, usually with a two-to-three year maturity, contain an over-the-counter equity put to limit the downside. Funds from the loan are used to purchase equity shares, either in single-stock format or in a basket of names. Sizes range from around AUD1 million (USD690,000).
