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Derivatives

ABN Launches Structured Notes

ABN AMRO has launched a series of structured notes in Australia, which are thought to be the first of their kind in the Aussie market, noted Aaron Stambulich, equity derivatives sales and trading in Sydney. "With reverse convertibles, there's always a guaranteed coupon. To enhance the yield, we've taken out the downside protection," said Stambulich.

Dubbed HYPA, the notes are aimed at high-net-worth individuals and can be structured on a number of underlying domestic equities. In the structure, the client is effectively selling an enhanced out-of-the money put, noted Stambulich. In a plain-vanilla put the option seller receives a premium regardless of whether the option ends in or out of the money. In the HPYA structure the premium the investor would have received if the option ended in the money is sacrificed for a greater coupon.

In the investment a price cap is set at 95%-100% of the current underlying share price. At maturity the investor receives a return of 10-15% a year if the stock price is greater or equal to the price cap. However, if the stock is trading below the price cap at maturity the investor receives the market value of the investment in either cash or shares. Typical sizes range from AUD100,000-AUD1 million (USD52,090-USD520,900).

"It beats similar versions of the product by an average of 250-300 basis points and fits neatly into Aussie taxation legislation," added Stambulich.

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