Merrill Prepares China Capital Guaranteed Note

Merrill Lynch is gearing up to issue a capital guaranteed product in Hong Kong that employs look-back resetting cliquet options and plans to sell the structure through the Bank of China and its associate banks, along with Bank of America, Standard Chartered Bank as well as its own branches. John Robson, director of structured products in the global equity markets group in Hong Kong, said Merrill recently issued the first such structure in Hong Kong and plans to link this one, its second, to a basket of Chinese stocks. The note is expected to be issued in late November.

The structures, dubbed Titanium Trust, provides a 105% capital guarantee and allows the investor to lock-in up to a 4% return per quarter over the four-year life of the product. "This allows you to enjoy upside potential while you lock-in your gains every quarter," explained Robson. He noted that due to the complexity of the options involved, Merrill hedges the product with the underlying stock and simple over-the-counter options. "All complex options can be broken down into constituent parts," said Robson.