Autocallable Yielding 17% per annum on Tesla Motors by Barclays

Barclays has created a new structured note on Tesla motors. This note is interesting for two reasons. Last week we have noted how reverese convertible notes created on Tesla Motors by JP Morgan and RBC were different only by 75 basis points in coupon.

Firstly, Barclays also joined the bandwagon of issuers creating structured notes on TESLA motors. Secondly, they have increased the stakes by sweetening the deal with 17% coupon per year. Now they managed to increase this higher coupon by adding the auto callable feature.

Our quantitative metrics were based on historical data of last 4 years. Since this period relates to post financial crisis and stocks were rising from their rock bottom lows. This might not be sufficient to generate metrics. With that said, looking at metrics suggest this is a great investment with very little risk an investor can get.

Our risk score of 3 and probability of sure win is making this note very interesting for us.

Gatick advises investors to look for or create structures similar to this auto callable to make good return on their investment.

We are more than happy to go over the nuances of the underlying options and their risks.

Auto callable TESLA

Structured Note Issuance Summary - July week 4, 20014

During the week of July 1-25, 2014 structured note issuance has been 44.3 Bn across various issuers and asset classes. Most of the issuance (2.75 Bn) is driven by Equity Linked notes and 41.4 Bn of the issuance is driven by Interest linked products. There has been some activity in commodity linked issuance this week. For Details of the distribution refer to the chart below. Not surprisingly majority of the structured note issuance is linked to Interest rate linked by few issuers.

This week, structured notes were issued with variety of flavors and interesting themes. Majority of this issuance comprised of Interest Rate related notes Read on for more details.

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You can click individual asset classes to see how the underlying issuance has happened within each asset type by underlying and Issuer.

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Underlying analysis

On the Equity linked notes front there has been strong activity. Notes have been created on variety of underlyings. Index related issuance has been significant. This week issuance included notes created on the indices ( S&P 500, Stoxx 50, Russell 2000) and single names ( Face Book, Amazon,Pulte Group, Apple, Yahoo and so on). There has been significant activity around basket linked notes. Looks there is high appetite from institutional investors to conduct their portfolio balancing process.

This week has been a slow week with most of the issuances taking place on Tuesday. There are a few interesting notes. The DAX Index was used as the underlying for three of them. Deutsche Bank issued a note on Delta Air Lines, Inc for total notional $11.9 million. One of the bigger notional was issued by J.P Morgan at $148 million on the J.P. Morgan Enhanced Beta Select Backwardation Alternative Benchmark Total Return Index. Another interesting note is by Barclays on the International Paper Company as a Synthetic Convertible Note at a notional of $41.7 million. Finally UBS used a different variation of their usual notes by issuing Phoenix AutoCallable Notes for six different companies at $500,000 each.

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Interest rate linked issuance limited to standard, step up callable notes and Fixed rate notes. Activity has been subdued this week.Citigroup, RBC and few other major issuers of these products.

This week we have seen commodity note issuance tied to Commodity Baskets and Crude Oil by Morgan Stanley..

Size of the note types will tell us an indication of what type structures are popular among the investors and where money is flowing. Below chart shows this theme

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Popular notes have been interest rate linked notes. Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights. This week UBS, MS, GS and Barclays captured issuance market share.

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Market penetration is driven by the issuer depth in each of the asset classes. Every issuer has presence in Equity linked issuance. Goldman is only issuer to produce Currency related issuance. Morgan Stanley and JPM are active players in the Hybrid related issuance.

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Reverse Convertibles on TESLA by Royal Bank of Canada and JP Morgan

Reverse convertible notes are mostly criticized by variety market participants for causing huge losses to investors. Despite that fact, we see there is insatiable demand for these notes. This kind of demand is not only prevalent among investors but there is race among issuers to create these notes for their investors.

Myself and my associate Karthik Sharma have looked at reverse convertibles created by JP Morgan and Royal Bank of Canada to their investors on TESLA Motors.

For these two notes, Structured note investment analyzer are provided for details around the Investment theme, Investment metrics,Investment performance and finally around Investment commentary.

Few observations came out from comparing two notes.

1. Notes are created with similar terms of maturity with slightly better coupon by Royal bank of Canada (RBC)
2. JP Morgan note has higher commissions compared to RBC note. I think this commission matters only on the day of note creation. When you look at a note value along with commission it will be equal to your initial investment. For an investor this commission should not be a big factor to make decision.
3. RBC Note provided higher coupon (75 bps ) than JP Morgan note. This suggests RBC has sweetened the deal to attract investors to this note.

Overall I think investors should be indifferent to issuers for these reverse convertibles when these notes are provided on similar terms.

Post financial crisis, people are focusing CDS spreads to evaluate the credit worthiness of the issuer. For a 3M note, RBC or JP Morgan CDS spread will be a technical point rather than a game changer. 

Investors first need to understand the investment theme. In this case, what kind of growth potential in Tesla stock vs structured note. 

Tesla Motors, Inc. (TSLA) stock had been performing well over the last few months. The stock rose from $149.56 to $224.54 by July 24th, 2014 increasing almost 50% since January. This is due to variety of new strategic developments that have resulted in the stock price growth. Notable news the open sourcing of its patents and the introduction of the CUV known as Model X and a smaller sedan known as the Model III. This stock might pull back temporarily but has good potential for appreciation. This would suggest stock has high probability to move with in a narrow range.

Next, Investment metrics need to be looked for making a determination whether the investment theme makes any sense. After analyzing investment metrics, review the note performance in historical and future stress scenario context. Combining all these 3 elements one should look at investment recommendation.

I think note from RBC offers a better deal compared to the Note from JP Morgan.

Reverse Convertible on Tesla by JPM by chandkhand2

Reverse Convertible Tesla RBC by chandkhand2

Structured Investment analyzer - Autocallable note on SP500 from Credit Suisse

Today we have analyzed an autocallable note from Credit suisse. This note looks very interesting because it provides investor with higher coupon compared to other investment alternatives like treasuries but with reasonable risk. As we all know SP 500 has been trending upwards after the great financial crisis. This can be attributed to FED's Quantitative easing program, good economic recovery and lower unemployment. Investing in the index is a good way to gain exposure to this market. Major issue is we do not know a priori when to exit the market. I think structured note with its predetermined pay off profile will let investor decide how much return he would like to make on the investment and also corresponding loss on the investment. This way one can design a note and then check its performance historically and also verify how it might behave in future using market simulations. We have done these tests to the note designed by the Credit suisse. We think Note has done well with 3y maturity but Karthik (from Gatick Global solutions) is arguing that this note would be better if the maturity is either 2y or 4y to reduce the down performance outcomes. I kind of like this argument as it is based on the rise of the market and followed by a recession and recovery theme. Also, I think due to its low volatility ( 11.5%) and low risk score for some investors this is a good investment. Investors and Advisers should make use of this structure of this kind of note for different underlyings. contact us for any advise on understanding the risks for this kind of note.

SP500 Auto Callable Note by chandkhand2

Structured Note issuance summary July 1-3 week, 2014

During the week of July 1-18, 2014 structured note issuance has been 41 Bn across various issuers and asset classes. Most of the issuance (2.2 Bn) is driven by Equity Linked notes and 38.1 Bn of the issuance is driven by Interest linked products. There has been some activity in commodity linked issuance this week. For Details of the distribution refer to the chart below. Not surprisingly majority of the structured note issuance is linked to Interest rate linked by few issuers.

This week, structured notes were issued with variety of flavors and interesting themes. Majority of this issuance comprised of Interest Rate related notes Read on for more details.

Learn About Tableau

You can click individual asset classes to see how the underlying issuance has happened within each asset type by underlying and Issuer.

Learn About Tableau

Underlying analysis

On the Equity linked notes front there has been strong activity. Notes have been created on variety of underlyings. Index related issuance has been significant. This week issuance included notes created on the indices ( S&P 500, Stoxx 50, Russell 2000) and single names ( Face Book, Amazon,Pulte Group, Apple, Yahoo and so on). There has been significant activity around basket linked notes. Looks there is high appetite from institutional investors to conduct their portfolio balancing process.

This week has been a slow week with most of the issuances taking place on Tuesday. There are a few interesting notes. The DAX Index was used as the underlying for three of them. Deutsche Bank issued a note on Delta Air Lines, Inc fortotal notional $11.9 million. One of the bigger notional was issued by J.P Morgan at $148 million on the J.P. Morgan Enhanced Beta Select Backwardation Alternative Benchmark Total Return Index. Another interesting note is by Barclays on the International Paper Company as a Synthetic Convertible Note at a notional of $41.7 million. Finally UBS used a different variation of their usual notes by issuing Phoenix AutoCallable Notes for six different companies at $500,000 each.

Learn About Tableau

Interest rate linked issuance limited to standard, step up callable notes and Fixed rate notes. Activity has been subdued this week.Citigroup, RBC and AMERICAN HONDA FINANCE CORP are major issuers of these products.

This week we have seen commodity note issuance tied to Commodity Baskets and Crude Oil by Morgan Stanley..

Size of the note types will tell us an indication of what type structures are popular among the investors and where money is flowing. Below chart shows this theme

Learn About Tableau

Popular notes have been interest rate linked notes. Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights. This week UBS, MS, GS and Barclays captured issuance market share.

Learn About Tableau

Market penetration is driven by the issuer depth in each of the asset classes. Every issuer has presence in Equity linked issuance. Goldman is only issuer to produce Currency related issuance. Morgan Stanley and JPM are active players in the Hybrid related issuance.

Learn About Tableau

Learn About Tableau

Learn About Tableau

Learn About Tableau

BRICS bank will it live upto itsexpecations?

India Financial Markets -- BRICS Bank – will it deliver as intended? We think not.
Narendra Modi in his Fortaleza speech in Brazil has delivered a strong message against terrorism and collaboration among BRIC countries.
He started of his speech with “I come from a land where the idea of the 'whole world being one family' is rooted in our ethos -Vasudhaiva Kutumbakam. “ in a very friendly manner. This statement makes me feel like he borrowed a point from Swami Vivekananda’s speech at Chicago’s World religious conference in 1893. From here he delved on his views of various geopolitical events including conflict in Syria, Iraq and Israel-Palestine. Now, looking a bit detail what is on the minds of BRICS leader when they have decided to start the BRICS bank (see full summary). They wanted a fund to help each other during the time of economic crisis. This fund will have China as majority stakeholder. This brings to the point in a world with IMF and World Bank do we need another regional group. I am in favor of having likeminded groups for prosperity. Do BRICS share similar economic and political trajectories in global setting? I do not think so. BRICS – [ Brazil – Russia – India – China – South Africa]. BRICS is an acronym coined by Goldman Sachs banker to group together growing emerging market countries. From then on financial markets looking for a narrative for market changes has borrowed this theme heavily on analyzing their investment thesis. How similar are these entities apart from being termed as big and developing countries when the name BRIC coined. Democratic form of ruling is at the core for (Brazil, India and South Africa) and diametrically opposite philosophy of autocracy prevails in (China and Russia). This kind of fundamental difference in ideology will become main hindrance at the time crisis to arrive at consensus based solutions.
China has clearly signaled to the world that it has to be taken seriously in the global scenario. Its policy of aggression with its neighbors in south china sea, cyber security issues with United states. China is net creditor to developed countries. It is ambitions are replace United States at the top of global power order and accordingly projecting its power when west is retreating. Like China, Russia under the Putin’s stewardship is living as bulwark for bullying neighboring countries. Russia hold keys to natural gas supply to the Europe and therefore it is able to take a confrontation position with west. Now other members, Brazil, India and South Africa each with their democracy framework, domestic financial issues (inflation, fiscal deficits) and corruption it higher places. BRICS group so different in everything except rising economies can be everything but a cohesive group.

Currency Note from Barclays on emerging market currency basket

Barclays has issued a note on emerging market currencies relative to Euro. Gatick Global as analyzed this note and thinks that this note is a medium risk note and investors who likes to gain exposure to emerging market currencies with little risk and unlimited upside potential.

Structured Note on Emerging Market currency basket

Structured Investment Analyzer

Gatick global solution is proud to announce our new product - Structured Investment Analyzer today. Our mission is to bring transparency and increase awareness and understanding of these structured note markets. To accomplish this task myself and my friend Karthik Misra have created research report that can be used as a tool to understand various aspects of structured note analysis like

1) Investment theme: A brief description of the investment outlining the terms of the note by describing how investors are going to be rewarded is provided. After this,clear analysis of investment opportunity is mentioned with analysis of the note underlying stock or index performance combined with option markets implied volatility analysis
2) Investment Metrics: In this section, a set of quantitative metrics, expected return, volatility, Risk Score, probability of making profit on the note are estimated using historical data and creating a Risk - Return dash board.
3) Investment Performance: In this section, note is analyzed to see if this note would have fared in historical setting and in future (stress test) scenarios. This will result in thorough understanding of what can and might happen to the structured note
4) Investment recommendation: Finally, In this section, some pros and cons of the note are discussed along with a investment score card and investment opinion by Gatick global solutions.

This kind of analysis will help Financial advisers who want to understand the product risk reward relationships and explore the possibility of employing the structured note for their clients and improve their returns and indirectly grow their businesses.

Reverse Convertible -Gatick

Swap Data Repository - Cleared Swaps and Implications

In the wake of financial crisis of 2008, we have seen huge amount of regulation to restrain Derivatives trading. Dodd Frank act started taking aim at every aspect of trading that might lead to another crisis. As a part of this act, Dealers are now required to report every OTC (over the counter) trades to Trade repositories at DTCC and Bloomberg.
This kind of real time reporting has broad implication to the financial market participants. Some of the technology firms have started taking aim at this kind of data and started organizing them. Notably, Data solution from Gatick Global provides real time market intelligence and trends.
For instance regulators or consulting teams can view the market share by product in major currencies (USD, EUR, GBP and JPY)

This will tell them which product is trading more on the market and how much volume is outstanding.
Next if you want to see if market players are trading bilaterally or on the Swap exchange facilities, once can look at the chart pertaining to

Most importantly, if you want to know what trade has been done at what maturity and what level it got cleared just try this link
http://derivdata.gatick.com/transaction-data-visualizations/usd-swaps/
This will give you a view of the market flow which is key to any trading activity.
Now you can say, alright, I know product trends, that which product has larger share and product clearing levels that is which product is trading at what price. You can look at the real time market Yield curves, volatility surfaces that are just available to only few players. Gatick Global provides market data generated from Transaction prices.
http://derivdata.gatick.com/usd-yield-curve/

So think of a situation when, you have access to real time, transaction prices, underlying yield curves and volume trends at your press of enter key. all You have to worry then is to use this see clearly which direction market is trending.
with best regards
chandra