Commonly asked questions
The holder of the security will be exposed to the credit risk of the issuer and this security is ranked as Senior Unsecured debt of the issuer.
Typically, orders should be submitted around 3pm on the launch date, ahead of the UK market close. Trade details are confirmed to the buyer’s contact (dealer), who is asked to confirm his intention to the issuer. The trade is then executed with confirmation from issuer to dealer. Atlantic House manages this process. Typically, settlement in the Primary Market is T+10.
The period between execution and settlement is known as the “grey market” during which there is usually no constraint on upsizing notional. Usually, a day or two before settlement the bank will fix the final issue size, which will include some inventory for sale in the Secondary Market. It may also be possible to issue further tranches of shares, subject to demand.
These securities are not to be traded on an organised exchange. The issuer will use reasonable efforts to quote a price in all market conditions; this has proven to be the case historically. The Bid Price at any time is not determined by the requirement to find a buyer but, rather by a range of market inputs that determine the value of the security’s components. These might include, but are not limited to, interest rates, credit spreads, index performance, dividends and volatility.
No, Atlantic House simply acts in the capacity of introducing broker. Your only financial exposure is to the security issuer.
The securities are dynamic, in that they may change throughout their life. It is imperative therefore, that investors understand their Mark-to-Market exposure, to ensure ongoing suitability within portfolios. Atlantic House provides full support in this area.
These securities have a variety of portfolio applications. Generally speaking, they should be allocated to wherever the risk lies. For example, an equity index linked security with risk determined by the FTSE100, should be allocated to UK Equity. It is imperative that investors understand the likely behaviour of this security in a range of market conditions, to ensure continued suitability. Atlantic House provides full support in this area.
CAPITAL AT RISK
Defensive Autocalls
What is a defensive autocall and how would you explain it to a client?
Credit risk
The holder of the investments will be exposed to the credit risk of the issuer. A decline in the issuers credit quality is likely to reduce the market value of the product and therefore the price an investor may receive for the product if they sell it in the market.
Market risk
Capital repayment depends on the performance of the underlying; the future performance of which cannot be guaranteed.
Liquidity risk
The investments will not be traded on an organised exchange. The issuer will use reasonable efforts to quote prices in all market conditions.
Exit risk
The secondary market price of the investments will depend on many factors including, but not limited to, the value and volatility of the underlying index, interest rates, dividend rates, time remaining to maturity and the creditworthiness of the Issuer. Prior to maturity, the price may be less than the amount the holder would have received on maturity of the investment.
Tax risk
The tax treatment of structured products can be complex and tax rates and regulations may change during the term of this investment. Guidance is given here, but if in any doubt investors should seek their own professional tax advice.
Time horizon
Whilst an investor might be happy with the capital erosion prospects at maturity, the reference index/indices may fall throughout the life of the security and the security might fall by more than you would expect.
Important information
This is a marketing communication and has not been prepared in accordance with legal requirements designed to promote independence of investment research and is not subject to any prohibition of dealing ahead of the dissemination of investment research. The information in this document is derived from sources believed to be reliable but which have not been independently verified. Any prices included within this communication are for indicative purposes only. Atlantic House Group Limited makes no guarantee of its accuracy and completeness and is not responsible for errors of transmission of factual or analytical data, nor is it liable for damages arising out of any person’s reliance upon this information. All charts and graphs are from publicly available sources or proprietary data. The opinions in this document constitute the present judgment of Atlantic House Group Limited, which is subject to change without notice. This document is neither an offer to sell, purchase or subscribe for any investment nor a solicitation of such an offer. This document is intended for the use of institutional, eligible counterparties and professional clients and is not intended for the use of private customers. This document is not intended for distribution in the United States of America or to US persons. This document is intended to be distributed in its entirety. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Atlantic House Group Limited is a private limited company registered in England and Wales, Registered Office: One Eleven Edmund Street, Birmingham, B3 2HJ. Registration Number: 09770730, Atlantic House Group Limited is authorised and regulated by the Financial Conduct Authority, FCA Reference: 719605.
What is a defensive autocall?
A defensive autocall is a type of structured investment. Autocalls offer the potential of a fixed capital return if the indices to which they are linked are at or above their starting level on given dates. They can also be configured to pay an income. The level the index needs to reach before a return is made typically falls over the life of the autocall. This means a defensive autocall could provide a positive return in a falling market. Whether an autocall redeems on any anniversary of the start date depends on the underlying chosen index being above specified levels on each anniversary, as illustrated.
The features of a defensive autocall
Example:
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The autocall costs the investor 100p on day 1
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The maximum term of the autocall is 6 years
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The potential simple annual return is 7.25%
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Payoff barrier levels reduce 5% each year
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Capital is protected at maturity up to 40% fall in the index
The flow chart illustrates the different possible outcomes for the investment. It shows that this structured investment has a maximum possible life of 6 years, but that it can redeem early on any anniversary of the start date. Whether or not it does depends on the Index being above specified levels on each anniversary, as illustrated.
For example, it shows if:
One year after the start date the Index is above its initial level the structured investment redeems and pays the investor:
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7.25p return
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100p of initial investment
Equalling a total of 107.25p.
Put another way, if after year 1 the Index has risen at all, the investor receives an 7.25% return.
You can follow the flow chart to see all the different possible outcomes and the corresponding minimum Index level required to generate that outcome.
The Index can fall up to 25% from its initial level and will still pay the investor an uncompounded return of 7.25% per annum.
If the Index falls by more than 25% but less than 40% of its initial level, the investor receives initial investment of 100p only.
However, if the Index falls more than 40% from the initial level by the final observation date, the investor will lose 1p of capital for every 1% the index has fallen from its initial level, unless the structured investment has already redeemed early.
