Structured Notes

Structured Notes

STRUCTURED NOTES 

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Structure note is an investment product (fixed rate, floating rate or zero coupon) combined with one or more options or forward linked to market prices or indices. A variety of contractual forms, depending largely on the nature of target investor (e g. nationality, regulatory and tax status) They are linked to almost every conceivable type of financial asset price and other variables, such as interest rate, equity prices, commodity price, etc.

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Issuer frequently enter into a swap to receive the cash flow on the note and pay a more straightforward floating interest rate, such as a spread relative to LIBOR. Often, swap counterparty is the dealer that arranges and distributes the notes (the arranger). Notes sold to distributor such as retail bank (aggregator) which repackage them into retail financial product. Investor can be high-net-worth individual, financial institution and retail investor.

DIAGRAM FLOW

RISKS 

Swap counterparty have an option to cancel the swap, leaving issuer exposed to market risk arising from the structure over the remainder of its life.

HEDGING STRATEGY  

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Trading of option exercisable on dates far in future. Trading of exotic option with term linked to those embedded in structured notes, such as constant-maturity swaptions, forward- starting option (eg. Equity index put option exercisable two years ahead with a strike price fixed at level of the index one year ahead. Buyer benefit from any rise without exposure to fall in year two). Trading of deeply out-the-money options. For example, trading US dollar/yen at strike 90 or lower.

Equity-linked notes with principal protection cash flow structure

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Investor purchase call option on an equity stock or equity index Value of option depends on PV forgone interest payment & the cost of option. PV option is greater the longer maturity of the note, higher bond yield and lower equity implied volatility.

PRODUCT FEATURES 

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Structured Notes pays a high potential coupon during the life of Notes. Coupons may be fixed or variable, depending on the performance of the underlying asset. The scheduled Maturity Date ranges from 1.5 to 10 years. Issuer has the right to redeem the Notes on scheduled dates prior to maturity. Mostly 100% principal protected if the Notes is held till the Maturity Date or called early by Issuer on Call Date. Coupon payment formula may vary but usually is based on capped rate, averaging or range accrual.

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Coupon Payment: Quarterly, Semi-Annually, Annually or at Maturity. Customer may redeem the Notes earlier by Submitting the request through bank on 15th and end of the month (twice/month)

2Y USD HSCEI Index Linked Notes Issue/Strike Date

20 November 2006

Final Valuation Date

30 November 2008 (the “Scheduled Final Valuation Date”) or if such day is not a Valuation Date, the next following Valuation Date

Maturity Date

The later of 22 December 2008, or 10 settlement Business Days after the Final Valuation Date.

Minimum Placement

USD 60,000

Redemption at maturity Denomination x Initial Level 97.5% x (Reference Fund per Note Value Final / Reference Fund Value Initial) Reference Fund Value Final means the Reference Fund Value for the Final Valuation Date; and Reference Fund Value Initial means the Reference Fund Value for the Strike Date. Underlying

Hang Seng China Enterprises Index (Bloomberg: HSCEI)