A Guide to Retail Structured Products 2024

Finally, Step-down contracts: these involve the maturity trigger level decreasing over time. Often the first trigger level for a step-down is set above the initial index level and gradually reduced thereafter. This reduction may not follow a linear pattern but ultimately reaches a level significantly lower than the initial index level at the final observation date. With potential for positive maturity being greater for step-downs than hurdle contracts, the difference in advertised coupon will be reflected by this. Investors would receive original capital only if all maturity trigger points were missed and on the final observation date, the closing index level was above the barrier. If any of the above contracts missed all the early maturity trigger points and the underlying closed below the capital protection barrier on the final observation date, capital will be lost, normally on a one for one basis. Some providers also offer the risk/reward conundrum in a different way, often by introducing a second reference asset such as the S&P 500 or Euro Stoxx 50 index. Here the return will be referenced to the poorer performing index of the two; relative to an investment referencing one index only, this introduces greater risk of a return event not occurring and therefore you should look to be compensated for taking on this additional risk via a greater potential return.

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