UBS leads reverse convertible flurry in the US

UBS registered nine reverse convertibles with the SEC on February 22. All the reverse convertibles registered on that date are based on single stocks from well-known US companies. JP Morgan offered a bonus structure, while Goldman Sachs and RBC chipped in with unleveraged and leveraged return notes, respectively

UBS leads reverse convertible filings

Reverse convertibles, notably from UBS, formed the majority of the structured products filed with the US Securities and Exchange Commission on February 22, with single stocks from big company names by far the most common underlyings. JP Morgan was the sole bank underlying, with Halliburton and Freeport-McMoran both the underlyings for two of the new products.

Of the 15 products filed with the Securities and Exchange Commission, UBS was the issuer for nine, with the remainder coming from JP Morgan, Royal Bank of Canada (two products), Barclays Bank, Bank of Montreal and Goldman Sachs.

Aside from reverse convertibles, products included a one-year bonus structure from JP Morgan that is linked to the stock of General Electric and offers a minimum return of 5.25% plus principal, provided the final-level 80% barrier is not breached. Returns are equal to the rise in the stock price, but only if this finishes above 105.25% of the initial level. The deal is capped at 120% on the upside.

Another non-reverse convertible product was the 1.01-year leveraged return note from Royal Bank of Canada, which is linked to the S&P 500 and offers the potential for accelerated returns of two times the growth in the index. Returns are capped at 115.9% and principal is at risk if the final level of the index is lower than 95% of the initial strike level.

Goldman Sachs offered an 18-month note on the same underlying, but with an unleveraged return. The potential return is equal to the rise in the index up to a maximum of 21–24.5% in addition to the principal amount, making the maximum annual return equivalent to 13.55–15.73% (compounded). Principal is at risk if the final level of the index is lower than 85% of the strike level.


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