Synth City: how synthetic dividends could save autocallables

New indexes promise higher coupons and lower dealer hedging costs

digitally generated city
Speeding into synthetics: dealers applaud the pricing and hedging benefits of synthetic dividends

Having once been the jewel in the structured products crown, banks' retail autocallable businesses have had a rough ride in the past year as tumbling Asian and European indexes have put the brakes on reinvestment into the products. One dealer estimates volumes are down by a fifth and those that are investing are receiving depressingly low coupons.

But dealers are fighting back by tweaking one troublesome pricing input – forward dividends – leading to savings that can be passed on to end-clients

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