Synth City: how synthetic dividends could save autocallables

New indexes promise higher coupons and lower dealer hedging costs, but some market participants worry they are not all they seem

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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