Credit Linked Notes launch on deritrade

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Credit Linked Notes new on deritrade – the first of its kind globally!

deritrade presents another chapter in the world of structured products, with the introduction of Credit Linked Notes (CLN). As fixed income markets around the world have developed, so has interest in CLNs. It has even become the dominant structured product for many institutional clients. The main reason lies in the return that the CLNs yield, thanks to higher interest rates and credit spreads of the specific reference entities. This results in excellent structured solutions for fixed income investors. It is a world first and no other issuer offers such a service in this form.

This gives our partners and clients the opportunity to invest in the creditworthiness of hundreds of reference entities – and that from an investment volume of CHF 20,000. In addition, the term, coupon frequency, denomination and currency can be individually adapted to the needs of the client. The lifecycle management of the products is also fully automated, which means that the client is actively informed about coupon payments and upcoming redemptions both on the platform and by e-mail.

This release aims at disrupting the current CLN market while providing industry leading service to our clients – by shortening the price discovery process, decreasing minimum issue size, and providing legal documentation (Termsheet & KID) instantly.



What is a CLN and how does it work?

A CLN falls into the asset class of credit derivatives and is therefore also referred to as a synthetic corporate bond, which makes the credit risk of a selected debtor "investable". A CLN is structured with a Credit Default Swap (CDS) referring to the reference entity and a Zero Coupon Bond issued by the Structured Product issuer. By investing in a CLN, the investor is short a CDS on the reference entity and long the issuer’s bond. As a result of this structure, a higher return can be achieved than with a direct investment in a bond of the reference company.

If no credit event occurs (as defined by ISDA), the investor will receive coupon payment(s) during the term of the product; the notional will be redeemed at maturity. On the other hand, if a credit event occurs, the CLN would be redeemed prematurely and the client would receive a liquidation amount as defined by ISDA1.

1 Liquidation amount = Redemption factor x Nominal Value – potential unwind costs



CLN on United States Government Bond

With the debt ceiling debate ongoing, the CDS for US 1Y bonds has seen a pickup providing a good opportunity for investors. A CLN with a tenor of 1 year, on the United States of America reference bond provides an attractive annual coupon of 5.60%.





CLN on Glencore

Another name with good pickup would be Glencore as it has been in the news for its potential takeover of Teck. With a tenor of 3 years, this CLN would offer an annual coupon of 5.10% p.a.