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Product Know-how
Express certificates
At the time they’re issued, classical “express” certificates normally have a maximum term to maturity of something between 3 and 6 years. For each year, a predetermined “observation day” is set. If on the observation day the price of the underlying instrument is at or above a specified threshold level, the certificate is redeemed prematurely. This means that you’ll receive an early payback of your investment with a total return that generally lies in the area of 5 to 8 percent on an annualized basis.
If on the other hand the underlying instrument is trading below the threshold level on the observation day, the certificate will continue to run until the next observation day. If the threshold level is never breached on any observation day during the certificate’s term to maturity, you’ll normally receive repayment of the issuance price, provided the underlying instrument hasn’t fallen below a stipulated safety threshold. Were the latter to be the case, you’d incur a loss at maturity.
Classical express certificates are best suited to investors who are looking for the market to trade sideways or slightly higher.
Example of an express certificate
| Remainung term to maturity : | 4 years |
| Underlying : | SMI Index |
| Strike price: | Varying |
| Safety threshold: | 4500 |
| Current index level: | 5500 |
| Issuance price of certificate: | CHF 100.00 |
| Strike price | Repayment amount | |
| After year 1 | 5500 | CHF 106.00 |
| After year 2 | 5400 | CHF 112.00 |
| After year 3 | 5300 | CHF 118.00 |
| After year 4 | 5200 | CHF 124.00 |
This express certificate is an example of a product with an annually declining strike price. After the first year, it will be determined on the observation day whether the SMI lies above or below the initial strike price of 5500. If so, the certificate will be redeemed prematurely and investors will receive a repayment of CHF 106. Otherwise, the certificate will continue to run until the next observation day, at which investors would now receive CHF 112 if the SMI is at or above the new strike price of 5400.
If the index is not at or above the given strike price on any of the observation days, you’ll be repaid the original issuance price upon maturity, provided the index never violated the 4500 safety threshold at any time during the certificate’s term. If it in fact has, you’ll receive a cash payment corresponding to the price development of the SMI and thereby suffer a loss.
