Q&A STRUCTURED PRODUCTS

  Stocks, Indices, Commodities, Baskets of Assets, etc.

  Access to the performance of the Underlying Asset. This access comes in various forms.

  A level of principal protection at maturity which also comes in various forms.

Enhanced Performance:

Receive a multiple of any positive performance of the Underlying at maturity

Partial / Conditional Capital Protection:

Downside Protection providing partial (less than 100%) or conditional capital protection at maturity

Capped Performance:

Potential returns are subject to a maximum amount.  This feature is usually paired with either Enhanced Performance or some amount of Capital Protection

No Capital Protection:

Certain Structured Products offer no capital protection at maturity.  100% of your investment is at risk.  

“Absolute Value” Performance:

An opportunity for positive returns at maturity, even if the performance of the Underlying is negative (down to a set level).

 A Principal Protected Note on the S&P 500® Index essentially replicates 2 components:

A Zero-Coupon Bond: A debt instrument sold at a discount from par (100%) and which pays par (100%) at maturity.

A Call Option on the S&P 500® Index: Paying some amount of any positive performance of the S&P 500® Index.

100% of initial Capital invested

Société Générale buys the Protection Component:

Calculate the Amount Available for Société Générale to purchase the Performance Component:

Société Générale buys the Performance Component: A Call Option on the S&P 500® Index

80% of the 5-Year Performance of the S&P 500® Index

Flexibility and a tailored approach to investing are the key advantages of Structured Products. These vehicles can enable investors:

To meet diverse individual goals and financial preferences.

To adapt their portfolio to specific market conditions.

Access to hard-to-reach Underlying Assets (e.g. indices and commodities): Gain or hedge exposure using specific asset classes that might not be accessible with traditional investment vehicles.

Access to different investment strategies

Gain greater diversification of existing portfolio exposure and positions

Potentially enhance an investor’s portfolio returns

Potentially improve an investor’s risk-reward profile

The diversification and yield enhancement features can be combined with an element of capital protection typically not available with direct investment in an underlying asset.

All Structured Products have the following features in common:

Defined Maturity and Underlyings

A Level of Capital Protection (ranging from 100% to 0%)

A Payoff Formula at Maturity

Full or partial capital protection

Exposure to the performance of a specific Underlying Asset

Regular coupon income

A Bearish Performance Component: provides for performance if the Underlying asset/market decreases in value

A Bullish Performance Component: provides for performance if the Underlying asset/market increases in value

Structures based on single stocks or baskets of stocks.

Ranging from Broad-based U.S. and international indices: S&P 500, Dow Jones Industrial Average, Nikkei 225, Dow Jones Euro STOXX…;

To specific indices: Featuring particular investment themes (commodities, industries etc.) or proprietary indices (developed using the quantitative capabilities of creators)

Energy, industrial metals, precious metals, agriculture, etc.

A more targeted approach than index investing. Selection of a specific combinations of multiple stocks, indices or commodities.

Combinations of different asset classes.

Access to hedge fund performance for qualified purchasers.

Analyze the current and expected market environment

Are current markets stable, bullish, bearish or uncertain?  Is it likely that they will continue in the same trend?

Select a Structured Product mechanism that is aligned with these views on the markets (bullish, bearish, moderately bullish, moderately bearish, stable, uncertain, neutral...)

Assess the variety of Structured Products available

Wealth preservation?

Minimum guaranteed return?

A chance for returns no matter what the market does?

Dedicated Relationship Managers

In charge of assessing investors’ unique needs and tailoring the full range of potential Structured Products solutions available

The Sales Team will coordinate with all of the other teams involved to ensure that the consideration for the client’s needs is paramount throughout the structuring process

 Responsible for building the Structured Product

Engineering will define all of the financial characteristics of the Structured Product, taking into account market conditions as well as the internal risk guidelines of the issuer

To design an optimal solution, Engineers must take into consideration important factors such as:

The results of financial and pricing analysis provided by the Traders (see following page);

Legal and regulatory considerations; and

Accounting and tax consideration

Methodology of prescribing levels of the performance and protection components of a structured product.

Trading teams analyze a variety of risk factors in order to price a structured product.

Traders will also run ‘stress tests’ on the structured product to determine both (i) the risk to the Structured Products House of issuing a particular product and (ii) the likelihood of the product to perform

Pricing is then provided to the Financial Engineers

Construction of a Representative Underlying

For Structured Products that have more than one Underlying Asset it is important to analyze the relationship between the Underlying Assets to ensure that the basket will have the potential for optimal performance.

Similarly, for Structured Products that aim to track the performance a particular asset universe, research is required to ensure that the assets selected are representative of that universe.

Providing secondary market liquidity (subject to certain terms and conditions, not guaranteed)

The Secondary Market team intends to provide a product valuation and liquidity for each product issued (in some cases as frequently as daily)

The price quoted by the Secondary Market team will take standard factors into account that include but are not limited to: Interest rates, Value and Volatility of the Underlying Asset(s), and Correlation between the Underlying Asset(s) and interest rates.

Management of a Structured Product after it is issued

Over the life of a Structured Product, the Trading Team will have 2 roles:

Managers:

Of the financial characteristics of the Structured Product

Of the hedging positions that issuers take to mitigate any exposure created by issuing the Structured Product

Calculation Agent:

Managing any adjustments that might be necessary. Adjustments and extraordinary events are precisely defined in advance in the legal documentation for the product.