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Structured products - FAQ
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Guidelines on informing investors about structured products / SBA Frequently
Asked Questions (FAQ) / 31 July 2007
With these
frequently asked questions (FAQ), the Swiss Bankers Association (SBA) intends to provide practical information
on the "technical" terms in its guidelines on informing investors about structured products.
The FAQ provides general interpretations that a bank must review for applicability to specific products.
These interpretations do not prejudice the decision-making competence of the courts and supervisory
authorities. The SBA assumes no warranty for the completeness of this information. The content of the
FAQ may be changed at any time without giving prior notice. The SBA is not liable for any direct or
indirect damages that may arise from access to or use of this FAQ. The use of this FAQ is limited to
persons or entities domiciled in Switzerland.
I.
Content of the duty to provide information (para. 5 of the Guidelines)
1.
"Brief description of the type of product" (para. 5, section b 1): We assume that a
product can be described in brief using the Swiss Association for Structured Products' classification
system (e.g. "certificate", "reverse convertible" or "capital-protection product").
Alternatively, it is possible to provide a brief written description of the product (e.g. certificate:
"linear participation in profits and losses of the underlying relative to the price of the underlying
on the date of issue").
2. "Total
amount and minimum investment" (para. 5 section b 4): The "total amount" refers
to the issue volume (either expressed as a monetary amount or in units/certificates) and the "minimum
investment" refers to the minimum unit/denomination (primary market).
3.
"Trading volume" (para. 5 section c 1): Trading volume refers to the minimum trading
lot, i.e. the minimum denomination or minimum number of units of structured products/certificates that
can be traded on the secondary market.
4.
"Rights attached to the security" (para. 5 section c 2): The rights attached to the
security, depending upon the product, can be very complicated (e.g. with respect to adjustment methods
etc.). A complete enumeration of these rights would therefore contradict the desired conciseness and
intelligibility of the simplified prospectus. It should therefore suffice to provide a summary description
of the main points of the rights attached to the security in the simplified prospectus. If such information
is dealt with elsewhere in the simplified prospectus (e.g. under "Redemption conditions"),
it does not have to be repeated. Thus, this section only includes additional rights, such as payments,
interest payments etc.
For details, a reference can be made, in some
cases, to specific product terms and conditions.
5.
"Seniority/subordination" (para. 5 section c 3): The structure of repayment methods
must be described in brief (e.g. indicate whether certificate A is paid out before certificate B).
6.
"Exercise details/exercise style" (para. 5 section c 4): For example, American style
or European style (i.e. whether the call or put option can be exercised without limit during the term).
7.
"Restriction on transferability, tradability and trading details" (para. 5 section c
10): In our opinion, the "brief note on liquidity" only refers to a possible secondary market
and any liquidity, which may be limited.
8.
Redemption details with brief explanation of how redemption is calculated, particularly the "description
of the various scenarios, including earnings prospects etc." (para. 5 section c 11): It should
be acceptable, in our opinion, to choose between options (i) and (ii) to calculate the redemption value:
(i)
use the applicable formula with a brief explanation (with a note indicating that a detailed explanation,
including sample calculations, is available)
(ii) describe the redemption value in words
(with a note that the mathematically correct formula is available)
9.
"Reference to tax treatment in Switzerland" (para. 5 section c 13): General notes on
tax treatment in Switzerland (income tax, withholding tax and stamp duty) should, in our opinion, suffice.
For definitive tax information in a specific case, the investor should be made aware of his/her duty
of due diligence and referred to his/her tax advisor.
10.
"Description of the underlying value or values or how they are calculated" (para. 5
section e 1): Indices, for example, are underlying values for which such a calculation can be made.
The rules for calculating indices, however, are very technical and complicated (see, for example, the
index rules for the SMI). In this respect reference to the corresponding index calculation guidelines
should, in our opinion, suffice.
11. Unforeseen
change in the conditions (para. 5 section f): There is no duty to update the prospectus and para.
5 section f thus does not prescribe prospectus updates.
However, the
simplified prospectus must indicate the website where changes in the conditions of the structured product,
such as changes in the underlying instrument (par value repayments, stock splits etc.), that were not
foreseen at issue are detailed.
If an investor in the secondary market
is given, upon request, a written prospectus, he/she must likewise be made aware of any such changes
and given a printout or excerpt from the website.
12.
Information on a website (para. 5 section f): In certain cases, for example with Special Purpose
Vehicles (SPVs), the prescribed information can be published on a website that does not necessarily
have to be the issuer's website. The phrase "Reference on a website…"
should be understood in this sense.
II.
Further questions
1.
"Further information" (para. 6): If a complete issue prospectus is to be prepared in
addition to the simplified prospectus, we think it should be acceptable to refer, for further conditions,
to the complete prospectus.
2. Form of
publication (para. 8): In accordance with para. 8 of the Guidelines, the standard form of publication
is electronic publication on the Internet. This is the most efficient form of publication in all senses
(including cost and time, as well as the clients' need for discretion) for all involved. In addition,
the simplified prospectus will be offered or provided (hard copy), upon request, free of charge.
3.
Reference, in the simplified prospectus, to a source for obtaining the information (para. 8.1):
In case of a multi-jurisdictional offer (including Switzerland) from abroad via the Internet, the option
to download the prospectus from the Internet should generally suffice. If the product is issued by a
foreign institution and it is not listed on the SWX, the branch is also required to offer the simplified
prospectus or to provide the investor with a copy of it upon request, in accordance with Art. 4 para.
1 section b) CIO.
Please
note: the Guidelines on informing investors about structured products must be fully implemented. The
notes in the simplified prospectus must correspond to the type and content of the structured product.
This also applies to sequence of information given, which does not have to follow the order given in
the guidelines.
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