Multi Barrier Reverse Convertible Catches

Hi all,

In today’s newspaper I saw a full-page ad for this Callable Multi Barrier Reverse Convertible (and some similar ones), and I’m trying to understand a few things about it:

  • First, there has already been this good discussion of the general idea of BRC, and also this one. Most things are already explained there, thanks for the posters!
  • For this specific case, I’not sure what commissions or feeds Leonteq charges. Is this only a property of how the product is bought?
  • How can one buy this stuff? Will it become tradable e.g. with IB once it has been emitted, or does it need some special account at some Swiss bank? I’m not able to find these in IB.
  • How does Leonteq make money from this (financing their staff, the technical setup of this product and the newspaper ads)?

The context is that while I mostly hold VRWL/VWRA, I just have a hard time accepting that the current valuations aren’t something of a bubble. So I’m considering some other options for my new surplus money that might not expose me so much to a sideways-trending stockmarket for a couple of years.

The risks of the mentioned BRC seem to be: (1) when one of the underlying assets (gold or silver in this case) is below the barrier (69% of the current value) at the time of expiration (1.5 years from now), I would receive an ETF corresponding to the worse-performing asset (so <=69% of my investment) instead of 100% of my investment at that time; (2) the issuer Leonteq is going out of business. Looking back at 2008, 2011 or 2013, (1) would not be unheard of; (2) is of course also possible but probably somewhat lower risk.

I guess the term “Callable” means that Leonteq can cancel the deal at almost any time, paying me back 100% of the initial investment. That seems non-concerning to me.

Check the KID, it mentions those things (as well as the fact this is a very complex product…).

Usually they’d sell both side and pocket a fee (so they don’t take any risk). (That said there’s been cases where banks had a bug in their model, iirc some french banks in the Korean market where they consistently lost money)

That said, how often in the past 5-10 years would the barrier have been hit (looking at some graphs, I’d guess you have a fairly high probability of a loss, which makes sense given the 8% p.a.)

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