HSBC has begun offering a structured notes programme in the US that allows investors to choose among structured notes with the same underlying but with varying terms such as tenor, return caps and downside buffers. The structured notes appear together on the same free-writing prospectus as well as on the final pricing sheets, both of which have been filed with the US Securities & Exchange Commission (SEC).
HSBC has confirmed to SRP that this new programme, dubbed SelectInvest, was launched last month, with all 22 structured notes that were offered striking on January 27. Additionally, nearly two dozen more structured note paired selections, shown among just four prospectuses, will be offered by HSBC this month, with these being added on the SRP US database shortly.
“The SelectInvest program was launched in January 2014. It’s a series of notes which provide this exposure for investors in a single offering document that is intended to make it easier for investors to select the equity market and protection that fits their investment profile,” an HSBC spokeswoman said in a statement released to SRP in response to our inquiry. “Growth products with buffer protection remain popular for US clients. We believe we will continue to see demand for these types of products going forward,” she added.
As an example, sister structured notes each linked to a basket consisting of identical proportions of two indexes (the S&P 500 and the Russell 2000) and two exchange-traded funds (the iShares EAFE ETF and iShares MSCI Emerging Markets ETF) were offered last month, one with a one-year tenor, a maximum return of 7.6% and a downside first protection barrier of 10%, the other with a three-year tenor, a 29.0% maximum return and a 15% downside barrier. According to the HSBC filing, the one-year note sold $227,000 while the three-year version of the note sold $223,000.
It is not yet clear whether HSBC investors are favouring longer-term notes with higher barriers and return caps, or the stingier sibling note with shorter tenors, lesser downside barriers and lower performance caps.
While structured note providers can and do offer similar investments using the exact same underlying but different variations on the specific terms, offering such notes side-by-side and within a single registration document is very unusual.