Desjardins Group, the top distributor in Canada, has come up with an original product that not only gives you 100% participation in an equity basket but also allows the initial strike to be lowered to 90% of initial strike in case the basket reaches -10% compared to its start level.

This unique payoff for the market-linked guaranteed investment certificate (GIC), a local deposit wrapper, is the first of his kind in Canada.

The five-year Opportunity Guaranteed Investment - Reset Trigger - Feb17 is a fully protected growth product linked to a basket of 20 shares which will pay 100% participation on the rise in the basket, subject to a maximum capital return of 115% or 120%, if you invest up to $249,999 or $250,000 or more respectively.

Behind the product, there is a standard capped call (100-115 for example) payoff type with a crash barrier at 90%. If the barrier is reached, the 100%-115% capped call is knocked out and replaced by a 90%-105% capped call. "The challenge was to determine the best level for the barrier," said Samuel Vaillancourt, senior advisor at Desjardins.

Compared with the standard call spread, this reset trigger costs 120bp, equivalent to 24bp per annum. "The client appreciates it because this product offers an insurance in the case that the market goes down," said Vaillancourt. "If the market continues to go up, the client will receive the same payoff than a regular product, minimising the probability that the client ends up with a 0% return."

The basket underlying with 20 stocks offered a diversified basket, with 10 different sectors, from 20% in financial companies to 5% weight on utilities companies. In terms of countries, the underlyings are mainly based in United States and Canada with 35% and 30% weight respectively, with the remaining being companies based in Europe and Canada. Year to date, Desjardins issued 89 products with more than 87% being linked to share baskets.

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