Exane is offering Italian investors the option to earn income in the form of a drop-back coupon certificate which has 50% allocation in cash and 50% in the FTSE MIB index. The certificate was first launched in July but can be traded on the secondary market via Milan's EuroTLX exchange.

The product intends to offer periodic income without giving up the equity market exposure, both upside and downside, according to Antonio Cecere (pictured), private banking sales at Exane Derivatives. "Moreover, the 50-50% allocation with a single trigger event allows to keep the structure simple and easier to understand," said Cecere.

The certificate accrues interest equal to 7% per annum multiplied by the actual allocation in cash, however, if on any quarterly observation date, the index trades below 90% of its initial level, a further 50% is invested in the underlying at the closing level and in that case no interest matures.

At the start of the investment 50% of the nominal is invested in cash with the remaining 50% tracking the FTSE MIB. The cash portion pays a quarterly coupon, accrued daily, "feeding investors' hunt for yield", according to Cecere. "In case of market correction, the exposure to FTSE MIB may increase to 100%, allowing the investors to be exposed to equity at a lower entry point," Cecere said.

"After years of phenomenal gains, it's pretty obvious the global stock market rally is overdue for a credit-cycle downturn," said Cecere noting that, as US rates are on the rise and a monetary accommodation retreat is expected from the European Central Bank (ECB) and the Bank of Japan (BOJ), "medium term, this is likely to lead to market turmoil, a rise in volatility and tail risk". "That is why we think it is a good environment to invest in [Drop-Back Certificate], which enables investors to increase exposure to equity markets over time."

Exane has already structured the same products for institutional clients but these products "differentiate by underlying, coupon frequency and allocation evolution over time". "At the moment, we are not planning further diversification," said Cecere.

Exane Derivatives has 172 live structured products listed on the SRP Italy database. The vast majority of these are linked to equities, including 86 products linked to a basket of shares and 57 products linked to a single share; eight products are linked to FX Rates; four to funds; and two to commodities.

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