Structured Notes Part 1: What are they and how it works

Without getting into the technical details, the typical structured note sold in Asia is a financial asset (like a bond or stock) whereby the risk & return behaviour may mimic a bond when the product is performing well and conversely, it behaves like a stock when the product is performing poorly. Structured notes are commonly sold in banks in Asia, especially to service affluent and high net worth investors. In the retail or consumer banking space, it’s usually termed as “Structured Deposits.”

A structured note can be customisable in many different ways depending on the investor’s preference and risk profile. Think of it like a do-it-yourself pizza where you can put whatever components (called the underlying) you fancy. Depending on what your taste preference may be and who the pizza chef is, the pizza will be priced (the strike price or the coupon) differently.

The final payout of your structured product investment is dependent on the performance of some underlying instruments. Below is an illustrative example.

If you were to buy $10,000 worth of the following structured product:

Tenor: 3 months
Underlying: Stock ABC
Reference Price: Stock ABC $10
Strike Price: $8
Coupon: 12% p.a.

There’s a lot of jargon here, but this means at the end of 3 months:

Scenario 1: If ABC falls below the Strike Price of $8, you have to buy $10,000 worth of that stock at 8$ regardless of where the stock is trading at.

Scenario 2: If ABC closes above the Strike Price of $8, you will get your $10,000 back plus a coupon of 12% p.a. (resulting to 3% a Tenor of 3 months) of $10,000, totaling $10,300.


In this case, the risk here is in Scenario 1 where the stock falls way below $8. Generally, you should only buy this structured product if you have the following view:

  1. You take the view that stock ABC will not fall by more than $2 in 3 months.

  2. You fundamentally like the stocks and believe that they are potentially long term assets you want to hold on to. Such that, even if scenario 1 were to happen, it would not change your long term view on this product and are okay with a short term loss.

The details of a structured note can vary in its underlyings, terms and pricing levels. It is important that you know the details and risks of the product well, and the various scenarios that might play out. Structured notes are typically sold via financial advisors in banks, so be sure that your advisor is clear in explaining them to you.

If there’s one thing to know about structured products (or investments in general) is that there is no such thing as a free lunch. For every seemingly good “benefit” that you are receiving, know that there’s also an equal amount of risk you are taking at any particular given point of time.

At the end of the day, it’s never a question of whether this structured product is good or bad, but whether the risk/reward factors are aligned with you and your views.

In Part 2 of our Structured Note series, we’ll talk a little more about the risks associated with structured products and when might be a good time to have them in your portfolio.

Privé at International Fintech Forum

On November 27, Mr Charles Wong was invited as a guest speaker at International Fintech Forum. Organized by the Taiwan Academy of Banking and Finance (TABF), the forum is filled with members of financial technology and digital banking groups of the various financial holdings and banks.

The experts shared exciting contents on the latest developments of Artificial Intelligence in Banking sector. The rising trend of AI technology in the new era is driving changes in finance industry and it will continue to grow over the next few years.

As one of the leading organisations in smart financial literacy in Asia, our Co-Founder shared his insights on smart banking. Charles also discussed the future of design in FinTech, how our company provide an end-to-end solutions for banks and other financial institutions. 

Privé Technologies is ranked as the 14th fastest-growing company in Asia. 

- By Financial Times' FT 1000 APAC

Kaplan Day with David Lee As Guest Speaker

David Lee will be a guest speaker alongside other industry leaders from Michael Page, Social Stand Limited, CFA Institute & Blockchain Educators. David will be discussing on how to be prepared for drastic work changes with disruptive technologies in financial services. 

Seminar Synopsis –

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical Robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and/or automatically invest client assets.

During the seminar, David will talk about how robo-advisor potentially enhances investment performance when combined with artificial intelligence.

Topics to be covered –

  • The mathematical principles behind robo-advisors
  • Scope of service
  • The cost advantage
  • Bionic advisory
  • Why do we still need human relationship managers?

Date and Time – 
Sat 3 November 2018
4:00 PM – 6:00 PM (HKT TIME)

Location – 
G/F E-tech Centre, 402-406 Hennessy Road, Wanchai, Hong Kong

Come and register a spot to receive the best updates on industry trends today!