Structured Notes - key risks and features
Any investment in the Notes is subject to a number of risks. Prior to investing in the Notes, prospective investors should carefully consider the risk factors associated with any investment in the Notes. Some of the principal risks are outlined below. The value of the Notes may fluctuate and income or growth is not guaranteed. Your investment may not increase in value, and you may lose some or all of your investment. Historical performance of the Underlying(s) or any component of the Underlying(s) is not predictive of future results.
Key risks and features
- The secondary market – Notes may have no established trading market when issued, and one may never develop. Accordingly, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions, commissions paid by the Issuer or the Dealer and the financial condition of the Issuer. Accordingly, investors may not be able to sell their Notes prior to maturity.
- Credit ratings may not reflect all risks - One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to structure, market, the additional factors discussed above or other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. Accordingly, an investor may suffer losses if the credit rating assigned to any Notes does not reflect the true creditworthiness of such Notes.
- Unsecured Notes - Investors investing in unsecured Notes are advised to carefully evaluate the Issuer's credit risk when considering an investment in such Notes. If the Issuer became unable to pay amounts owed to the investor under the unsecured Notes, such investor does not have recourse to the underlying or any other security/collateral and, in a worst-case scenario, investors may not receive any payments under the Notes.
- Volatility of the underlying(s) - If the size or frequency of market fluctuations in the level, price or value (as applicable) of the Underlying (or, in respect of Dual Underlying Linked Notes, one or both of the Underlyings) increases or decreases, the value of the Notes may be affected. Where an Underlying is an index, the volatility of such index will affect the value of the Notes. Accordingly, the value of and return on the Notes may be less predictable than the return on a product which is unaffected by market fluctuations.
- Notes may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. This is particularly the case for the Notes as these are designed for specific investment objectives or strategies or have been structured to meet the investment requirements of limited categories of investors. These types of Notes generally would have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have a severely adverse effect on the market value of Notes.
Foreign Exchange Risk
- Currency fluctuations - Currency fluctuations may affect the level, price or value (as applicable) of the Underlying(s) in complex ways. If the level, price or value (as applicable) of the Underlying (or, in respect of Dual Underlying Linked Notes, one or both of the Underlyings) is denominated in a currency that is different from the currency of the Notes, investors in the Notes may be subject to increased foreign exchange risk. If such currency fluctuations cause the level, price or value (as applicable) of the Underlying to decrease, the value of the Notes may fall. Accordingly, an investor in the Notes may suffer a greater loss on his/her investment than an investor in a product which is linked to an underlying that is denominated in the same currency.
- Foreign exchange rates are unpredictable and may be affected by complex political and economic factors, including relative rates of inflation, interest rate levels, the balance of payments between countries, the extent of any governmental surplus or deficit and the monetary, fiscal and/or trade policies pursued by the governments of the relevant currencies. Previous foreign exchange rates are not necessarily indicative of future foreign exchange rates. Accordingly, investors may be unable to predict and adequately hedge against the risk posed by currency fluctuations, causing an investment in the Notes to result in an overall loss to the investor.
- Concentration Risk is not applicable to Structured Notes.
- The Issuer and/or its affiliates may also purchase and sell the Underlying(s), components of the Underlying(s) and/or debt obligations of the Reference Entities on a regular basis as part of their securities businesses. Any of these activities could potentially affect the level, price or value (as applicable) of the Underlying(s) and the debt obligations of such Reference Entities (as applicable) and, accordingly, the value of the Notes.
- Derivative markets are typically transparent, however certain products may have lower levels of transparency due to varying levels of regulatory requirements.
- Margin Risk is not applicable to Structured Notes.
- Contingent Liabilities are not applicable to Structured Notes.
- Early exit fees are not applicable to Structured Notes.
- Leverage is not applicable to this product.
Interest Rate Risk
- The value of the Notes may, in addition to being affected by the level, price or value (as applicable) of the Underlying(s), be indirectly affected by changes in interest rates. Depending on the Underlying(s) and the formula for calculating the redemption price of the Notes, changes in interest rates may increase or decrease the value of the Notes (but not necessarily in the same or proportionate amount). Accordingly, investors in the Notes may suffer a loss on their investment or forgo substantial returns as a result of interest rate fluctuations. Therefore, an investment in the Notes may entail greater risks than an investment in a product where the return is only affected by the value of an underlying.
Additional risks associated with this instrument
- The Structured Notes Base Prospectus outlines additional risk factors associated with this type of investment.