Autocallable securities are a type of reverse convertible. Autocallable securities have one or more call dates on which the structured product must be called by the issuer at a pre-specified premium if the reference asset’s value has crossed a pre-specified “trigger.” The call dates tend to be contract anniversaries and the premiums to face value paid when the security is called increase with successive call dates.
If the product is not called, the payoff at maturity exposes the investor to the reference asset’s risk of capital loss without offering any exposure to the reference asset’s capital appreciation. Some autocallable reverse convertibles’ payoffs at maturity depend on the reference asset’s value on the note’s final valuation date, while others depend on the reference asset’s lowest value during the note’s term.
The maturity payoffs to some autocallable reverse convertibles are not reduced below the face value by the full percentage decline in the reference asset’s value. The size of this buffer can vary significantly.
Table 1 lists a few of the autocallable reverse convertibles which have been sold under different brand names by various brokerage firms.
Autocallable Reverse Convertibles
|Brokerage Firm||Brand Name|
|Barclays||Annual AutoCallable Notes|
|Barclays||Semi-Annual AutoCallable Notes|
|Barclays||Quarterly AutoCallable Notes|
|Barclays||Autocallable Optimization Securities with Contingent Protection|
|JPMorgan||Autocallable Optimization Securities with Contingent Protection|
|UBS||Autocallable Optimization Securities with Contingent Protection|
|Morgan Stanley||Auto-Callable Securities|