Structured Note Glossary

A structured note is an investment security that combines a debt obligation with one or more derivative components. Its return is generally linked to the performance of a specified reference asset such as an index, stock, ETF, commodity, currency, or basket of assets.

Structured notes can be designed to address different objectives, including income, growth, downside protection, or a combination of these features. Terms and risks vary significantly by note.

The underlier, also called the underlying or reference asset, is the asset whose performance is used to determine the return of a structured investment.

An underlier may be an equity index, individual stock, ETF, commodity, currency, interest rate, or another reference asset.

The duration or term is the period between issuance and the scheduled maturity of a structured note.

Terms can vary substantially depending on the product and may range from several months to multiple years.

A CUSIP is a unique alphanumeric identifier assigned to many financial securities in the United States and Canada.

It helps identify a specific security for trading, custody, clearance, settlement, and reporting purposes.

A certificate of deposit, or CD, is a bank deposit product that can also serve as the deposit component of certain structured investments.

The characteristics and protections of a structured CD can differ from those of a traditional CD and should be evaluated based on the specific offering terms.

A zero coupon bond does not make periodic interest payments. Instead, it is generally issued or purchased at a discount to its face value and redeemed at maturity according to its terms.

Zero coupon bonds may be used as one component in the construction of certain structured investments.

A fixed coupon is a stated payment made according to a defined schedule, such as monthly or quarterly, subject to the terms and credit risk of the issuing institution.

Unlike a contingent coupon, payment is not typically dependent on an underlier remaining above a specified coupon barrier.

A contingent coupon is paid only when a specified condition is met on an observation date.

For example, payment may depend on whether the applicable underlier is at or above a predetermined coupon barrier. If that condition is not satisfied, the coupon for that observation period may not be paid.

A memory coupon feature may allow previously missed contingent coupons to become payable at a later observation date if the required payment condition is subsequently satisfied.

Whether missed coupons are recovered depends on the specific terms of the note.

An inverse contingent coupon uses an inverse condition for determining whether a coupon is payable.

For example, payment may depend on an underlier being at or below a specified level on an observation date rather than remaining above a conventional coupon barrier.

An accelerator is a structured investment designed to provide enhanced participation in the positive performance of a reference asset.

For example, a note may provide participation greater than 100% in qualifying gains, subject to the note's specific terms, caps, protection features, and issuer credit risk.

An inverse accelerated return structure is designed so that its return may increase when the applicable reference asset declines, according to a predetermined inverse participation rate.

The potential return, downside exposure, caps, and other mechanics depend on the specific terms of the note.

The participation rate determines how much of an underlier's qualifying performance is reflected in a structured investment's return.

A participation rate above 100% may amplify qualifying gains, while a rate below 100% provides partial participation.

A dual directional structure may provide a positive return when an underlier rises and may also convert a limited amount of negative underlier performance into a positive return.

Participation levels, caps, protection thresholds, and downside exposure vary by product.

A barrier is a predetermined level used to determine whether downside protection remains applicable.

Depending on the product, if the applicable underlier finishes below the barrier at the relevant measurement date, the investor may become exposed to some or all of the underlier's decline.

A buffer is designed to absorb a predetermined portion of an underlier's decline.

If losses exceed the stated buffer, the investor is generally exposed to losses beyond that level according to the note's payoff formula.

A geared buffer provides a specified amount of initial downside protection, but losses beyond that buffer can occur at a rate greater than one-for-one.

The loss multiplier and protection level are established when the note is issued.

One Star is a feature that may be included in certain multi-asset structured investments.

Depending on the specific terms, the feature may allow principal repayment even when another underlier has breached its barrier, provided at least one designated underlier satisfies the required level.

A worst-of structure references multiple underliers and bases certain payoff calculations on the poorest-performing member of the group.

Using multiple reference assets may improve certain note terms but also introduces the risk that weakness in a single underlier can affect the outcome of the entire investment.

A Catapult Note combines characteristics of a snowball-style structure with an accelerated return structure.

It may initially offer an early redemption opportunity with a specified return. If the early redemption conditions are not met, the investment can transition into a directional participation structure through maturity.

A Snowball Note is a structured investment that may redeem early and pay a predefined return when specified market conditions are satisfied on an observation date.

If the early redemption conditions are not met, the note generally continues until a later observation date or maturity according to its terms.

A Digital Barrier Note provides a predefined return at maturity if specified conditions involving a reference asset and barrier level are satisfied.

Unlike an autocallable structure, a digital barrier note may have no interim call observations and instead determine its outcome at maturity.

The no call period is the initial portion of a callable structured investment's life during which the note cannot be redeemed through its call feature.

Call observations may begin after this period according to the offering terms.

PPN stands for Principal Protected Note. A PPN is designed to return a specified amount of principal when held to maturity, subject to the terms of the investment.

Phantom income generally refers to taxable income recognized even though the investor has not received a corresponding cash payment.

Certain structured investments may generate tax reporting related to original issue discount or other tax treatment during the life of the investment.