Swiss Alpha Strategy Certificates

Transcription

1 Swiss Alpha Strategy Certificates Harvesting option premium Nomura NOVEMBER 2006

2 Nomura and its platform Altrus Nomura The Nomura Group is a global financial services firm dedicated to providing a broad range of financial services for individual, institutional, corporate and government clients. Founded in 1925 in Osaka, Japan, Nomura has over 15,000 employees across a global network of offices in 29 countries. The Group s business activities include investment consultation and brokerage services for retail investors in Japan, and, on a global basis, brokerage services, securities underwriting, investment banking advisory services, merchant banking and asset management. For further information about Nomura, please visit our website at Altrus The Equity and Fund Derivatives team at Nomura is dedicated to providing clients with tailored investment solutions. The Altrus platform combines the efficient, structured solutions of the derivatives markets with the high level of before, during and after-sales service that usually is associated with asset management. Products are presented under the Altrus brand to highlight the strong standard of bespoke development and service that goes into each offering. Altrus products are hallmarked by innovative underlyings and made-tomeasure structures that can be distributed in a variety of formats such as notes, certificates, warrants and funds. For further information about Nomura s Equity and Fund Derivatives team and the Swiss Alpha Strategy Certificates, please visit our website at

3 Optimise your portfolio with Swiss Alpha Strategy Certificates Harvest option premium with a market-neutral strategy The Swiss Alpha Strategy Certificates (Certificates) offer investors the opportunity to invest in an innovative and successful investment strategy, the results of which do not depend on specific financial market developments. The Swiss Alpha Strategy has achieved continuously positive returns over the past four years. Two investment approaches contribute to the success of the Swiss Alpha Strategy. The first approach is to collect option premium from short selling options with as little risk as possible. At least 80 percent of the investment volume follows this strategy. In the second approach, a maximum of 20 percent is invested in a trend-based Managed Futures Strategy. A particular feature of this approach is that all positions are closed out at the end of each trading day, therefore ruling out the overnight risk from price changes that may occur after the market closes. Improve your risk /return ratio The Swiss Alpha Strategy Certificates are an innovative instrument for portfolio diversification that provide investors with: High yield prospects with relatively low volatility Low correlation to bond and equity markets The possibility of reducing overall portfolio risk A strictly rule-based investment approach Stringent risk controls 1

4 Achieve Alpha with derivative strategies The Swiss Alpha Strategy The Swiss Alpha Strategy Certificates allow you to participate in the Swiss Alpha Strategy. These Certificates aim to generate returns via a sophisticated and unusual investment method. To do this they follow two widely different angles of approach. 1. The Arrow Option Strategy The Arrow Option Strategy aims to collect yields safely and independently of the market. Option premium is collected from selling options which are market-neutral and almost risk-free. By simultaneously offering a put and a call on the same underlying, the risk premium is collected twice and the combination of puts and calls keep the position marketneutral. The risk is also reduced because the remaining time to maturity is always extremely short and the options are out of the money. 1 (see p. 3 for details) 2. Managed futures In highly volatile market phases, additional yields are collected with a trend-based Managed Futures Strategy in which intraday trend developments are exploited through long and short positions. Overnight risk is avoided by closing out all positions at the end of the trading day. (see p. 3 for details) Essential characteristics of the Swiss Alpha Strategy: 36.83% average annual return since 2003 Average volatility of approx. 10% p.a. Profit potential in rising and falling markets Long and short positions possible Exploitation of intra-day trends Strict, rule-based investment process Stringent risk management Capital preservation in volatile market phases Very short option maturities Active hedging The goal of both approaches is to earn good double-digit returns with low volatility in any market situation by applying purely quantitative and computer-supported trading models. Swiss Alpha GmbH It takes expertise in option trading and experienced fund management to implement innovative option strategies. The Swiss Alpha Strategy is implemented via by the Alpha Strategies Fund (the Fund) of Swiss Alpha GmbH. Swiss Alpha GmbH is an independent asset manager domiciled in Zurich and Munich. The management company specialises in developing and managing derivative investment strategies and has more than twelve years experience in derivatives trading. As at 1 November 2006, the company managed circa 80 million Euros. Stefan Gerstner is an experienced and successful fund manager. Mr Gerstner acted as Market Maker for index options at Eurex after working as a trader and hedge fund manager in options and futures. Fund Manager Christian Niedermeier manages and supervises the investment strategies and is responsible for implementing the investment process. As a former portfolio manager, he has many years of experience with exchange-traded options. Risk Controller Andreas Bösch monitors the investment process and adherence to the investment strategy on location. He has 32 years experience in trading futures and options. 2

5 The Swiss Alpha Strategy in detail At least 80 percent of the Fund s volume is invested in the trend-independent, mathematical option trading model. A maximum of 20 percent of the volume is invested in the trend-based, quantitative managed futures model. In the event of high intra-day volatility and significant market trends, the allocation to managed futures is increased and the allocation to the Arrows Option Strategy reduced. Arrow Option Strategy (AOS) What is an option? An option is a contract that gives the seller also called the writer the obligation (the buyer the right) to buy or sell the underlying at the strike price in the event the option is exercised before or at its expiry date. There are two types of option: call and put. With a call, the writer is obliged to sell the underlying if the option is exercised. A put obligates the writer to buy the underlying if the option is exercised. Why is an option premium paid? The option premium is the price the seller receives for providing the option. The premium amount depends on price expectations and the length of time for which the option is granted. The Arrow Option Strategy aims to collect option premium with as little risk as possible. This is achieved by selling call and put options. The exercise prices are set so that the option premium can be collected without entering into a substantial market risk. The written options have short terms to expiry and are invariably out of the money when the position is opened. However, if the options run into the money this can cause losses in the option portfolio. This risk is minimised by applying a capital preservation system overnight based on futures. 2 Market status Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Market development of the underlying Strike Call-Option Strike Put-Option Market development = t The key is to always invest simultaneously in call and put options with different exercise prices. In this way, the market-neutral position is enlarged and a double option premium is simultaneously achieved. Short Call Short Put Short Call + Short Put Managed Futures The coloured area represents the collected option premium and shows how a double option premium is earned by combining a call with a put option. The two turning points represent the particular strike price from which point a market risk exists. The Managed Futures model profits from short-term but significant market trends and can therefore earn additional yields particularly in volatile markets. This is done by projecting trends and speculating on the market direction during the day. Current limits valid for the day are determined and positioned in the form of futures. These positions are closed out again at the latest by the closing auction on the same trading day so that no managed futures are held overnight. The buy and sell decisions are subject to a detailed, quantitative trend analysis. 3

6 Underlyings In both strategies, the underlyings for options and futures are leading indices such as the Euro Stoxx 50, S&P 500 and DAX. This ensures that there is always sufficient liquidity for each option/ future. Characteristics of the Swiss Alpha Strategy (January 2003 October 2006) Annualised yield 36.83% Volatility p.a. ca. 10% Sharpe ratio 2.67 Highest monthly loss 5.13% Percentage of positive months 85% Correlation vs. Euro Stoxx Correlation vs. REXP Risk management It is not only recent market developments which have shown that hedge funds are only successful if they apply their investment strategy with discipline. Accordingly, with the Alpha Strategies Fund, great emphasis is placed on daily risk management. All investment processes are strictly controlled and monitored on location by an independent risk management unit. A limit on the number of positions further enhances transparency. There are clear rules on the customer side too: One single investor may not hold more than 20 percent of the Fund s assets so exercising influence over the portfolio management is categorically ruled out. Swiss Alpha s risk management also pursues active hedging with an independent Managed Futures model. Futures contracts on the Euro Stoxx 50 are traded during the day and futures on the S&P 500 at night. Net asset value (EUR) Swiss Alpha Strategy performance 0 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04 Jan 05 May 05 Sep 05 Jan 06 May 06 Sep 06 Date Source: Swiss Alpha GmbH, November The performance statements are calculated in EUR. The performance shown until October 2006 is based on the performance of managed accounts run by the traders of Swiss Alpha since January 2003 i.e. the returns shown until October 2006 were not achieved within the Alpha Strategies Fund, which was launched in October The value of the Certificates can fall as well as rise and it is possible that investors receive less back than the amount they invested. 4

7 Analysis of the Swiss Alpha Strategy (SAS) performance Monthly yields of the Swiss Alpha Strategy (%) Monthly yields (%) SAS vs. Euro Stoxx 50 Feb 03 Jun 03 Oct 03 Feb 04 Jun 04 Oct 04 Feb 05 Jun 05 Oct 05 Euro Stoxx 50 Swiss Alpha Strategy Feb 06 Jun 06 Oct January February March April May June July August September October November December Annual yield Date SAS vs REXP Distribution of the monthly yields REXP Swiss Alpha Strategy Monthly yields (%) Frequency Apr 03 Oct 03 Apr 04 Oct 04 Date Apr 05 Oct 05 Apr 06 Oct Yield Source: Swiss Alpha GmbH, November The performance statements are calculated in EUR. The performance shown until October 2006 is based on the performance of managed accounts run by the traders of Swiss Alpha since January 2003 i.e. the returns shown until October 2006 were not achieved within the Alpha Strategies Fund, which was launched in October

8 Risks The value of investments, such as this security, and any income that may be paid from it, can go down as well as up and as such you may not get back the amount you initially invested. In some circumstances you may not receive any amount back from this investment. The Nomura Group of companies (Nomura) is not providing you with any advice regarding this security, or acting in any form of fiduciary capacity. Therefore you should only decide to purchase this security after careful consideration together with your legal, tax, accounting, financial and other advisers. Certain risks that may apply to this security are summarised below, any number of these risks could apply at once which could increase their effect on the value of the security. More information on these risks is available in the full legal documentation of this security which will typically consist of an offering circular and a pricing supplement. There will be a section of this documentation marked Risk Factors that you should pay special attention to and make sure you understand before purchasing the securities. If you do not already have such documentation you can request a copy from the distributor you are considering purchasing the securities from, or from Nomura International plc. There may be other risks and other considerations not listed below that you also need to consider before investing in these securities. You should also bear in mind that holding this security is not equivalent to owning any of the reference asset(s) to which it may be linked. Nomura is a financial services group and as such members of the group may from time to time perform investment banking or other services, or may have a position or act as market maker, for or in connection with the securities or related investments mentioned herein. In addition, Nomura may possess or acquire material information which may affect the value of these securities which it will not be able to disclose to you for reasons of client confidentiality or otherwise. All of these activities may therefore cause or lead to potential conflicts of interest with Nomura's role in these securities.. Neither the Issuer nor Nomura have performed or will perform on your behalf any investigation or review of the reference asset(s) this security is linked to. You should understand the reference asset(s) in detail before deciding whether to invest in this security therefore you may wish to perform such investigation yourself or arrange for your advisors to do so for you. Any information presented to investors in connection with this security is based only on publicly available information concerning the reference asset(s) and not for example on any investigation Nomura may have performed on its own behalf. The reference asset(s) may be subject to change during the life of the security for example to respond to corporate actions or market disruption events that may occur. An investment in securities does not give rise to any rights of ownership or other interests in any assets comprising the reference asset. These certificates are instruments which have a similar level of market risk to a direct investment in the reference asset to which they are linked. They are not capital protected, therefore you could lose your entire investment if the reference asset falls to zero. Unlike a direct investment, the Certificates have a fixed maturity date when they will automatically be redeemed. Prior to this date the only way to sell the Certificates will be to a market maker at their bid price. It is likely that Nomura International plc will be the only market maker and Nomura International plc makes no assurance that any bid price will be indicated or if a price is indicated at what level it will be relative to any theoretical valuation of the Certificates or to the price at which you bought the Certificates. 6

9 Offers and sales restrictions This document is furnished at the request of the recipient for the exclusive purpose of identifying the nature of the security referred to herein. It must not be copied, given or shown to any other person. It is furnished for the private information of the recipient with the express understanding, which the recipient acknowledges, that it does not constitute an offer of such security or a means by which such security may be offered or sold. Endnotes 1 2 An option is out of the money if the price of the underlying is under (for a call) or over (for a put) the exercise price of the option. A futures contract is a standardised contract, traded on a derivatives exchange, to buy or sell a specific underlying for a predetermined price on a specific day in the future. The terms outlined herein are indicative only and are subject to change. The full terms and conditions of the security are contained in the Offering Circular and Supplement for the security, which are available free of charge at the address below. While we consider the information herein reliable, we do not represent that it is accurate or complete and it should not be relied upon as such. This document is issued in the U.K. by Nomura International plc (1 St. Martin s-le-grand, London, EC1A 4NP), which is authorised and regulated by the Financial Services Authority. This document may only be distributed in compliance with all applicable laws and regulations in a manner which will not impose any obligation in relation to approval, registration or otherwise, on Nomura and/or its affiliates. Copies of the prospectus can be requested from BNP Paribas Securities Services, Grüneburgweg 14, Frankfurt am Main. 7

10 Summary of indicative terms The certificate terms listed here are solely indicative. Any investment in the Swiss Alpha Strategy Certificates is made exclusively in accordance with the conditions set out in the Incomplete Sales Prospectus dated 17 June 2005 and in Pricing Supplement 21 dated 15 November 2006 (collectively the Prospectus ). Interested investors are advised to review the Prospectus in full, including the terms and conditions contained therein, for the final terms of the Certificates. Should discrepancies of any kind arise between this summary and the Prospectus of the Swiss Alpha Strategy Certificates, then the Prospectus will prevail. The Certificates are linked to the performance of the Alpha Strategies Fund, Inc. End of Subscription Period 31 January 2007 Issuer Guarantor Nomura Bank International plc Nomura Securities Co., Ltd. Issue Price EUR 1,050 Denomination EUR 1,000 Issue Date 31 January 2007 Value Date 7 February 2007 Valuation Date 3 February 2032 Underlying Redemption Amount Final Price Initial Price Alpha Strategies Fund, Inc., Class A (EUR) EUR 1,000 x (Final Price/Initial Price) * [100% - (AMF * NY)] Net asset value of the Underlying on the Valuation Date Net asset value of the Underlying on the Initial Fixing Date Initial Fixing Date 6 February 2007 Annual Management Fee (AMF) Number of Years (NY) 1.75% p.a. Number of years (or fraction thereof) from (and including) the Issue Date up to (but excluding) the Valuation Date calculated on the basis of the actual number of calendar days divided by 365 (366 in the case of leap years) 8

11 Issuer Call Redemption at Maturity Redemption Date Currency Minimum Tradable Unit Liquidity ISIN WKN Exchange Listing Price Information Governing Law Beginning from 7 February 2017, the Issuer has the right to terminate the Certificates each year (such a date is then the Valuation Date) Cash settlement 10 banking days after the Valuation Date EUR 1 Certificate Daily DE000A0LJD23 A0LJD2 An application will be made to include the Certificates for trading in the Freiverkehr section of the Stuttgart Stock Exchange Reuters, Bloomberg The laws of the Federal Republic of Germany Swiss Alpha Strategy Certificates The Certificates form a strategy with the following goals: Securely collect option premium and exploit intra-day trends Avoid overnight risk and secure yields through capital preservation strategies And thus generate stable, positive yields in all market phases Make a solid contribution to portfolio diversification And invest according to quantitative, transparent rules at all times

12 Baron Investmentvertriebsgesellschaft mbh Bremer Baumwollbörse Wachtstraße Bremen T: / Nomura International plc 1 St. Martin s-le-grand London EC1A 4NP United Kingdom Distributed by Baron Investmentvertriebsgesellschaft mbh for the account of and under the liability of Wagner Wertpapierhandelshaus GmbH. T: +44 (0) F: +44 (0)