So how does the impossible become possible? Lets see some examples
- You are a mutual fund prohibited from investing in certain asset classes, which would aid your strategy. Try investing in a structured note(seemingly debt) that mirrors your investment view. The payoff diagram would then hopefully achieve what was earlier prohibited
- As an investor, you cannot exceed your ownership limits in listed securities without making an open offer. Try a total return swap to get economic ownership without the hassle of legal title
- You want principal protection yet need a good upside-which conventional debt products do not permit. Take a principal protected note which is a zero coupon bond(or variants) with the balance invested in very risky instruments to achieve the upside for the entire amount
- You would like to participate in a derivative product but the dealers will only deal with other banks/or margin requirements may be too high. The bank would therefore package this into a structured note.
- As a bank/private company, you want to reward your top people with market linked incentives but cannot/do not want to issue shares. Offer performance shares/restricted stock etc