Equity derivatives sales trading desk: UBS AG Hong Kong

Abstract

Uridashi is linked to NKY either as NKY only or as a worst of basket linked to NKY- SPX & NKY-SX5E. Tenor is usually 3-5Y, but due to knock-out provision, expected maturity can range from 1.25-2.5yrs. Investor typically buy a note with a short ~60% knock-in put (barrier has daily observation), with a quarterly or semi-annual ~105% knock-out provision (on callable date). Till knock-out occurs, investor receives a coupon on callable dates which could be fixed or digital upon contingent condition. The product is suitable for investors with a range bound view. Uridashi public issuance in 2013 amounted to $22.14B including NKY and single stock linked. Although exact data is unavailable for the Uridashi private issuance, but it's estimated to be close to the public issuance. NKY linked Uridashi issuance saw high volume public issuance in Jan14, however issuance went down thereafter. With reduced probability of the existing trades knocking-out due to poor performance of NKY and high barrier for knock-out (105%), new issuances have been much lower due to less rollovers. Usually, 60% of notional is reinvested into new issuances. 65% of the Uridashi products issued have quarterly Knock-out observation, while the remaining 35% have semi-annual Knock-out observation.