UBS AG sold $23.5 million of one-year structured notes with returns based on the performance of a rules-based currency-trading strategy.
The securities, which were issued May 25, are linked to an algorithmic strategy called the UBS V10 Currency Index with Volatility Cap, according to a prospectus filed with the U.S. Securities and Exchange Commission. The notes pay no interest and yield at maturity 109 percent of the index’s gains. The investor takes losses equal to the percentage of any decline.
In the U.S. this year, UBS has sold $128.6 million of structured notes tied to the index, according to data compiled by Bloomberg. The bank is distributing the products itself for a 2.5 percent commission, according to the prospectus.
UBS’s strategy, created last year, uses a set of rules to track the performance of hypothetical positions in foreign- currency forward contracts, the bank said in the prospectus.
The approach uses forwards, which are agreements to buy or sell an asset in the future at a fixed price, to trade the U.S. dollar against nine currencies including the Australian dollar, Swiss franc and Japanese yen, attempting to exploit mispricing of the contracts. To cap volatility, less leverage is used when price swings are greatest, UBS said in the prospectus.
Other large investment banks including JPMorgan Chase & Co., Deutsche Bank AG and BNP Paribas SA have developed or licensed indexes that track the performance of rules-based trading systems. JPMorgan sold $150 million of structured notes linked to a commodity-trading strategy on May 10, according to a prospectus filed with the SEC.
Structured notes are bank-issued securities that combine bonds and derivatives, which are contracts whose value is derived from stocks, bonds, currencies and commodities.