A Citibank Equity-Linked Account is a short tenure (1 to 6 months) non-principal protected investment that involves an embedded put option which gives the bank the right to pay you principal and interest earned in either the base currency (the currency in which your initial investment was made) or the underlying share (the share which the principal could be used to purchase). A part or all of the interest that you earn on the Citibank Equity-Linked Account represents the premium that the bank pays you for the embedded put option.
- You can enjoy the potential to receive better returns than a traditional time deposit if your view on share price movement of the underlying share is correct.
- You can enjoy a flexible tenure of anywhere between 1 to 6 months.
- You can seek exposure to a specific underlying share at a pre-agreed share price ('Strike Price') as well as benefit from the enhanced interest rates that arise from the option premium you receive.
How a Citibank Equity-Linked Account can work for you:
Assuming that you have invested USD 50,000 in a one-month Citibank Equity-Linked Account, with USD as your base currency and XYZ Ltd as your underlying share1. Depending on your investment strategy and market conditions, a Strike Price will be determined. For the purposes of illustration, assume the Strike Price is USD 10.00 (95% of the share price of USD 10.53). The interest rate that you will receive is 11.25% p.a.
At Expiry Date, this is what you could expect to happen:
- If the closing price of the underlying share falls below the Strike Price, you would effectively be buying XYZ Ltd at the Strike Price of USD 10.00 (Scenario 1).
- If closing price of the underlying share is at or above the Strike Price, you will receive your principal and interest in USD on Maturity Date plus 5 exchange business days (Scenario 2).
|Scenario 1||Scenario 2|
|Expiry Date (3 business exchange days before Maturity Date)||Closing price of XYZ Ltd shares falls below the Strike Price (e.g., share price moves down from USD 10.53 to USD 9.80)||Closing price of XYZ Ltd shares is at or above the Strike Price (e.g., share price moves down from USD 10.53 to USD 10.20)|
|Maturity Date plus 5 exchange business days||Interest in USD plus XYZ Ltd shares2||Principal and Interest in USD|
|Amount Payable or Shares Deliverable||Interest: (USD 50,000 x 11.25% x 30/365) =
USD 462.33 and
Shares: USD 50,000/USD 10
= 5,000 of XYZ Ltd shares
Principal: USD 50,000 +
Interest: (USD 50,000 x
11.25% x 30/365) =
|Gain or loss||
If you decide to realize loss by selling the underlying shares at market price of USD 9.80, loss is USD 1,000 [(5,000 x USD 9.80) - USD 50,000]
|Gain of USD 462.33|
1The hypothetical gains and losses shown in the above 2 scenarios are meant for illustrative purposes only regarding product mechanics for calculating the potential returns and gains or losses. The levels / movement / trends shown have no reference to historical data and are not actual or indicative of future performance.
2Citibank has the discretion to pay cash instead of delivering the underlying share in the event of unforeseen circumstances, due to but not limited to, unavailability of shares. The amount of cash payable will be computed based on the closing price of the underlying share on the Expiry Date multiplied by the quantity of the underlying share to be delivered as stated in the written confirmation. In such a case, an immediate loss on the principal will be realized.
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As with any other investment, there are risks associated with your investment in a Citibank Equity-Linked Account. Structured product transactions are complex and an investment in a structured product may involve a high risk of loss of the investor's initial investment. Unlike bank deposits, Citibank Equity-Linked Accounts are subject to investment risks and potential returns may vary, depending on the Closing Price of the Underlying Share on the Expiry Date (the date on which the closing price of the Underlying Share is compared to the Strike Price to determine the outcome of the Equity-Linked Account).
Early Withdrawal Risk (Early Termination by Investor)
- Equity-Linked Account is an investment product that should be held to maturity. Early withdrawal of a part of Equity-Linked Account is not permitted. Early withdrawal of the whole of Equity-Linked Account is only allowed with the consent of Citibank. If the Equity-Linked Account is terminated before maturity, early termination charges will be deducted from the amount repaid under the Equity-Linked Account, hence resulting in a loss of the principal.
Potential Return Risk
- There is no assurance that the potential return of the Equity-Linked Account at maturity will be more than the amount initially invested. Depending on the circumstances, the return on the Equity-Linked Account may be less than returns on a direct investment in the Underlying Share or a regular bank deposit and may even be negative.
Foreign Exchange Risk
- Where liabilities in one currency are matched by an asset in a different currency, or where the transaction references more than one currency, or where assets are denominated in a currency other than an investor’s reference currency, movements of exchange rates may have a separate effect, both unfavorable and favorable, on any gain or loss otherwise experienced.
- Investments in ELAs that are not denominated in an investor’s base or home currency (i.e. the currency that the investor ordinarily transacts in, are subject to the risk of exchange rate fluctuations that may cause a loss of the Principal Amount if the Principal Amount is converted back to the investor’s base or home currency).
Early Termination by Citibank
- A general condition of an Equity-Linked Account is that Citibank may, at its discretion, redeem or terminate the Equity-Linked Account prior to maturity by mailing investors a draft payable to the investor for the principal and pro-rated interest. There may be other conditions that affect the value of the Equity-Linked Account and investors should refer to the Equity-Linked Account Agreement and Risk Disclosure Statement for further details.
- There may be adjustments to the terms of the Equity-Linked Account upon the occurrence of certain events such as market disruption, mergers, nationalisation, insolvency and changes in taxation law.
- Borrowing to fund the establishment of the Equity-Linked Account (leveraging) can have a significant negative impact on the value of and return on the investment. All hypothetical examples given by the bank of the potential performance of the Equity-Linked Account do not take into account the effect of any leveraging. Investors considering leveraging should obtain advice on applicable risks from the leverage provider and/or their financial advisor(s).
- Investors should be prepared to hold their ELAs until maturity as investors may not be able to liquidate or sell some or all of the ELAs as and when they require or at an amount equal to or more than the amount of capital invested. There is currently no active or liquid secondary trading market for these ELAs and they are not traded on any regulated markets or listed on any exchange. There can be no assurance that any investor will be able to obtain a firm bid price for the ELAs for an amount at which they wish to sell.
- Investors should expect a rapid decrease in mark to market prices especially after a large coupon payment is made. Purchase of the ELAs should be viewed as a short-term “hold until maturity” investment. Investors are strongly discouraged from using this investment for trading opportunities.
- In the event that the Issuer or counterparty or any agent of them fails to settle the ELA, the investment amount paid by the investor will be credited to the investor's Citibank Singapore Limited account, without liability to the Bank, Citibank, N.A. or any of its affiliates for any interest or for further payment to the investor.
- Investors should be aware that upon placing an order for the investment to the ELA, the investor's account may be debited the investment amount (and any applicable fees and charges, as specified) and the date of debiting of funds may be on a date that is earlier than the applicable settlement date. With respect to interest/coupon payments, at early redemption or maturity, funds accruing to the investor may be credited to the investor's account on a date subsequent to any stated interest/coupon payment date, early redemption or maturity date. By agreeing to invest in the ELA, investors acknowledge that neither Bank nor Citibank, N.A. or any of its affiliates will be liable to the investor for any interest or compensation otherwise for such authorized debits from the investor's account, or any delayed payment or credit to the investor’s account.
- At maturity of an ELA in the case when the Bank delivers the Underlying Share, the Underlying Share will be delivered to the investor only after actual receipt and processing by the Bank or any of its nominees or agents, of all necessary documents or securities, as the case may be. This may result in delivery to the investor on a date subsequent to the maturity date specified and neither the Bank nor Citibank N.A. or any of its affiliates will be under any liability to the investor resulting from the delay (including, without imitation, any drop in the market value of the Underlying Share pending delivery).
- The Bank also has the discretion to pay the investor cash instead of delivering the Underlying Share. The amount of cash payable will be computed based on the closing price of the Underlying Share on the Expiry Date multiplied by the quantity of the Underlying Share to be delivered as stated in this advice. In such a case, the investor will suffer an immediate loss on the Principal Amount.
* The above is only a summary of some of the key risks in investing in the product. Detailed risk disclosures are set out in the documentation relating to the specific product. Prior to entering into a transaction, you should ensure that you have read and understood the nature of all of the risks associated with the investment in order to determine whether the investment is suitable for you in light of your experience, objectives, financial position and other relevant circumstances. You should consult with your legal, regulatory, tax, financial and/or accounting advisors to the extent you consider it necessary in making your own investment decision.
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When establishing a Citibank Equity-Linked Account, timing, choice of base currency, choice of underlying share, tenure and your personal investment references are all crucial. You may consider the Citibank Equity-Linked Account if:
- You are generally bullish on the underlying share.
You are of the view that you have a high probability of receiving your principal and interest in cash because the closing price of the underlying share on Expiry Date (the date on which the closing price of the underlying share is compared to the Strike Price to determine outcome of the Citibank Equity-Linked Account) is likely to be at or above the Strike Price.
- The share price of the underlying share appears to be stable.
In this case, the limited share price movement means you will benefit from the higher interest by establishing a Citibank Equity-Linked Account. This higher interest may cushion some of the loss if your principal is used to purchase the underlying share at the Strike Price.
- You are willing to receive physical delivery of the underlying share at the predetermined Strike Price if the share trades below the Strike Price on a certain date resulting in an unrealized loss of capital on investment.
- You are willing to accept no principal protection at maturity.
Please speak to your Relationship Manager to determine the suitability of this product in light of your financial objectives and risk profile.
As with any other investment, there are risks associated with your investment in a Citibank Equity-Linked Account.
- There is risk of losing part of your principal, when the Citibank Equity-Linked Account is exercised to purchase the underlying share and interest earned will be paid using the base currency.
- Should the market move against you, you must be prepared to purchase the underlying share at the agreed Strike Price, which would be less favorable than the prevailing Share Price at the maturity of your Citibank Equity-Linked Account.
- The Citibank Equity-Linked Account is not a bank deposit, nor obligation of, nor guaranteed by Citibank Singapore Ltd, Citibank, N.A., Citigroup Inc. or any of its affiliates or subsidiaries. The Citibank Equity-Linked Account is not subject to the provisions of the Deposit Insurance and Policy Owners' Protection Schemes Act 2011 of Singapore and is not eligible for deposit insurance coverage under the Deposit Insurance Scheme.
On Transaction Date (Date of Subscription with Citibank), place your principal in the Citibank Equity-Linked Account.
Choose an underlying share and decide on the tenure of your Citibank Equity-Linked Account. The tenure can range from 1 to 6 months. The tenure is the number of days between Value Date (Start Date of Citibank Equity-Linked Account) and Maturity Date (Date on which the principal and interest in base currency or interest in base currency and underlying share are due to the investor).
Depending on your investment strategy and market conditions, you select a Strike Price. You will then be quoted the interest rate for your Citibank Equity-Linked Account.
On Maturity Date, you will receive the principal and interest earned in the base currency if the option embedded in the Citibank Equity-Linked Account has lapsed. In the event the option embedded in the Citibank Equity-Linked Account is exercised, your principal will be used to purchase the underlying share and interest earned will be paid in the base currency. Whether the option embedded in the Citibank Equity-Linked Account is exercised or lapsed is determined by comparing the Strike Price with the closing price of the underlying share on Expiry Date (date on which the closing price of the underlying share is compared to Strike Price to determine the outcome of the Citibank Equity-Linked Account). If the closing price of the underlying share is at or above the Strike Price, you will receive your principal and interest in the base currency. If the closing price of the underlying share falls below the Strike Price, you will effectively be using your principal to buy the underlying share at the Strike Price.
Citibank has the discretion to pay cash instead of delivering the underlying share in the event of unforeseen circumstances, due to but not limited to, unavailability of shares. The amount of cash payable will be computed based on the closing price of the underlying share on the Expiry Date multiplied by the quantity of the underlying share to be delivered as stated in the written confirmation. In such a case, an immediate loss on the principal will be realized.