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Accumulator
Over-the-counter (OTC) accumulators, which are not traded on exchange, do not have standardised terms. Both the buy side and sell side negotiate the contract terms, such as contract tenor, daily number of shares to be bought (accumulated), and the strike and knock-out prices, etc. Some accumulator contracts may even come with special terms such as a “multiplier” condition.
Sample Terms of Accumulator
Issuer / Counterparty
Underlying asset (eg. Stock)
Reference underlying asset price (eg. Share price)
Strike price
Contract tenor
Knock-out clause
Guaranteed period which means the number of shares that the investor must receive even knock out event happened during the guaranteed period
Daily underlying amount to be bought (eg. Number of shares)
Multiplier condition (Gearing ratio)
About decumulator
Apart from accumulators, there is another instrument called “decumulator”, which is the reverse of an accumulator. Simply put, a decumulator contract requires an investor to sell a fixed number of underlying shares at a pre-determined price (i.e. the strike price which is usually higher than the market price on the contract date) every day. The risks and returns of decumulators are also different from those of accumulators. As decumulators are structured to capture the downside of the underlying share price, investors will have to bear the upside risk of the price, which could be theoretically unlimited.
Example of an accumulator transaction
Example of an accumulator transaction:
Underlying asset: Stock Z
Tenor: 6 months
Shares accumulated per day: 3,000 shares
Accumulation days: 20 trading days per month x 6 months = 120 days
Strike price: $20
Knock-out price: $26
Initial price of Stock Z: $24
Multiplier/ Gearing ratio: 2
Number of shares accumulated:
Maximum total number of shares accumulated: 720,000 shares (= 3,000 shares per day x gearing ratio of 2 x 20 trading days per month x 6 months)
Maximum notional amount: $14,400,000 (= 720,000 shares x $20)
If strike price =< market price of Stock Z：3,000 shares per day
If strike price > market price of Stock Z: 6,000 shares per day (=3,000 shares x gearing ratio of 2)
If market price of Stock Z >= knock-out price: The accumulator contract would be terminated
Risk Disclosure Statement on Term Sheet
1. General Risk of Derivatives:
Equity Accumulator / Decumulator is a derivative product, which is complex and may involve substantial risks. It is not possible to accurately predict what Investor’s return on this product will be because such return depends on a number of factors. This product is only suitable for sophisticated investors who have sufficient knowledge and experience in financial and business matters to evaluate the relevant risks.
2. Principal Protection:
Equity Accumulator / Decumulator is not principal protected. Investors are exposed to the unlimited risk of the underlying stock trading unfavourably.
3. Market Risk:
Investing in Equity Accumulator / Decumulator involves market risk. There are many factors that affect the market value of this product. Changes in the price or value of the underlying stock can be unpredictable, sudden and large. Such changes may result in the price of the underlying moving adversely to Investor’s interests and negatively impacting on the return on this product. For equity accumulator, Investor may suffer substantial loss as he is bound by this product to buy periodically the agreed amount of the underlying asset when the market price falls below the Strike Price. For equity decumulator, Investor may suffer substantial loss as he is bound by this product to sell periodically the agreed amount of the underlying asset when the market price rises above the Strike Price.
4. Credit Risk:
Investor is relying upon the creditworthiness of Issuer and will be exposed to the credit risk of it.
5. Secondary Market and Liquidity Risk:
There might not be a liquid secondary market in the accumulator / decumulator contracts. This product does not trade on any exchange, and may be illiquid. As a result, it may be impossible for Investor to sell it to Issuer / Counterparty, any of its affiliates, another purchaser or dealer and there is no central source to obtain current prices from other dealers. Investor should aware of the tenor of this product, the longer the tenor, the higher the exit costs for the early termination of contract.
6. Corporate Actions/Extraordinary Events:
Other risks may impact on the value of this product, for example corporate actions or extraordinary events in relation to the underlying stock may occur which have a dilutive effect on the value of the underlying. In certain circumstances Issuer / Counterparty has discretion as to the adjustments that it makes, if any, following corporate events.
_________Hidden Part
For the basic knowledge and trading mechanism of Callable Bull/Bear Contract (CBBC), please refer to the information provided by Investor and Financial Education Council. You should pay careful attention to the Liability Statement section on the homepage of the website of The IFEC at (www.ifec.org.hk) when referring to information using this link.
Accumulator
Over-the-counter (OTC) accumulators, which are not traded on exchange, do not have standardised terms. Both the buy side and sell side negotiate the contract terms, such as contract tenor, daily number of shares to be bought (accumulated), and the strike and knock-out prices, etc. Some accumulator contracts may even come with special terms such as a “multiplier” condition.
Sample Terms of Accumulator
Issuer / Counterparty
Underlying asset (eg. Stock)
Reference underlying asset price (eg. Share price)
Strike price
Contract tenor
Knock-out clause
Guaranteed period which means the number of shares that the investor must receive even knock out event happened during the guaranteed period
Daily underlying amount to be bought (eg. Number of shares)
Multiplier condition (Gearing ratio)
About decumulator
Apart from accumulators, there is another instrument called “decumulator”, which is the reverse of an accumulator. Simply put, a decumulator contract requires an investor to sell a fixed number of underlying shares at a pre-determined price (i.e. the strike price which is usually higher than the market price on the contract date) every day. The risks and returns of decumulators are also different from those of accumulators. As decumulators are structured to capture the downside of the underlying share price, investors will have to bear the upside risk of the price, which could be theoretically unlimited.
Example of an accumulator transaction
Example of an accumulator transaction:
Underlying asset: Stock Z
Tenor: 6 months
Shares accumulated per day: 3,000 shares
Accumulation days: 20 trading days per month x 6 months = 120 days
Strike price: $20
Knock-out price: $26
Initial price of Stock Z: $24
Multiplier/ Gearing ratio: 2
Number of shares accumulated:
Maximum total number of shares accumulated: 720,000 shares (= 3,000 shares per day x gearing ratio of 2 x 20 trading days per month x 6 months)
Maximum notional amount: $14,400,000 (= 720,000 shares x $20)
If strike price =< market price of Stock Z：3,000 shares per day
If strike price > market price of Stock Z: 6,000 shares per day (=3,000 shares x gearing ratio of 2)
If market price of Stock Z >= knock-out price: The accumulator contract would be terminated
Risk Disclosure Statement on Term Sheet
1. General Risk of Derivatives:
Equity Accumulator / Decumulator is a derivative product, which is complex and may involve substantial risks. It is not possible to accurately predict what Investor’s return on this product will be because such return depends on a number of factors. This product is only suitable for sophisticated investors who have sufficient knowledge and experience in financial and business matters to evaluate the relevant risks.
2. Principal Protection:
Equity Accumulator / Decumulator is not principal protected. Investors are exposed to the unlimited risk of the underlying stock trading unfavourably.
3. Market Risk:
Investing in Equity Accumulator / Decumulator involves market risk. There are many factors that affect the market value of this product. Changes in the price or value of the underlying stock can be unpredictable, sudden and large. Such changes may result in the price of the underlying moving adversely to Investor’s interests and negatively impacting on the return on this product. For equity accumulator, Investor may suffer substantial loss as he is bound by this product to buy periodically the agreed amount of the underlying asset when the market price falls below the Strike Price. For equity decumulator, Investor may suffer substantial loss as he is bound by this product to sell periodically the agreed amount of the underlying asset when the market price rises above the Strike Price.
4. Credit Risk:
Investor is relying upon the creditworthiness of Issuer and will be exposed to the credit risk of it.
5. Secondary Market and Liquidity Risk:
There might not be a liquid secondary market in the accumulator / decumulator contracts. This product does not trade on any exchange, and may be illiquid. As a result, it may be impossible for Investor to sell it to Issuer / Counterparty, any of its affiliates, another purchaser or dealer and there is no central source to obtain current prices from other dealers. Investor should aware of the tenor of this product, the longer the tenor, the higher the exit costs for the early termination of contract.
6. Corporate Actions/Extraordinary Events:
Other risks may impact on the value of this product, for example corporate actions or extraordinary events in relation to the underlying stock may occur which have a dilutive effect on the value of the underlying. In certain circumstances Issuer / Counterparty has discretion as to the adjustments that it makes, if any, following corporate events.
_________Hidden Part
For the basic knowledge and trading mechanism of Callable Bull/Bear Contract (CBBC), please refer to the information provided by Investor and Financial Education Council. You should pay careful attention to the Liability Statement section on the homepage of the website of The IFEC at (www.ifec.org.hk) when referring to information using this link.
