Structured Products and Payoff Design

Chapter 23 explains products whose payoff depends on a designed formula rather than a simple direct claim on an asset. It covers principal-protected notes, market-linked GICs, split-share structures, and asset-backed securities.

This chapter is most effective when students focus on payoff design and embedded risk transfer. The exam often tests which risk remains with the investor, which risk is shifted to the issuer or structure, and what that means for suitability and expected return.

Exam Focus

• Distinguish deposit-style protection, note structure, and issuer-credit exposure in principal-protected and market-linked products.
• Understand how split shares and securitized products repackage cash flows and priority claims.
• Evaluate structured products through payoff limits, complexity, liquidity, and the client’s actual objective.

In this section

• Overview of Structured Products and Payoffs
  The main building blocks, payoff structures, risks, and suitability issues for structured products.
• Principal-Protected Notes in Canada
  Principal-protected notes, including their bond-plus-derivative structure, issuer-credit risk, disclosure rights, and early-redemption limits.
• Market-Linked Guaranteed Investment Certificates
  Market-linked GICs, including their deposit structure, return formulas, CDIC eligibility rules, and trade-offs versus PPNs and direct market investment.
• Split Share Structures
  Split shares as preferred-share and capital-share claims on one portfolio, with leverage, coverage, term, and suitability differences.
• Asset-Backed Securities and Securitization
  Asset-backed securities, including securitization, tranches, Canadian mortgage-backed examples, and the main credit, prepayment, and complexity risks.