Tracker Certificates: How they work

From a legal point of view, structured products such as tracker certificates are bearer bonds. The investor therefore acquires a claim against the issuer. As a result, investors bear the issuer risk (risk that the issuer cannot meet their obligations to investors). Funds, on the other hand, are collective investment schemes in the form of a special fund. If the investment company becomes insolvent, the investment fund will be protected from creditors. Investors in a fund are, therefore, not exposed to issuer risk.

Tracker certificates can be issued with a fixed term or without a fixed term as open-ended products. However, just because a certificate was issued as an open-ended product does not mean that there is any guarantee or requirement for the product to run indefinitely. The issuer has a call right, which is described in the terms and conditions of the product. Accordingly, the issuer has the right to terminate outstanding open-ended tracker certificates for early redemption without giving reasons. The relevant notice of termination must be published on the product page with the notice specified in the product terms and conditions in advance. In this case, the duration of the open-ended tracker certificate will end on the specified date.

In the event of termination, the redemption amount will be determined on the relevant termination date. The redemption amount per open-ended tracker certificate on the termination date amounts to the reference price of the certificate multiplied by the ratio and the performance of the underlying asset less the management or index fee. If necessary, the calculated amount will be converted into the product currency. Redemption typically takes place nine bank business days after the termination date. All investors are entitled to payment of the redemption amount on the applicable redemption date.

The index constituents are usually selected according to predefined guidelines, that is, according to predefined criteria described in the index guideline or a comparable document (available on the index provider’s website). These criteria may relate to a company's core or principal activity as an index constituent, its financial and non-financial KPI, its listing on a regulated market, its market capitalization and liquidity. In this analysis phase, each selected equity can be assigned a score. The companies with the highest scores can then be included in the thematic index.

The use of distributions and interest paid by index constituents is laid down in the index guideline of the underlying index. The indices are often calculated as performance indices. Dividend payments, other distributions, and other income are taken into account less country-specific taxes, fees and other disclosures (“net return”).

Market risk: Economic crises, the emergence of market competitors, and economic changes can have a negative impact on the price of the underlying asset(s) and on the price of the tracker certificate. This can lead to a partial or total loss of the invested capital. There is no capital protection.

Currency risk: The currency of the underlying index may differ from the product currency. In this case, the value of the certificate will also depend on the conversion rate between the foreign currency (for example US dollars) and the product currency (for example swiss francs). As a result, the value of the certificate (in CHF) can fluctuate significantly over its duration.Währungsrisiko:

Issuer / solvency risk: Investors are exposed to the risk that the issuer or guarantor may not be able to meet their obligations arising from the product and the guarantee—for example in the event of insolvency (insolvency / over-indebtedness) or an official order of resolution measures. Such an order by a resolution authority can also be issued in the run-up to insolvency proceedings if the guarantor is in crisis. A total loss of the invested capital is possible. As a debt instrument, the product is not subject to any deposit insurance.