TAIL RISK HEDGING FOR PENSION FUNDS

Similar documents
ALPHA GENERATION A GUIDE FOR SMART OVERWRITING

HOW DO STRUCTURED PRODUCTS

SG93 FTSE 100 Defensive Autocall 7.30% Warrant Linked Note GLOBAL EQUITY FLOW

Autocall SX5E Weekly 10y 3.35% INDICATIVE TERMS AND CONDITIONS Autocall SX5E Weekly 10y 3.35%

EM Combo 13/08/2014 CROSS-ASSET SOLUTIONS. London Global Markets Cross Asset Solutions

INDICATIVE TERMS AND CONDITIONS Phoenix Memory EW FTSEMIB Phoenix Memory EW FTSEMIB & IBEX

Phoenix WO ENI TELECOM ITALIA UBI BANCA. INDICATIVE TERMS AND CONDITIONS Phoenix WO ENI TELECOM ITALIA. CONTACT INFORMATION Camilla VENTURA

2Y Autocall Reverse Convertible in HUF. INDICATIVE TERMS AND CONDITIONS 2Y Autocall Reverse Convertible in

Citi Dynamic Asset Selector 5 Excess Return Index

SG Issuer. Launch Date 3 July Expiry Date

VIX ETPs, Inter-Relationships between Volatility Markets and Implications for Investors and Traders

SOCIÉTÉ GÉNÉRALE AUD Callable resettable Subordinated Notes (Tier 2) Issue. Indicative Terms & Conditions

Meeting the capital challenge of investing in equities

SG Issuer. Expiry Date 14 January 2021 (if the Expiry Date is not a Business Day, then the Expiry Reference Level 1

SG Issuer. A. TERMS OF THE ISSUE DLC SG7xShortMSG (CPWW) Issue Size 4 million Certificates

LDI MONTHLY WRAP. Monthly Market Update. April 2017 LDI Monthly Wrap MARKET CONDITIONS AS AT COB 31 MARCH 2017 KEY EVENTS AND DATA SUPPLY

European Smart Beta ETF Market Trends Q in brief

short & leverage etps

INDICATIVE TERMS OF THE CREDIT LINKED NOTES

CONSTANT LEVERAGE FOR STRONG MARKET TRENDS

SG HINDE UK DYNAMIC EQUITY ETN (50% HEDGE) - HALF

MAKE MORE OF FOREIGN EXCHANGE

LDI MONTHLY WRAP. Monthly Market Update. November 2018 LDI Monthly Wrap MARKET CONDITIONS AS AT COB 31 OCTOBER 2018 KEY EVENTS AND DATA SUPPLY

Efficient VA Hedging Instruments for Target Volatility Portfolios. Jon Spiegel

LDI MONTHLY WRAP. Monthly Market Update. July 2018 LDI Monthly Wrap MARKET CONDITIONS AS AT COB 30 JUNE 2018 KEY EVENTS AND DATA SUPPLY

SG HINDE UK DYNAMIC EQUITY ETN (50% HEDGE) - HALF

KEY TERMS SHEET 31 October SG Issuer. A. TERMS OF THE ISSUE To be determined Issue Size 2.7 million Certificates

Asset Allocation with Exchange-Traded Funds: From Passive to Active Management. Felix Goltz

Managing Interest Rate Exposure

Managed Risk Alternatives for V-Shaped Markets. Chris Onken, FSA, MAAA

Reduce Cost. US and UK Core equity ETFs. Core range: Take your money further

INVESTMENT SERVICES RULES FOR RETAIL COLLECTIVE INVESTMENT SCHEMES

Are your bonds really green?

BNP PARIBAS CATALYST SYSTEMATIC ALPHA INDEX

Managing Tail Risks A Manager s Views CBOE Risk Management Conference Europe, Geneva 30 September 2015

OVERVIEW OF MULTI-ASSET, MULTI-RISK PREMIA INVESTMENT PROGRAM UNIVERSE

Debunking Five Myths about Cash-Secured PutWrite Strategies

Equity Volatility and Covered Call Writing

More than meets the eye

Volume 29/2010 Journal of the NBS Decree of NBS No. 13/ DECREE of Národná banka Slovenska of 31 August 2010

Interpreting Volatility-Related Indicators & Benchmarks

Modelling Counterparty Exposure and CVA An Integrated Approach

Optimizing equity investment under Solvency 2. Vienna, September 13 th 2016

MILLENNIUM GLOBAL INVESTMENT WHITE PAPER

ETF Flows Slow, But Fly Past Annual Record

European Smart Beta ETF Market Trends Q in brief

Developments in Volatility-Related Indicators & Benchmarks

smart beta A SMARTER WAY TO BUY THE MARKET

PERSPECTIVES. Multi-Asset Investing Diversify, Different. April 2015

SG Issuer. Launch Date 15 January Issue/Initial Settlement Date

HSBC World Selection Portfolios

BNP PARIBAS MULTI ASSET DIVERSIFIED 5 INDEX

SG Issuer. Launch Date 3 July Issue/Initial Settlement Date

Volatility-Managed Strategies

Reduce Risk. Take a more confident step into the markets.

MULTI-ASSET DIVERSIFIED GLOBAL CERTIFICATE 11

32 % 39 % of all active managers outperformed their benchmark vs. 44% in 2017.

UK REPORTABLE INCOME INFORMATION

Wealth Management for the Ultra High Networth (UHNW) Clients

Guidance for Bespoke Stress Calculation for assessing investment risk

RISK DISCLOSURE STATEMENT

Reduce cost. Lyxor Core ETFs

Risk Management and Hedging Strategies. CFO BestPractice Conference September 13, 2011

UK REPORTABLE INCOME INFORMATION

Please refer to For more information regarding the index. July 2017

RISK DISCLOSURE STATEMENT FOR PROFESSIONAL CLIENTS AND ELIGIBLE COUNTERPARTIES AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED LONDON BRANCH

Volatility Management & Options Overlay. Protect Assets. Differentiate Returns. Enhance Solutions. For Financial Professional Use Only

FACTSHEET Horizon Defined Risk Index

The Swan Defined Risk Strategy - A Full Market Solution

UK REPORTABLE INCOME INFORMATION

Monthly European ETF Market Trends June 2017 in brief

Can You Time Managed Futures?

more than 5% of its value in one year.

Swap Transaction General Disclosure Statement of Cargill Risk Management

KEY TERMS SHEET 17 July SG Issuer

Understanding Smart Beta Returns

Guide to absolute return investing

What happened last month?

Lending in the context of investing: another step toward Total Wealth advice

Using Leverage to Offset the Negative Carry of Tail Protection Across Different Markets

Certificates of Deposit linked to the SGI WISE US Vol Target 8% (USD-Excess Return) Index.

Volatility as a Tradable Asset: Using the VIX as a market signal, diversifier and for return enhancement

Aon Investment Research and Insights. Managed Futures. March 2018

Market Risk Analysis Volume IV. Value-at-Risk Models

VIX Hedging September 30, 2015 Pravit Chintawongvanich, Head of Risk Strategy

Trading Volatility: Theory and Practice. FPA of Illinois. Conference for Advanced Planning October 7, Presented by: Eric Metz, CFA

Managing the Balance Sheet under Solvency II Anton Wouters, Head of LDI & FM October 2011

Report on Internal Control

Counterparty Risk and CVA

Standardized Approach for Calculating the Solvency Buffer for Market Risk. Joint Committee of OSFI, AMF, and Assuris.

Tracker Certificate. Termsheet. on a Basket of Shares and SGI Index. Open-end EUR SVSP Product Type: 1300 EUSIPA category: Tracker Certificates

SOCIETE GENERALE DUAL DIRECTION KNOCK-OUT BUFFERED NON-PRINCIPAL PROTECTED NOTES PAYOFF ILLUSTRATION AT MATURITY PRELIMINARY TERMS & PAYOFF MECHANISM

ABR ENHANCED SHORT VOLATILITY FUND. Supplement dated November 14, 2017, to the Prospectus dated October 2, 2017

Risk-Adjusted Return: Quarterly Update

FUND SUMMARY: NAVIGATOR TACTICAL FIXED INCOME FUND. 1 FUND SUMMARY: NAVIGATOR DURATION NEUTRAL BOND FUND.

PROSPECTUS December 1, 2018

Bond Opportunities in 2009

Investment Symposium March F1: What Are We Hedging Anyway? GAAP, Stat, or Economics? Moderator Jay Musselman

SOCIETE GENERALE CALLABLE CONDITIONAL COUPON WORST-OF YIELD NOTES PRELIMINARY TERMS & PAYOFF MECHANISM PAYOFF ILLUSTRATION

Building a Balanced Portfolio in an Environment of Expensive Defensives. Leigh Gavin Frontier Advisors

Transcription:

OCTOBER 2013 TAIL RISK HEDGING FOR PENSION FUNDS Dan Mikulskis Redington Karim Traore Societe Generale THIS DOCUMENT IS FOR THE EXCLUSIVE USE OF INVESTORS ACTING ON THEIR OWN ACCOUNT AND CATEGORISED EITHER AS ELIGIBLE COUNTERPARTIES OR PROFESSIONAL CLIENTS WITHIN THE MEANING OF MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 2004/39/EC.

THE AGENDA 1 Situation A pension fund is managing a path toward full funding Required return Target risk level 2 Problem Extreme events can knock a scheme off its flight plan 3 Implication Why tail risk hedging could play a role in flight plan management What objectives a scheme might adopt for their tail risk hedges 4 Need What approaches are available How the available approaches might achieve the objective(s) 2

TAIL RISK HEDGING FOR PENSION FUNDS SITUATION Step 1 Description Clear goals & objectives mm 1,400 Assets Liabilities 1,200 1,000 800 600 Required Return: LIBOR +200bps 400 200 0 Objective RAG Primary Funding Objective Expected return: LIBOR + 205 Required return to 2037: LIBOR +200 Risk 1 Year 95% VaR 122m Hedging Funding ratio swaps flat basis 73% Nominal hedge ratio 73% Inflation Hedge ratio 73% Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 3

TAIL RISK HEDGING FOR PENSION FUNDS PROBLEM Step 1 Clear goals & objectives mm 1,400 1,200 Description Assets Liabilities Assets realised 1,000 800 600 400 Required Return: LIBOR +370bps 200 0 Objective RAG Primary Funding Objective Expected return: LIBOR + 205 Required return to 2037: LIBOR +370 Risk 1 Year 95% VaR 122m Hedging Funding ratio swaps flat basis 73% Nominal hedge ratio 73% Inflation Hedge ratio 73% Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 4

TAIL RISK HEDGING FOR PENSION FUNDS PROBLEM Current Flight Plan and Required Return mm 1,400 1,200 1,000 800 600 400 Required Return: LIBOR +200bps 200 0 Assets Liabilities Strategy Starting Position Required Return (Over LIBOR) Full Funding Date Funding Level Current Base 200 31/03/2037 71% -10% fall in assets 275 31/03/2037 64% -15% fall in assets 320 31/03/2037 60% -20% fall in assets 368 31/03/2037 56% -25% fall in assets 421 31/03/2037 53% Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 5

-6.8% -6.6% -6.4% -6.2% -6.0% -5.9% -5.7% -5.5% -5.3% -5.1% -4.9% -4.7% -4.6% -4.4% -4.2% -4.0% -3.8% -3.6% -3.4% -3.2% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.7% 2.9% 3.1% 3.3% 3.5% 3.7% 3.9% 4.0% 4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.5% 5.7% 5.9% 6.1% 6.3% 6.5% 6.7% 6.8% 7.0% 7.2% 7.4% 7.6% TAIL RISK HEDGING FOR PENSION FUNDS PROBLEM 30 Distritbuion of daily FTSE 100 returns compared to a normal distribution Distribution of daily Index 25 Normal distribution 20 15 10 5 0 Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 6

TAIL RISK HEDGING FOR PENSION FUNDS IMPLICATION A definition of tail risk : An event that falls outside the risk confidence levels that an organisation operates to. Significance level Associated 1 year move 1 month move Number of occurrences (average frequency) 95% -42% -12% 19 (4.5) 98% -49% -14% 13 (6.6) 99% -53% -15% 10(8.6) 99.5% -57% -16% 10(8.6) Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 7

TAIL RISK HEDGING FOR PENSION FUNDS IMPLICATION The figures used in this example are given for purely indicative purposes, the objective is to describe the mechanism of the product. It allows an understanding of how the product would have performed at different market stages over previous years, but is no guarantee as to future returns and has no contractual value. 8

TAIL RISK HEDGING FOR PENSION FUNDS NEED KEY Single Static Put Option Strategy Multiple Static Put Option Strategy Dynamic Option Strategy Systematic Option Strategy VIX Variance Volatility Control Low Volatility Stocks Volatility Control + Annual Put Option 9

COMMONLY USED EQUITY DOWNSIDE STRATEGIES NEED 1. Put options 2. VIX futures 10

STRATEGY 1: ROLLING PUT OPTIONS Strategy 1 involves the systematic purchase of a Put option written on the benchmark of the equity portfolio We have simulated the historical performance of this strategy since 2000 for different strikes and different maturities (we have assumed equity portfolio benchmark being EuroStoxx 50 TR) Based on that simulation, there are a few observations that we can distinguish: Longer maturity protection is preferred (from 2 years) High level of protection is preferred (90%) However those observations need to be tempered: In rising or flat markets this strategy will underperform by the amount of premium paid, which is substantial and varies through time This strategy is dependent on strikes and roll dates chosen 11

STRATEGY 1: ROLLING PUT OPTIONS 120% 110% 100% Annualised Perf. Annualised Vol. Max Drawdown SX5T SX5T + 1Y Put Strike 80% SX5T + 1Y Put Strike 90% SX5T + 3M Put Strike 90% SX5T + 2Y Put Strike 90% -1.54% -2.33% -1.48% -4.23% -1.19% 25.02% 23.26% 23.00% 24.23% 23.10% -64.64% -57.88% -51.43% -61.47% -49.68% 90% 80% 70% 60% 50% 40% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Bloomberg, Societe Generale as of October 2013. The simulations presented in this document result from estimations of Société Générale at a given time, on the basis of parameters selected by Société Générale, the market conditions at such time and historical data which can in no way be considered as a guarantee of future performance. Therefore, the prices or figures indicated in this document only have an indicative value and do not constitute in any manner a firm price offer from Société Générale. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 12

Change in S&P index (%) VIX level (volatility points) S&P 500 index level STRATEGY 2: VIX FUTURES NEED Equity volatility futures such as the VIX, VSTOXX and VFTSE are often used for benchmarking hedging strategies, and have become synonymous with the term volatility. Some background on the VIX: Started in 1993, methodology adapted in 2003 Based on short term options on the S&P 500 index across strikes (technically equal to the square root of a constant 30 day maturity variance swap) Although indices have been released on Eurostoxx, DAX and FTSE, liquidity is very limited compared to VIX Clear reasons why this looks like a promising equity hedging asset : Monthly changes in S&P index vs VIX since 1993 25 20 15 10 5 0-20% -15% -10% -5% 0% -5 5% 10% 15% -10 70 60 50 40 30 20 10 0 S&P 500 and VIX since 1993 1800 1600 1400 1200 1000 800 600 400 200 0-15 -20 Change in VIX index (volatility points) VIX S&P500 Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 13

STRATEGY 2: VIX FUTURES NEED But, massive growth in the use of the VIX as a portfolio hedge has changed the behaviour of the futures curve. Which means that a strategy which invests in the front futures contract will have different behaviour to spot Vix (which is not directly investable). On average the early futures contracts can trade several volatility points above the spot level. For example 28 October 2013 VIX = 13.4 December future = 15.49 January future = 16.83 Source: SG Engineering, Bloomberg, VIX Central.com and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 14

STRATEGY 2: VIX FUTURES NEED A strategy that takes a long position in the first VIX future and rolls into expiry has lost a substantial amount of money in the last 4 years. Even over periods of time when the VIX did not change. Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 15

ENHANCED STRATEGIES THAT ATTEMPT TO ADDRESS SHORTCOMINGS IN BASIC STRATEGIES i. Calendar Collars ii. Volatility Controlled Equity with Put Option 16

STRATEGY (i): CALENDAR COLLARS Strategy developed by Societe Generale for Pension Funds that involves the purchase of mediumterm Put options and the sale of short-dated Call options Why? Historical evidence shows that investors generally overpay for shorter term call options, so systematically selling these is an efficient way to mitigate the premium of the put options We have simulated historical performance of this strategy since 2000 (we have assumed equity portfolio benchmark being EuroStoxx 50 TR) What? Protection does not guarantee a set hard floor, but provides good volaitlity smoothing and tail hedging Based on that simulation, few observations we could draw: High level of protection during periods of declining equity markets Losses can be experienced in periods of sharply rising markets However those observations need to be tempered: Efficiency of the strategy is better appreciated across various equity market cycles This strategy is dependent on strikes and roll dates chosen 17

STRATEGY (i): CALENDAR COLLARS 220% 200% Steady bull run, puts and calls compensate each other Succession of sharp market rises and temporary drawdowns 180% As market drops, put options are in the money while call options expire worthless 160% 140% 120% 100% 80% 60% 40% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 EuroStoxx 50 TR (SX5T) EuroStoxx 50 TR (SX5T) + Enhanced Collar SX5T Enhanced Collar Strategy Annualised Perf. -1.54% 4.49% Annualised Vol. 25.02% 9.53% Max Drawdown -64.64% -16.41% Source: Bloomberg, Societe Generale as of October 2013. The simulations presented in this document result from estimations of Société Générale at a given time, on the basis of parameters selected by Société Générale, the market conditions at such time and historical data which can in no way be considered as a guarantee of future performance. Therefore, the prices or figures indicated in this document only have an indicative value and do not constitute in any manner a firm price offer from Société Générale. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 18

% Allocation of volatility controlled approach STRATEGY (ii): VOLATILITY CONTROL + PUT OPTION NEED Strategy 2a involves changing the benchmark for the scheme s underlying equity allocation to a volatility controlled benchmark, and buying a put option on this Volatility control benchmark targets a fixed level of risk by varying the equity exposure Why? One challenge with standard equity option instruments is the presence of the volatility skew that leads to relatively higher prices for more out of the money options which are often those a pension scheme would most like to use 70% 60% 50% Equity Volatility varies very substantially through time Both above and below the long term average Fear of volatility spikes explains the volatility skew 40% 30% 20% 10% 0% FTSE Rolling Volatility Average Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 19

Annualized Volatility (%) Annualized Volatility (%) of FTSE 100 % Allocation of volatility controlled approach STRATEGY (ii): VOLATILITY CONTROL + PUT OPTION NEED What? Volatility control rebalances away from equity exposure as volatility rises, to target a fixed level of volatility 70% 60% 50% 40% 30% 20% 10% 140% 120% 100% 80% 60% 40% 20% Which means that the price of the put option is both cheaper and more stable 0% FTSE Allocation (RH Axis) FTSE Rolling Volatility (LH Axis) 0% Put option provides hard floor over a set period of time, volatility control smoothes the returns of the strategy. 70% 60% In any given year a volatility controlled benchmark may have a lower exposure than a passive index and experience a lower return 50% 40% 30% 20% 10% 0% FTSE 100 Rolling Volatility Vol Control Rolling Vol Source: SG Engineering, Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 20

STRATEGY (ii): VOLATILITY CONTROL + PUT OPTION NEED Put option cost MSCI World Index (as of May 2013) MSCI World Index (Stressed market conditions) Volatility controlled MSCI World Index 90% strike 3.70% 8.4% 1% 85% strike 2.63% 7.2% 0.5% 80% strike 1.84% 6.2% 0.2% Source: Bloomberg and Redington as of October 2013. The value of your investment may fluctuate. The figures relating to past performances and/or simulated past performances refer or relate to past periods and are not a reliable indicator of future results. This also applies to historical market data. 21

SUMMARY 1 Situation A pension fund is managing a path toward full funding Required return Target risk level 2 Problem Extreme events can knock a scheme off its flight plan 3 Implication Tail risk hedging can play a role in flight plan management with three possible objectives: Hard Floor Tail Risk Hedge Volatility Smoothing 4 Need Instruments exist that can satisfy some of these objectives, but understanding is required 22

CONTACTS Dan Mikulskis Karim Traore Director ALM & Investment Strategy Contact Info: Direct Line: 020 3326 7129 Email: dan.mikulskis@redington.co.uk Twitter:@danmikulskis LinkedIn: Dan Mikulskis Director Pension Risk Management Solutions Contact Info: Direct Line: 020 7676 7445 Email: karim.traore@rsgcib.com LinkedIn: Karim Traore 23

IMPORTANT INFORMATION This presentation was prepared conjointly by Redington and Societe Generale. Credit risk: Entering into this transaction creates a credit risk on the counterparty and the guarantor, i.e. the counterparty s and the guarantor s insolvency may notably result in the partial or total loss of the invested amount (if any). Market risk: The product may at any time be subject to significant price movement, which may in certain cases lead to the loss of the entire amount invested, if any (e.g. premium) [and in a worst case scenario, to unlimited losses]. Certain exceptional market circumstances may have a negative effect on the liquidity of the product, and even render the product entirely illiquid, which may make it impossible to withdraw from the product and result notably in the partial or total loss of the invested amount (if any). Leverage: This product includes embedded leverage, which amplifies the variation, upwards or downwards, in the value of the underlying instrument(s), which may notably result in the partial or total loss of the invested amount (if any). Adjustment or substitution Early termination of the product: In order to take into account the consequences on the product of certain extraordinary events which could affect the underlying instrument(s) of the product, the product s documentation provides for (i) adjustment or substitution mechanisms and, in certain cases, (ii) the early termination of the product. This may result in losses on the product. The fluctuations in the marked-to-market value of the product may require the counterparty to pay margin calls, [make provisions] or resell the product in whole or in part before maturity, in order to enable the counterparty to comply with its contractual or regulatory obligations. As a consequence, the counterparty may have to liquidate the product under unfavourable market conditions, which may notably result in the partial or total loss of the invested amount (if any). This risk will be even higher if the product includes leverage. Notice to US Persons : If you are a U.S. person (as defined by the U.S. Commodity Futures Trading Commission), please visit http://swapdisclosure.sgcib.com for important information with respect to derivative products. By transacting with Société Générale, you are deemed to acknowledge that you have read and accepted the information provided on the website. Prior to entering into any transaction with Société Générale, counterparties should seek independent financial, tax, accounting and legal advice. General selling restrictions: It is each counterparty s responsibility to ascertain that it is authorised to enter into this transaction. Information on commissions, remunerations paid to, or received from third parties: If, under applicable laws and regulations, any person (the Interested Party ) is required to disclose to the prospective counterparty in the product any commission or remuneration that Société Générale pays to, or receives from, such Interested Party in respect of the product, the Interested Party shall be solely responsible for compliance with such laws and regulations. Commercial nature of the document: This document is of a commercial and not of a regulatory nature. No offer to contract: This document does not constitute an offer, or an invitation to make an offer, from Société Générale to purchase or sell the product referred to herein. Authorisation: Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority) Warning regarding the Index: The index referred to herein (the Index ) is not sponsored, approved or sold by Société Générale. Société Générale shall not assume any responsibility in this respect. Confidentiality: This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Société Générale. Expected tax treatment: The obtaining of the tax advantages or treatments defined in this document depends on each counterparty s particular tax status, the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to counterparties who wish to obtain further information on their tax status that they seek assistance from their tax advisor. Information on data and/or figures drawn from external sources: The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources reasonably believed to be reliable. Subject to any applicable law, Société Générale shall not assume any liability in this respect. Market information: The market information displayed in this document is based on data at a given moment and may change from time to time. This document is issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority)and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. SOCIETE GENERALE CORPORATE & INVESTMENT BANKING SG HOUSE 41 TOWER HILL LONDON EC3N 4SG UNITED KINGDOM Website: www.sgcib.com Tel: +44 (0)20 7676 6000 24