FCN Product FAQ

What is an FCN?

An FCN, or Flexible Coupon Note, is a structured financial product primarily aimed at investors seeking to establish a discounted position in an underlying asset. For instance, if an investor deems the current price of the underlying asset to be too high but wants to avoid the opportunity cost of waiting, they can initiate a position at a discount from the original benchmark price, even in the event of a significant price drop. The VETA platform typically links FCNs to BTC or ETH as the underlying assets. To put it simply, with an FCN, you are entitled to coupon income regardless of market conditions, and if the settlement price of the linked asset falls more than a certain threshold from the strike price, such as 20%, you have the option to purchase the linked asset at the strike price in a cash settlement.

Which investors are FCNs suitable for?

FCNs are suitable for investors who are bullish on the underlying asset and wish to acquire more holdings but find the current price point too high and do not want to miss out on potential returns during the waiting period. If there is a significant drop in the price of the underlying asset, they can establish their position at a discounted price, which significantly reduces their cost of choice. FCNs are ideal for investors who are long-term bullish on the underlying and wish to initiate positions at a discount.

How is the return calculated?

The return on an FCN is the pre-agreed coupon income that the investor earns regardless of other conditions. The holding period return is calculated as the holding period multiplied by the annualized rate of return. It is important to note that if the product is knocked out before maturity, the actual holding period will be less than the total term of the product. Additionally, if the settlement price is below the strike price, investors can establish their position at a discount using the strike price as the cost basis.

What is the term of the product? Can it be knocked out early?

The term of the product will be indicated on the specific product page, for example, 28 days, 91 days, or 180 days. It should be noted that if a knock-out event occurs, it means that the product will end prematurely, and both principal and interest will be paid out (a knock-out event occurs when the price of the underlying asset is above the knock-out price on the observation day, triggering an early payoff). A knock-in event does not trigger early redemption.

What are the risks associated with FCN products?

FCN products are considered low-risk investments. Investors are guaranteed coupon income under any circumstance. Furthermore, in the event of a significant drop in the market, investors have the opportunity to establish their position at a discount, which substantially mitigates potential losses and lowers the cost of entry.

What is the strike price?

The strike price is a unique parameter setting for FCNs. It is the price at which an investor can purchase the underlying asset (in a cash settlement) if a knock-in event occurs and the settlement price at maturity is below the strike price.

What is the observation period?

During the life of the product, the observation period is daily from 16:00 to 16:00 the following day (UTC+8). At the start of each observation period, the knock-in and knock-out prices for that period are calculated, and the occurrence of either a knock-in or knock-out event is monitored.

What are knock-in/knock-out events?

For each observation period following the subscription of an FCN, there is a price range composed of the knock-in and knock-out prices. The currency price is monitored during the observation period to see if it touches or crosses the knock-in or knock-out price. A knock-in event is triggered if the price touches or exceeds the knock-in price; similarly, a knock-out event is triggered if the price touches or exceeds the knock-out price.

Can I withdraw or redeem before the term ends?

No, partial or full redemptions are not permitted during the term of the product. Redemption is only possible when the note matures. Remember to click and select redemption on the product's settlement date.