abn amro turbos well prepared active investing. 2 agenda turbo basics the abn amro turbo the most...

ABN AMRO TurbosABN AMRO Turbos

Well prepared active investingWell prepared active investing

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Agenda

Turbo Basics• The ABN AMRO Turbo• The most important characteristics of a Turbo• Turbo vs. Options vs. Sprinters vs. Turbo • Trading and costs• The most important risks• What makes the ABN AMRO Turbo unique?

Turbo Advanced• Hedging with Turbos

Stock portfolio Currency exposure

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Turbo Basics: The ABN AMRO Turbo

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The ABN AMRO Turbo

The ABN AMRO Turbo is an investment product that offers investors an ability to:

• Invest with a personal vision

• Invest at a personal acceleration

• Invest in a personal market of choice

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The ABN AMRO Turbo

• Internationally known as mini-futures• Originally ABN AMRO product allocated to RBS• The new Turbo re-launched by the new ABN AMRO• Used for both investment and hedging purposes

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The ABN AMRO Turbo

• Live since October 2010

• More than 1000 Turbo’s live

• Covering approximately 111 underlying values

• Across 5 asset classes

• Euro denominated and exchange traded on Euronext Amsterdam

• Second in market share turnover in the Netherlands

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Turbo Basics: What are the most important characteristics of a Turbo?

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The most important characteristics

• Leverage effect

• Financing level

• The value

• Stop loss-level

• Salvage value

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The leverage effect

The leverage effect causes the value of a Turbo to fluctuate at a faster rate than the value of the underlying. This is an important characteristic of Turbos.

Return Underlying = 20% Return Turbo Long = 100%

Underlying Turbo Long

EUR 30 EUR 10

EUR 25 EUR 5

Example Turbo Long leverage rate 5

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The leverage rate

• The leverage rate indicates how much faster the value of a Turbo accelerates compared to the value of the underlying.

• The higher the leverage rate, the greater the change in response to a movement in the underlying, both positive and negative.

Example leverage effect

Leverage rate Turbo

% Change in Underlying value

% Change in Turbo value

4 2%

6 10%

10 6%

15 9%

25 4%

8% (4 x 2%)

60% (6 x 10%)

60% (10 x 6%)

135% (15 x 9%)100% (25 x 4%)

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The leverage rate

The leverage rate depends on the price of the underlying at the time of purchase (reference price) and on the financing level of the Turbo:

Leverage rate Turbo Short =

Reference price of underlying

(Financing level – Reference price of underlying)

Leverage rateTurbo Long =

Reference price of underlying

(Reference price of underlying – Financing level)

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Example: The leverage rate

Leverage rate Turbo LongReference price of underlying EUR 15Financing level Turbo Long EUR 10Leverage rate Turbo Long = Reference price / (Reference price – Financing level)

= EUR 15 / (EUR 15 – EUR 10)

= 3

Leverage rate Turbo ShortReference price of underlying EUR 20Financing level Turbo Short EUR 25Leverage rate Turbo Short = Reference price / (Financing level – Reference price)

= EUR 20 / (EUR 25 – EUR 20)

= 4

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The leverage rate

• Because the reference price of an underlying changes continuously, the leverage rate of a Turbo can only be set when it is acquired.

• Once the Turbo has been acquired, the leverage rate will remain constant for the investment period, assuming a constant financing level.

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Leverage rate and financing level

The leverage effect is enabled by the financing level:

• A Turbo Long can be compared with the purchase of an underlying, but the investor invest only a fraction of the value of the underlying.

• The remaining amount will be provided for by the bank, over which the investor pays financing interest

• The amount over which the interest is calculated, is called the financing level of a Turbo Long

• A Turbo Short can be compared with the sale of the underlying, for which the bank will take a short position for the investor in the underlying.

• To cover the risks of a short position, the investor is requested to make a deposit (value of the Turbo)

• The investor generally receives interest over the combined sum of the value of the Turbo and the proceeds of the short position

• The amount over which the interest is calculated, is called the financing level of a Turbo Short

Financing level Turbo Long Financing level Turbo Short

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The value of a Turbo is in most cases equal to the difference between the price of the underlying and the financing level

Value Turbo Long = Price of underlying – Financing level

Value Turbo Short = Financing level – Price of underlying

The value of a Turbo

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€10

Example: the value of a Turbo Long

Example 1Price of underlying EUR 15Financing level EUR 10Value Turbo Long = Price of underlying – Financing level

= EUR 15 – EUR 10

= EUR 5

Example 2Price underlying EUR 18Financing level EUR 10Value Turbo Long = Price of underlying – Financing level

= EUR 18 – EUR 10

= EUR 8

€15

€5

€18

€8

Price of underlying

TL Financing level

TL Value

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€15

€8€5

Example: the value of a Turbo Short

Example 1Price of underlying EUR 15Financing level EUR 20Value Turbo Short = Financing level – Price of underlying

= EUR 20 – EUR 15

= EUR 5

Example 2Price of underlying EUR 12Financing level EUR 20Value Turbo Short = Financing level – Price of underlying

= EUR 20 – EUR 12

= EUR 8

€20

TS Financing level

Price of underlying

TS Value

€12

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Ratio and exchange rate

In certain cases, investors should also take a ratio and an exchange rate into consideration when calculating the value of a Turbo.

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The ratio indicates how many Turbos an investor would normally have to acquire in order to be fully invested in the underlying:

• A Turbo with a ratio of 1, means that an investor will have to acquire 1 Turbo in order to be fully invested in the underlying.

• A Turbo with a ratio of 10, means that an investor will have to acquire 10 Turbos in order to be fully invested in the underlying.

• A Turbo with a ratio of 0.1, means that an investor will have to acquire ‘0.1 Turbos’ in order to be fully invested in the underlying. One Turbo thereby gives an entitlement of 10 in the underlying

• A Turbo with a ratio of 0.01, means that an investor will have to acquire ‘0.01 Turbos’ in order to be fully invested in the underlying. One Turbo thereby gives an entitlement of 100 in the underlying

The ratio of a Turbo

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ABN AMRO Turbos are listed in euros. Some underlyings values may, however, be listed in another currency. To calculate the value of a Turbo on such underlyings, investors should take the exchange rate into consideration:

• An increase in the value of the underlying currency versus the euro can have a positive effect on the value of the Turbo.

• A decrease in the value of the underlying currency versus the euro can have a negative effect on the value of the Turbo.

The exchange rate effect

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When the ratio and exchange rate are taken into consideration, the value of a Turbo can be calculated as follows:

Value Turbo Short =(Financing level – Price of underlying)

(Ratio x Exchange rate)

Value Turbo Long =(Price of underlying – Financing level)

(Ratio x Exchange rate)

The value of a Turbo with ratio & exchange rate

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Example: The value of a Turbo with ratio & FX

Value Turbo LongPrice of underlying USD 360Financinglevel Turbo Long USD 295Ratio 10EUR/USD exchange rate 1.40Value Turbo Long = (Price of underlying – Financing level) / (ratio x exchange rate)

= (USD 360 – USD 295) / (10 x 1.40)

= EUR 4.64

Value Turbo ShortPrice of underlying USD 2800Financinglevel Turbo Short USD 3500Ratio 100EUR/USD exchange rate 1.40Value Turbo Short = (Financing level – Price of underlying) / (ratio x exchange rate)

= (USD 3500 – USD 2800) / (100 x 1.40)

= EUR 5

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Stop loss-level and salvage value

• Turbos are open-ended investment instruments and as such Turbos do not have a maturity date.

• However, each Turbo has a stop loss-level, which ensures that an investor can never lose more than the initial investment.

• When the stop loss-level has been reached, the Turbo will be terminated and the position in the Turbo will be liquidated.

• In most cases, investors will receive a salvage value.• The salvage value is equal to the difference between the financing level and the

average price at which the Turbo is liquidated, taking the ratio and exchange rate into consideration.

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Adjustments to the financing- and stop loss-level

PLEASE NOTE - the financing level and stop loss-level can change due to any of the following factors:

• Adjustments for the financing costs and –revenues

• Adjustments for the effect of dividend

• Adjustments for the effect of futures

• Adjustments for the effect corporate actions (example: stock split)

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To summarize:

• The leverage effect causes the value of a Turbo to fluctuate at a faster rate than the value of the underlying

• The leverage rate comes into existence because a client invests only a fraction of the underlying, while the remainder is financed by ABN AMRO

• The value of a Turbo can be calculated directly from the value of the underlying and the financing level

• The stop loss-level ensures that an investor can never lose more than the initial investment

www.abnamromarkets.nl/turbo

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Turbo Basics: Turbo vs. Options vs. Sprinters vs. Turbo

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Turbo vs. Option

Turbo Optie

Time value Not applicable Applicable

Volatility premium Not applicable Applicable

Maturity Open end with stop loss Closed end

Contract size Per 1 Per 100

Possibilities Long, Short Call, Put and writeable!

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Turbo vs. Sprinter vs. TurboABN AMRO Turbo ING Sprinter RBS Turbo

Issuer ABN AMRO ING RBS

Financing o/n Libor o/n interest(?) o/n interest(?)

Stop loss-times Commodities & Bonds from 09:05 – 20:00; others when markets are open

When underlying market is open

When underlying market is open

Stop loss-prices Commodities & FX on mid-price; all others on bid or ask (depending on Long or Short)

Bid or ask, depending on Long or Short

Bid or ask, depending on Long or Short

Bid/offer spread AEX 1 cnt 2 cnt 1 cnt

Bid/offer sizes AEX 200.000 / 200.000 50.000 / 50.000 100.000 / 100.000

Stop loss adjustments

- 15th each month- On ex-dividend date for both stocks and indices- On future roll date

- 15th each month- On ex-dividend date for both stocks - On future roll date

- 15th each month- On ex-dividend date for both stocks - On future roll date

‘Limited’ available No Yes No

Call right Daily Yearly Yearly

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Turbo Basics: How can Turbos be traded and what are the costs?

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Liquidity of ABN AMRO Turbos

• ABN AMRO Turbos are listed on Euronext Amsterdam by NYSE Euronext. • Turbos can therefore be traded during exchange hours, from 09:05 to 17:30 Central

European Time (CET).

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Identifying ABN AMRO Turbos

• ABN AMRO Turbos are identified by means of an ISIN-code, which will remain unchanged during the life of the Turbo.

Example 1: NL0009648187Example 2: NL0009650753

• The name of a Turbo furthermore indicates the underlying, the stop loss-level and whether it concerns a Turbo Long or Turbo Short.

Example 1: ABN Apple TL 320Example 2: ABN Apple TS 395

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Costs associated with Turbos

The following costs may be associated with Turbos:

• Spread: size of the spread is mainly linked to the liquidity of the underlying.• Financing costs: Financing costs and financing revenues are settled with the investor on a daily basis by adjusting the financing level with the cost or revenue amount.

• Not applicable on intra-day positions.• Financing costs Turbo Long = O/N LIBOR + 2%; • Financing revenues Turbo Short = O/N LIBOR – 2%• Financing costs for both Turbos Long and Turbos Short on futures = 2%

• Transaction costs: Depending on the bank or broker, investors may also be charged a transaction fee.

• Taxes: The investor may be required to pay taxes over the Turbo investment that cannot be withheld by ABN AMRO.

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Turbo Basics: What are the most important risks of a Turbo?

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Most important risks

• Turbos are high risk investment products that are only suitable for experienced and active investors with a strong risk appetite.

• Before investing in Turbos investors should be aware of, and fully understand, all the risks involved with investing in this product, such as: • Leverage risk: An investment in Turbos contains a higher risk than a direct investment in an underlying because

the leverage effect causes the value of the Turbo to fluctuate at a faster rate than the value of the underlying.• Stop loss risk: A Turbo may expire and become worthless if the stop-loss level has been hit or breached. In such

cases, investors may suffer a total loss of the capital invested.• Exchange rate risk: The value of a Turbo may be influenced by fluctuations in the currency of denomination of the

underlying, should this currency be different from that of the Turbo.• Liquidity risk: Investors may be unable to trade in a Turbo in the event of a malfunction in the trading system of

Goldman Sachs, Euronext Amsterdam, or the exchange on which the underlying is traded. • Credit risk: Investors in ABN AMRO Turbos are exposed to the credit risk of ABN AMRO Bank N.V.

• Please read the prospectus, supplements and final terms for a complete description of the risks involved with Turbo investments

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Turbo Basics: What makes the ABN AMRO Turbo unique?

ABN AMRO Turbo Apps

www.abnamromarkets.nl/turbo

De ABN AMRO Turbo Tip

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Appendix

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Ajustments for financing costs and -revenues

• Investors are charged interest and a 2% fee over the financing level of a Turbo Long, also referred to as financing costs, by increasing the financing level of the Turbo Long on a daily basis. Assuming equal market circumstances, the value of a Turbo Long will slowly decrease.

• Turbo Short investors generally receive interest and are charged a 2% fee over the sum of the value of the Turbo and the short position, also known as financing revenues. These revenues are remunerated to the investor by increasing the financing level with these revenues daily. Assuming equal market circumstances, the value of a Turbo Short will slowly increase.

• The stop-loss level for each Turbo is adjusted monthly to accommodate for changes in the financing level.

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Adjustments for the effect of dividends

• Some underlyings issue dividends. Dividend payments will, under equal market circumstances, lead to a proportional decrease in the price of the underlying.

• To keep the value of the Turbo dividend-neutral, the financing level of the affected Turbos will be adjusted by the net dividend before the opening of the exchange on the ex-dividend date.

• For Turbos on Indices, the subtraction is done by the net amount, corrected for the weighting of the dividend-paying company in the Index.

• To accommodate the changes in the financing level, the stop-loss level will also be adjusted on ex-dividend dates.

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Example: Adjustments for the effect of dividends

Dividend effect Turbo LongPrice of underlying EUR 15Financing level Turbo Long EUR 10Ratio 1Exchange rate not applicableValue Turbo Long EUR 5Net dividend EUR 1

Dividend effect Turbo ShortPrice of underlying EUR 15Financing level Turbo Short EUR 22Ratio 1Exchange rate not applicableValue Turbo Short EUR 7Net dividend EUR 1

Underlying Financing level Value Turbo Long

Pre-dividend EUR 15 EUR 10 EUR 5

Ex-dividend EUR 14 EUR 9 EUR 5

Underlying Financing level Value Turbo Short

Pre-dividend EUR 15 EUR 22 EUR 7

Ex-dividend EUR 14 EUR 21 EUR 7

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Example: Adjustments for the effect of dividends

Dividend effect Turbo LongPrice of underlying USD 360Financing level Turbo Long USD 320Ratio 10Exchange rate 1.40Value Turbo Long EUR 2.86Net dividend USD 3

Dividend effect Turbo ShortPrice of underlying USD 360Financing level Turbo Short USD 415Ratio 10Exchange rate 1.40Value Turbo Short EUR 3.93Net dividend EUR 3


Pre-dividend USD 360 USD 320 EUR 2.86

Ex-dividend USD 357 USD 317 EUR 2.86


Pre-dividend USD 360 USD 415 EUR 3.93

Ex-dividend USD 357 USD 412 EUR 3.93

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Adjustments for the effect of futures

• Certain Turbos are issued with a future contract as underlying.• Future contracts are standardized contracts between two parties to buy or sell a

specified quantity of a specified asset at a specified future date at a price agreed today (the future price).

• Future contracts are generally traded at a discount or premium to the spot price of the underlying of the future contract:

• Contango is a situation in which the future price exceeds the spot price, often due to the cost of storing and insuring the underlying

• Backwardation is a market condition in which a future price is lower in the distant delivery months than in the near delivery months. This is said to occur due to insufficient supply in the corresponding spot market.

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• As expiration of the future contract approaches, the future price normally moves towards the spot price.

• In a backwardation situation, one assumes that the future price will move up towards the spotprice. One can benefit from this expected movement by acquiring a Turbo Long

• In a contango situation, one assumes that the future price will move down towards the spotprice. One can benefit from this expected movement by acquiring a Turbo Short

Backwardation Contango

TimeTime

Pri

ce

Pri

ce

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• Futures have an expiration date (strike date) on which settlement of the underlying contract is required through either physical delivery or cash settlement.

• To prevent settlement of the underlying and to ensure continuation of the Turbo, future

contracts are rolled prior to expiration by selling the expiring contract and acquiring the succeeding (most liquid) contract.*

• Price differences may exist between futures with different strike dates when future contracts are rolled.

• To keep the value of the Turbo neutral for potential price differences upon the future roll, it is

possible that the financing level and stop loss-level of a Turbo on a future will be adjusted on the future roll date

*The actual underlying future of a Turbo and the future roll-date can be found under product characteristics on www.abnamromarkets.nl/turbo

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Example: Adjustments for the effect of futures

Future effect Turbo LongExpiring future contract EUR 23Financing level Turbo Long EUR 17Ratio 1Exchange rate not applicableValue Turbo Long EUR 6New future contract EUR 24

Future effect Turbo ShortExpiring future contract EUR 23Financing level Turbo Short EUR 30Ratio 1Exchange rate not applicableValue Turbo Short EUR 7New future contract EUR 24


Expiring future contract

EUR 23 EUR 17 EUR 6

New future contract

EUR 24 EUR 18 EUR 6



EUR 23 EUR 30 EUR 7

New future contract

EUR 24 EUR 31 EUR 7

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Example: Adjustments for the effect of futures

Future effect Turbo LongExpiring future contract USD 115Financing level Turbo Long USD 80Ratio 10Exchange rate 1.40Value Turbo Long EUR 2.50New future contract USD 114

Future effect Turbo ShortExpiring future contract USD 115Financing level Turbo Short USD 155Ratio 10Exchange rate 1.40Value Turbo Short EUR 2.86New future contract USD 114



USD 115 USD 80 EUR 2.50

New future contract

USD 114 USD 79 EUR 2.50



USD 115 USD 155 EUR 2.86

New future contract

USD 114 USD 154 EUR 2.86

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Securities Law Disclaimer

ABN AMRO Bank N.V. (‘ABN AMRO’) is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (the "1934 Act") and under applicable state laws in the United States. In addition, ABN AMRO is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, absent specific exemption under the Acts, any brokerage and investment advisory services provided by ABN AMRO, including (without limitation) the products and services described herein are not intended for U.S. persons. Neither this document, nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person.

Without limiting the generality of the foregoing, the offering, sale and/or distribution of the products or services described herein is not intended in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose possession this document or any copy thereof may come, must inform themselves about, and observe, any legal restrictions on the distribution of this document and the offering, sale and/or distribution of the products and services described herein. ABN AMRO can not be held responsible for any damages or losses that occur from transactions and/or services in defiance with the restrictions aforementioned.

abn amro turbos well prepared active investing. 2 agenda turbo basics the abn amro turbo the most...

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