Structured Notes Glossary

Key terms and definitions for understanding Canadian structured notes. Click any letter to jump to that section.

A B C D E F I K L M O P R S T U V W

A

Accelerator Note: A growth note with a participation rate above 100%, amplifying gains. For example, a 2x accelerator doubles the underlier's positive return. Downside exposure depends on the note's specific protection features.
Auto-Call Level: The underlier level above which a note is redeemed early by the issuer. When the underlier exceeds this level on an observation date, the investor receives their principal plus any applicable return.
Averaging: A method of calculating returns based on the average underlier level over multiple observation dates rather than a single final date. Reduces the impact of short-term volatility on your return.
A-Class: A fee class that includes an embedded sales commission paid to the advisor at time of sale. The commission is built into the note's terms.

B

Barrier Level: A predefined level that determines whether your principal is protected at maturity. If the underlier stays above the barrier, you get your money back. If it falls below, you're exposed to losses. Typically expressed as a percentage decline from the initial level (e.g. -25%).
Bear Note: A structured note that profits when the underlier declines. Gains when the market falls and loses when it rises. Used by investors with a bearish outlook or as a portfolio hedge.
Boosted Return Note: A note that pays a fixed enhanced return if the underlier finishes positive, regardless of how much it gained. Some versions add excess participation above the boosted level.
Buffer: A type of downside protection that absorbs the first portion of any underlier decline. For example, a 15% buffer means you only start losing money after the underlier has fallen more than 15%. Contrasts with barriers which are all-or-nothing.

C

CDIC: Canada Deposit Insurance Corporation. Structured notes are not CDIC insured, unlike GICs or savings deposits. Your protection comes from the issuing bank's creditworthiness, not government deposit insurance.
Coupon: A periodic payment made to the note holder, similar to interest. Can be fixed (guaranteed regardless of market) or contingent (only paid when the underlier meets certain conditions).
Coupon Payment Threshold: The underlier level above which a contingent coupon is paid. If the underlier is below this threshold on an observation date, no coupon is paid for that period.
CUSIP: A 9-character alphanumeric code that uniquely identifies a specific security. Used by brokerages and custodians to track structured notes.

D

Downside Participation: The rate at which you participate in losses below the barrier or buffer. A downside participation of 1x means you lose dollar-for-dollar with the underlier's decline. Some notes offer reduced downside participation (e.g. 0.5x).

E

Early Trading Fee: A fee charged if you sell your note on the secondary market before a specified period (typically 60-180 days after issuance).
Extendible Note: A note where the issuer has the option to extend the term beyond the original maturity date if certain conditions aren't met. Typically found in income-focused notes with step-up coupon features.

F

F-Class: A fee class with no embedded sales commission, used in fee-based advisor accounts. The advisor charges their fee separately.
FHSA: First Home Savings Account. A registered account eligible for holding PPNs and some structured notes, providing tax-free growth for first-time home buyers.
Floating Rate Note (FRN): A structured note whose coupon rate adjusts periodically based on a reference interest rate (e.g. CORRA). Pays a variable income stream that rises and falls with prevailing rates.
Fundserv Code: A unique identifier used by Fundserv (Canada's mutual fund transaction network) to process structured note orders. Starts with a 3-letter issuer prefix followed by numbers.

I

Index: A common type of underlier. Popular examples in Canadian structured notes include the S&P/TSX 60, S&P 500, Nasdaq-100, and Euro Stoxx 50.
Initial Level: The underlier's value on the note's issue date. All performance calculations (barrier, auto-call, participation) are measured relative to this starting point.
IRN (Interest Rate Note): A category of structured notes designed to provide enhanced yield compared to traditional fixed income. Includes extendible notes and floating rate structures.
Issuer: The bank that creates and guarantees the structured note. In Canada, the major issuers are TD, CIBC, BMO, Scotia, RBC, and National Bank.
Issuer-Callable: A feature allowing the issuing bank to redeem the note early at their discretion, typically when interest rates decline. The investor receives their principal plus any accrued coupon.

K

Knock-In: A feature where downside exposure only activates if the underlier breaches a specified level during the term (not just at maturity). Once knocked in, the barrier protection is permanently lost.

L

Liquidity: How easily you can sell your note before maturity. Structured notes can be sold on the secondary market through the issuer, with pricing based on prevailing market conditions.

M

Maximum Return: A cap on the upside gain you can earn from a note, regardless of how well the underlier performs. If the cap is 20% and the underlier gains 40%, you still only receive 20%.
Maturity Date: The date when the note expires and final settlement occurs. This is when barrier/buffer protection is evaluated and principal is returned or losses are realized.
Memory Coupon: A feature where missed contingent coupons are remembered and paid out on the next observation date when the underlier is above the threshold. Similar to snowball accumulation but only looks back one or more periods.

O

Observation Date: A scheduled date on which the underlier level is checked to determine coupon payments, auto-call triggers, or maturity outcomes. Also called a valuation date.

P

PAR (Principal-at-Risk): A category of structured notes where your original investment is not guaranteed. You could lose some or all of your principal if the underlier declines below the barrier or buffer level.
Participation Rate: The percentage of the underlier's return that you receive. A 100% participation rate means you get the full gain. A 150% rate means you get 1.5x the gain. Rates below 100% mean you capture less than the underlier.
Phoenix Note: Another name for an autocallable coupon note. Pays a coupon each period if the underlier is above the payment threshold. Missed coupons are forfeited (not accumulated).
PPN (Principal Protected Note): A category of structured notes where your full investment is guaranteed at maturity regardless of market performance. In exchange, you typically receive lower participation in gains.

R

RRIF: Registered Retirement Income Fund. A registered account that can hold structured notes, typically used for retirement income withdrawals.
RRSP: Registered Retirement Savings Plan. A tax-deferred account that can hold structured notes. Returns are taxed as income upon withdrawal.
RESP: Registered Education Savings Plan. A registered account for education savings that can hold structured notes.
Range Accrual: A note that pays a coupon proportional to the number of days the underlier stays within a specified range. More days in-range means a higher coupon for that period.
Return of Capital (ROC): A note structure that returns portions of your principal over time as scheduled payments rather than generating returns from market performance.

S

Sales Commission: The fee paid to the selling advisor when you purchase a note (A-Class). Typically ranges from 0% to 5% and is embedded in the note's terms.
Secondary Market: The market where you can sell your note before maturity. Prices are set by the issuer based on prevailing conditions and may be above or below your original investment.
Snowball: An autocallable note feature where missed coupons accumulate over time. When the note is eventually called or matures above the barrier, all accumulated coupons are paid out at once.
Structured Note: An investment product issued by a bank that combines a bond-like component with a derivative. Returns are linked to the performance of an underlying asset, with customizable risk/return profiles.

T

Term: The duration from issue date to maturity date. Structured notes typically range from 1 to 7 years.
TFSA: Tax-Free Savings Account. A registered account where structured note returns grow and are withdrawn tax-free. Most structured notes are TFSA eligible.
Twin Win: A note that profits from both upward and downward movements of the underlier, as long as it stays above the barrier. If the underlier drops 10% but remains above the barrier, you gain 10%.

U

Underlier: The asset that the note's performance is linked to. Can be a single stock, a basket of stocks, an index (like S&P/TSX 60), or an ETF.

V

Valuation Date: See Observation Date.

W

Worst-of Basket: A note linked to multiple underliers where the return is determined by the worst-performing one. Offers higher coupons in exchange for the added risk of multiple assets.

For educational purposes only. Not investment advice. Consult a qualified financial advisor before making investment decisions.