Structured notes tied to ETFs return 20% as trading surges

The notes traded 1.43 million times in 13 minutes

Trading of four similar U.S. structured notes tied to exchange-traded funds surged as the securities sold for more than 20 percent above face value.

The notes, all distributed by UBS AG, were tied to the value of the SPDR S&P 500 ETF Trust, iShares MSCI EAFE Index Fund, and the iShares MSCI Emerging Markets Index Fund and mature on Jan. 30, 2015, according to data compiled by Bloomberg.

The notes traded 1.43 million times in 13 minutes starting 4:04 p.m. on May 28 in New York, the highest volume since they were issued, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s more than five times their combined volume of 261,600 trades in the month’s preceding four weeks.

UBS, HSBC Holdings Plc, Deutsche Bank AG, and Barclays Plc issued the securities on Oct. 27, 2010. They were valued between 121 and 123 cents on the dollar on May 28. The notes issued by Deutsche Bank traded at the highest price, 123.08 cents on the dollar.

The biggest of the four offerings was $22.1 million of notes sold by Barclays. The securities yield as much as 64.3 percent with protection against 30 percent of losses and all capital at risk, according to a prospectus filed with the U.S. Securities and Exchange Commission. UBS distributed the notes for a 3.13 percent fee.

Glenmede Holdings

Glenmede Trust Co., a Philadelphia-based investment management company, owned 10,000 of the notes issued by Barclays and UBS, according to a May 15 filing registered with the U.S. Securities and Exchange Commission. Alex Dalgliesh, a spokeswoman for the company at Braithwaite Communications, didn’t return phone calls seeking comment.

The SPDR S&P 500 ETF rose 40 percent since the notes were issued to $165.83 on May 28. IShares’ EAFE ETF rose 8.9 percent and its emerging markets fund fell 7 percent during that same period.

Eric Glicksman, a spokesman for UBS, didn’t return an e- mail seeking comment. Mark Lane, a spokesman for Barclays, Juanita Gutierrez, a spokeswoman for HSBC, and Amanda Williams, a spokeswoman for Deutsche Bank, declined to comment on the notes or the trades.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

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