©2023, Halo Securities LLC. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of Halo Securities LLC (“Halo”).

The information provided is for informational purposes only and is subject to change without notice. This presentation does not constitute, either explicitly or implicitly, any provision of services or products by Halo, and investors should determine for themselves whether a particular investment management service is suitable for their investment needs. All statements made regarding companies or securities are strictly beliefs and points of view held by Halo, and are not endorsements by Halo of any company or security or recommendations by Halo to buy, sell or hold any security. Historical results are not indications of future results.

Certain statements contained in this presentation may be statements of future expectations and other forward-looking statements that are based on Halo’s current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

The matters discussed in this presentation may also involve risks and uncertainties described from time to time in Halo’s filings with government and state regulators. Halo assumes no obligation to update any forward-looking information contained in this presentation. Halo and its clients as well its related persons may (but do not necessarily) have financial interest in securities or issuers that are discussed. Certain information was obtained from sources that Halo believes to be reliable; however, Halo does not guarantee the accuracy or completeness of any information obtained from any third party.

Halo Securities LLC is affiliated with Halo Investing; Halo Investing is not a broker dealer. Halo Securities LLC acts solely as distributor/selling agent and is not the issuer or guarantor of any structured note products. Halo acts solely as distributor/selling agent and is not the Issuer or guarantor of any structured note products. 

The content given by Halo Investing are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation to sell or solicitation of an offer to buy securities. It is your responsibility to understand and evaluate any prospective investment. Such considerations shall be based on your review of applicable offering documents, your evaluation of your financial circumstances, investment objectives, risk tolerance, liquidity needs, and any features of the specific structured note product. 

Actual structured notes may materially differ compared to the sample structured note and or related information provided herein. Interest rates, volatility, price movements or any other macro variable may negatively impact the investment principal and performance.

What are Structured Notes?

Structured notes are securities Issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies. Thus, your return is “linked” to the performance of a reference asset or index. Structured notes have a fixed maturity and include two components–a bond component and an embedded derivative. Financial institutions typically design and issue structured notes, and broker-dealers sell them to individual investors. Some common types of structured notes sold to individual investors include: principal protected notes, reverse convertible notes, enhanced participation or leveraged notes, and hybrid notes that combine multiple characteristics. 

Risks and Other Considerations with Structured Notes Complexity

You and your broker should take time to fully understand the manner in which your return on a structured note is calculated. You should understand the reference asset(s) or index(es) and determine how the note’s payoff structure incorporates such reference asset(s) or index(es) in calculating the note’s performance. This payoff calculation may include leverage multiplied on the performance of the reference asset or index, protection from losses should the reference asset or index produce negative returns, and fees.

Market Risk 

Some structured notes provide for the repayment of principal at maturity, which is often referred to as “principal protection.” This principal protection is subject to the credit risk of the issuing financial institution. Many structured notes do not offer this feature. For structured notes that do not offer principal protection, the performance of the linked asset or index may cause you to lose some, or all, of your principal. Depending on the nature of the linked asset or index, the market risk of the structured note may include changes in equity or commodity prices, changes in interest rates or foreign exchange rates, or market volatility.

Issuance Price and Note Value

The price you will pay for a structured note at issuance will likely be higher than the fair value of the structured note on the date of issuance. Issuers now disclose an estimated value of the structured note on the cover page of the offering prospectus, allowing investors to gauge the difference between the issuer’s estimated value of the note and the issuance price. The estimated value of the notes is likely lower than the issuance price of the note to investors because issuers include the costs for selling, structuring or hedging the exposure on the note in the initial price of their notes. After issuance, structured notes may not be re-sold on a daily basis and thus may be difficult to value given their complexity. 

Liquidity

Your ability to trade or sell structured notes in a secondary market is often very limited as structured notes (other than exchange-traded notes known as ETNs) are not listed for trading on security exchanges. As a result, the only potential buyer for your structured note may be the issuing financial institution’s broker-dealer affiliate or the broker-dealer distributor of the structured note. In addition, issuers often specifically disclaim their intention to repurchase or make markets in the notes they issue. You should, therefore, be prepared to hold a structured note to its maturity date, or risk selling the note at a discount to its value at the time of sale. 

Daily Pricing 

The pricing accuracy is questionable because most structured notes never trade after issuance. Prices are usually calculated by a matrix, which is very different than net asset value. Matrix pricing is essentially a best-guess approach by the issuer.

Payoff Structure

Structured notes may have complicated payoff structures that can make it difficult for you to accurately assess their value, risk and potential for growth through the term of the structured note. Determining the performance of each note can be complex and this calculation can vary significantly from note to note depending on the structure. Notes can be structured in a wide variety of ways. Payoff structures can be leveraged, inverse, or inverse-leveraged, which may result in larger returns or losses for you. You should carefully read the prospectus for a structured note to fully understand how the payoff on a note will be calculated and discuss these issues with your broker. For example, the payoff on structured notes can depend on: 

Participation rates

Some structured notes provide a minimum payoff of the principal invested plus an additional payoff to you based on multiplying any increase in the reference asset or index by a fixed percentage. This percentage is often called the participation rate. A participation rate determines how much of the increase in the reference asset or index will be paid to investors of the structured note. For example, if the participation rate is 50 percent, and the reference asset or index increased 20 percent, then the return paid to you would be 10 percent (which is 50 percent of 20 percent). 

Capped Maximum Returns

Some structured notes may provide payments linked to a reference asset or index with a leveraged or enhanced participation rate, but only up to a capped, maximum amount. Once the maximum payoff level is reached, you do not participate in any additional increases in the reference asset or index. For example, a note may provide the investor 100% of all funds invested at the end of two years, plus an enhancement of any rise in the performance of the S&P 500 up to 20%. If the performance of the S&P 500 increases 25% in those two years, you only receive a return of 20%.

Knock-In Feature

If the reference asset or index falls below a pre-specified level during the term of the note, you may lose some or all of your principal investment at maturity and also could lose coupon payments scheduled throughout the term of the note. This pre-specified level may be called a barrier, trigger, or knock-in. When this level is breached, the payout return changes on the note. For example, if the reference asset or index falls below the knock-in level and its value is lower than on the date of issuance, instead of receiving a return of your principal, you may instead receive an amount that reflects the decline in value of the reference asset or index. For certain types of structured notes, you may actually receive the reference asset that has declined in value during the term of the note. 

Credit Risk

Structured notes are unsecured debt obligations of the issuer, meaning that the issuer is obligated to make payments on the notes as promised. These promises, including any principal protection, are only as good as the financial health of the structured note issuer. If the structured note issuer defaults on these obligations, investors may lose some, or all, of the principal amount they invested in the structured notes as well as any other payments that may be due on the structured notes. 

Call Risk

Some structured notes have “call provisions” that allow the issuer, at its sole discretion, to redeem the note before it matures at a price that may be above, below or equal to the face value of the structured note. If the issuer “calls” the structured note, investors may not be able to reinvest their money at the same rate of return provided by the structured note that the issuer redeemed.

Additional Considerations Before Investing in Structured Notes 

Before investing in any structured note, do your research and ask your Halo investment professional: 

Fees and other costs associated with the investment. 

Cost premium above an issuer’s estimated value of a structured note investor will be paying for the structured note and its relevance to the investment decision. 

Structured notes may not be a suitable investment for you. You should review your investment objectives, tolerance for risk and costs with your broker or financial adviser before you consider investing in a structured note. 

Alternative products that may be available that provide investment exposure to similar assets, indices or strategies. Carefully consider what might be a suitable investment for you, and whether there are better alternatives to the structured note you are considering, both from a return, fee, and risk perspective. Structured notes are illiquid typically held to maturity. Investors could lose a significant portion of their investment if principal is needed prior to maturity. 

Understand applicable call features to ensure you understand what can trigger the call and the earliest date that the structured note may be called and if so, potential returns can be negatively impacted or capped. 

Consult with a tax advisor to understand the consequences of any particular structured note, including imputed interest and any foreign tax consequences. 

Purchasing a structured note does not guarantee positive returns. The reference asset or index might not increase in value—or even if it does, there may be conditions that limit your returns. 

Be sure to understand the financial condition of the issuer and read its disclosures as carefully as you would for any other investment. 

Many structured notes are complex is it is important to review disclosure materials and discuss all aspects of the investment with your financial professional.