equity linked notes (ELN)

Equity-linked notes (ELN) seek to enhance return by linking to the performance of an equity asset i.e. shares, index or indices, basket of shares or indices. A zero or low coupon may be given as a minimum return. The holder of the ELN will receive the higher coupon when the value of the underlying equity hits or exceeds a certain “trigger level”. Otherwise, the holder will receive nothing or the lower coupon.

The equity linked return may be open ended (i.e. the note holder will enjoy unlimited upside of the underlying equity) or, more commonly, capped.

The ELN may also have a equity linked early termination option if the value of the underlying equity hits or exceeds a certain level (the “knock-out event”)

For some of the fancier names, cf.this.

Last updated January 2007

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