2003 Media Releases

What is a WAVE™?

WAVEs™ are an ASX listed, highly geared, low cost trading alternative to trading warrants, futures and contracts for difference. WAVEs™ offer investors approximately Delta 1 (one for one exposure) to ASX listed shares or indices for a low premium, with minimal time decay.

WAVEs™ are an innovative product introduced by Deutsche Bank into the Australian market. The most relevant comparison to WAVEs™ is the margin investors pay in order to gain exposure to a futures contract over a share or index, or the premium investors pay for share exposure through a contract for difference.

If the share price or index level falls, investors who are long a futures contract or a contract for difference are exposed to ongoing margin calls. With WAVEs™ however, once the share price or index touches or falls below the exercise price, investors will not be exposed to further economic detriment, as the WAVEs™ will effectively be ‘knocked out’, allowing you to reassess your strategy.

Therefore, WAVEs™ offer investors similar share or index exposure to that of a futures contract or contract for difference, with an added feature that prevents unlimited losses.

How do WAVEs™ work?

Investors who purchase WAVEs™ do not invest the full amount required for the purchase of the underlying share or index. They pay the difference between the current share price or index level and the exercise price of the WAVE™, plus a small premium. The reduced capital required, combined with the WAVEs™ replicating the price performance of the underlying share or index on an almost one-for-one basis, allows investors to take advantage of changes in the share price or index level for lower cost.

WAVEs™ are structured so that at expiration, assuming the share price or index level has not touched the exercise price, they will pay the difference between the closing share price, or in the case of index WAVEs™, the Special Opening Quotation, and the pre-determined exercise price. In the case of a WAVE™ call, the closing share price or index level must exceed the exercise price. In the case of a WAVE™ put, the closing share price or index level must remain below the exercise price.

What are the benefits of WAVEs™?

• Approximately 1:1 price movement to the underlying
• Highly Leveraged
• Low cost and minimal time decay
• ASX listed ensuring liquidity and transparency
• Choice of Puts and Calls
• Choice of Shares and Index WAVEs™

What type of market / trading conditions suit WAVEs™?

WAVEs™ allow traders to capitalise on upward and downward movements in a share price or index, as both calls and puts are available, whilst also providing protection (from further loss of capital), against large unexpected adverse market moves.

WAVEs™ also allow traders to trade range-bound shares and indices in the knowledge that time decay will not dramatically erode their investment, and delta is approximately one.

In summary, WAVEs™ offer a unique vehicle through which traders can take a directional view on a share or index for a small capital outlay, and gain approximately 1:1 exposure to their chosen share or index.

How many WAVES™ will be issued?

Deutsche Bank intends to issue 72 WAVES™ covering 11 underlying shares and one underlying index- the S&P/ASX200 index. Each underlying share or index currently has 3 or more call WAVES™ with differing strikes and 3 or more put WAVES™ with differing strikes.

How to buy and sell WAVEs™

WAVEs™ can be purchased or sold on the ASX during market hours through any stock broker or licensed financial adviser.
For a list of available WAVEs™ and their corresponding ASX codes, please visit www.dbwarrants.com or call 1300 656 287.

Risk factors

WAVEs™ lose their value immediately if, during the term of the WAVE™, the underlying index level or share price equals or breaches the barrier level.

The leverage effect amplifies the price movements of the underlying share or index, whether positive or negative. It is important that investors read the offering circular and assess if WAVEs™ are appropriate for their risk profile.

Do WAVE™ holders receive dividends?

No. WAVE™ holders are not entitled to receive dividends or franking credits. If holders exercise their WAVEs™ at expiry, and elect to take up the underlying shares, they will then, as shareholders, be entitled to receive dividends and franking credits.

On the date that each underlying share goes ex-dividend, the strike price of each WAVE over that particular underlying share will be adjusted downwards by the exact amount of the ordinary dividend paid to shareholders.

How can WAVEs™ be used?

Day Trading

WAVE™ can be used for day-trading, or taking a directional view on a share or index, which is growing in popularity amongst experienced investors. Day traders speculate on short-term trends in the underlying index or share. They choose WAVEs™ with barrier levels close to the current index level or stock price, as these have the lowest premiums and highest gearing levels. Such WAVEs™ have a leverage of more than 10, sometimes even 20 or more. Hence, index rises are reflected on a leveraged basis – but so are index falls. If there is a movement of 1% in the S&P/ASX200 index, the price of a WAVE™ Call with a leverage of 20 will rise or fall by a full 20%. Therefore, this strategy - like day-trading in general - could only be recommended for very experienced investors who watch market activities closely and on a daily basis.

Hedging Portfolios

WAVEs™ can also be used to hedge shares or portfolios. Because of the stop-loss feature, WAVE™ Puts are cheaper than comparable conventional put warrants, hence hedging a S&P/ASX200 index-like portfolio becomes cheaper for the investor. Additionally WAVE™ Puts offer the advantage of replicating index movements on an approximately 1:1 basis, so it is easy to calculate the number of WAVEs™ necessary to hedge the portfolio. If the WAVE™ Put expires worthless, the investor can still benefit, as his or her portfolio will inevitably have risen at that time.