Hi All,once an issuer issues structured note, the deal contains three conterparts, issuer, swap bank, and investor. i wonder if someone is familiar how the function operates... I mean, say one note is 10yr range accrual note with conditions of non-call 1yr. when market condition changes in one year, who can decide the call option to terminate the note. by the way, if issuers has the right, how can they deal with the remaining swap leg between issuers and swap banks. You guys have any tips on how MTN market works?

Hii agreed that normally 3 parties involved as you mentioned but the "name" for each party is sometime confusing. Let's define them 1st:Situation: JP Morgan sells a 10yNC1y 3mL range accrual note with CBA as the issuer to investor Mr.A at $100JP Morgan- sell note to investor Mr.A- receive $100 capital from investor Mr.A- a swap with CBA (pass $100 to CBA and receive (funding) USD3mL+spread from CBA- pay range accrual payoff to Mr.A- someone called JP Morgan as bookrunner, arranger and many other names. the most important point here is JP Morgan uses a 3rd party issuer (CBA) to issue the note!CBA- the issuer for the note- receive $100 capital from JP Morgan- pays (funding) USD3mL+spread to JP MorganInvestor Mr.A- buy note from JP Morgan @ $100- receive range accrual payoff from JP MorganWho has the right to call?obviously it won't be the investor Mr.A!JP Morgan - he always has 2 "legs" on its book: 1 "receive" leg and 1 "pay" leg. in order to decide when to call back the note, JP Morgan can compare the PV(receive leg) and PV(pay leg). if PV(receive leg)> PV(pay leg), business as usual, nothing will happen. otherwise, under normal market situation, JP Morgan will call back the note. CBA - for the whole transaction, CBA doesn't involve in any "range accrual payoff". Theoretically, CBA doesn't has the right to call back the note. however, CBA may negotiate with JP Morgan if it's possible to early unwind the swap because of whatever reason between them (of coz with economic reason and benefit). in this case, if JP Morgan agrees to do so, JP Morgan will call back the noteWhen the note is calledOn the call date, JP Morgan will unwind the swap with CBA. CBA returns $100 to JP MorganJP Morgan pays back $100 + any accrued interest to investor Mr.Athis is only a simplified situation. in reality it can be a lot more complicated and also many other factors have to be considered by each party.one more note, JP Morgan of course can use it's EMTN programe (ie JP Morgan acts as both Issuer and Arranger). Reasons of using 3rd party issuer can be varied: client's request, issuer's credit, better funding........hope it helps! cheers

Thank you Volatile, it does help a lot. by the way, as long as, in your case, J.P.Morgan is concerned, it should do other trade to generate the yield to investors( let's assume, say, 7%). So, my following question that I'm curious about the exotic option side. Whether or not J.P.Morgan exotic desk would sell back-to-back option (in our case, we assume CMS(30Y-10Y) spread option) to other counterparts in the market ? If the answer is yes, then if J.P.Morgan want to terminate the structured note deal, should J.P.Morgan unwind the exotic option simutaneously? or just still keep it on its book? could anyone please give me a hint ?!

Volatile is absolutely right - Think of the Issuer of the note (bond) as just a pass through vehicle for the structure - Although they are legally calling the note/bond, in reality in the background, the swap is being called by the swap provider - Hence the issuer can either: 1. Going forward, not call the note and remain unhedged, 2. Call the note as well. #1 is very unusual as being unhedged would mean you breach your treasury guidelines however the issuer could find a replacement swap at a new cost of funding.#2 is the usual outcome.cheers