If i bought capital note (the most junior) in SIV, is it possible that I can lose more than the principal I put?let's say 5mio notional investment, so the maximum loss i bear is 5mio, is there any clause to protect the capital note holder? since the SIV is leveraged, the loss could be huge.....

Are you talking a specific vehicle (eg the Barclays one)?Usually, though, there is no clawbacks (but i'm not a lawyer). Take for instance the structure of some of the CPDOs. These are heavily geared investors in CDOs, but they maintain a buffer. If that buffer is reached (say only 10% of the capital is left) the product would basically shut down (i.e. sell all assets). This is designed to protect the party which lends all the money. Typically, if there is a shortfall the lender (& not the investor) loses out. So there is a tension between the level of gearing (most investors & most product backtests have historically implied higher gearing) and the capital buffer (the higher this is, the lower the gearing but the safer the lender - who is often also the product's sponsor). Of course, this also means when calculating the capital remaining you've got decent prices with which to mark to market.I imagine there can be different structures?

I just think my loss is limited to my principal.... i don't need to bear extra losses

I just think my loss is limited to my principal.... i don't need to bear extra losses

no, i think the gap risk is borne by the issuer.

In a normal SIV, you won't lose more than what you put in as either junior or senior note investor. The high leverage of the vehicle can't cause investors to lose more than their pincipals.Regards,Ted

Thanks - looks like a consensus then - the gap/jump risk is borne by the issuer, not the investor.