Accumulators (aka: share forward accumulators) are financial

derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. F ...

products sold by an issuer (seller) to investors (the buyer) that ''require'' the buyers to buy shares of some

underlying In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be use ...

security Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...

at a predetermined strike price, settled periodically. This allows the investor to "accumulate" holdings in the

over the term of the contract; this then constitutes a

structured product A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single Security (finance), security, a basket of securities, Option (finance), options, Index (economics), indices, ...

. Sometimes known as "I kill you later" contracts, accumulators typically last for a year or less and terminate early ("knock-out") if the stock price goes above a threshold ("barrier"). The basic idea of an accumulator contract is that the buyer speculates a company will trade between a certain price range (the range between the strike and the knock out price) within the contract period, and the issuer bets that stock will fall below the strike price. Note that the buyer holds an obligation to buy the shares at the strike price and not the option to buy. Likewise, the issuer holds an obligation to sell shares at the strike price.

Contract specifications

Terms of the accumulator contract between two counterparties are specified in a

term sheet A term sheet is a bullet-point document outlining the material terms and conditions of a potential business agreement, establishing the basis for future negotiations between a seller and buyer. It is usually the first documented evidence of a pos ...

. They will usually include the following: * The Reference Shares ("the shares"), or the underlying security of the contract. * The quantity and class of shares (if there are more than one class). * The strike price, also called the exercise price. This is price at which the issuer will sell shares to the investor. * The settlement dates, this is the dates on which shares will change hands from the Issuer to the buyer. There should be more than one settlement day in an accumulator contract, or else it will not be "accumulating". * The knock out price, this sets the top limit price the underlying equity can reach before the contract is "knocked out" and whatever outstanding shares accumulated prior to that day are settled * Shares per day, this is the maximum number of shares the buyer can "accumulate" per day. * The trade day, this is the day the contract was sold/bought. * The first accumulation day, this is the day that accumulation begins. * The Initial Knock-out day, this is the first day that knock out can occur.

References

{{Reflist Derivatives (finance) Structured finance