Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-259205
|
|||
Pricing Supplement
Dated June 27, 2022
to the Product Prospectus Supplement ERN-EI-1 Dated September 14, 2021, Prospectus Supplement Dated September 14, 2021, and Prospectus Dated September 14, 2021
|
Enhanced Return Notes
Each Linked to a Different Index, Due August 31, 2023 Royal Bank of Canada |
||
Reference Asset and Symbol
|
Principal
Amount
|
CUSIP
|
Initial Level
|
Maximum Redemption
Amount
|
Initial Estimated
Value (per $1,000 in
principal amount)
|
S&P 500® Index (SPX)
|
$45,000
|
78016FM68
|
3,900.11
|
117.50%
|
$961.04
|
MSCI EAFE® Index (MXEA)
|
$25,000
|
78016FM84
|
1,896.13
|
117.50%
|
$964.91
|
Issue Date: June 30, 2022
|
Maturity Date: August 31, 2023
|
Per SPX Note
|
Total
|
Per MXEA Note
|
Total
|
||||
Price to public(1)
|
100.00%
|
$45,000
|
100.00%
|
$25,000
|
|||
Underwriting discounts and commissions
|
2.25%
|
$1,012.50
|
2.25%
|
$562.50
|
|||
Proceeds to Royal Bank of Canada
|
97.75%
|
$43,987.50
|
97.75%
|
$24,437.50
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
Issuer:
|
Royal Bank of Canada (“Royal Bank”)
|
Underwriter:
|
RBC Capital Markets, LLC (“RBCCM”)
|
Reference Assets:
|
As set forth on the cover page.
|
Minimum
Investment:
|
$1,000 and minimum denominations of $1,000 in excess thereof
|
Trade Date (Pricing
Date):
|
June 27, 2022
|
Issue Date:
|
June 30, 2022
|
Valuation Date:
|
August 28, 2023
|
Maturity Date:
|
August 31, 2023, subject to extension for market and other disruptions, as described in the product prospectus supplement dated September 14, 2021.
|
Payment at Maturity
(if held to maturity):
|
If the Percentage Change for the applicable Notes is positive, then the investor will receive an amount per $1,000 principal
amount per Note equal to the lesser of:
1. Principal Amount + [Principal Amount x (Percentage Change x Leverage Factor)]
2. the Maximum Redemption Amount
If the Percentage Change for the applicable Notes is negative or zero, then the investor will receive a cash payment equal to:
Principal Amount + [Principal Amount x Percentage Change]
You could lose all or a substantial portion of the principal amount if the Final Level for the applicable Notes is less than the Initial Level.
|
Percentage Change:
|
The Percentage Change for the applicable Reference Asset, expressed as a percentage, is calculated using the following formula:
|
Maximum
Redemption
Amount:
|
A percentage of the principal amount, as set forth on the cover page of this document.
|
Initial Level:
|
The closing level of the applicable Reference Asset on the Trade Date, as set forth on the cover page of this document.
|
Final Level:
|
The closing level of the applicable Reference Asset on the Valuation Date.
|
Leverage Factor:
|
300%
|
Principal at Risk:
|
The Notes are NOT principal protected. You may lose all or a substantial portion of your principal amount at
maturity if the applicable Final Level is less than its Initial Level.
|
Calculation Agent:
|
RBCCM
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
U.S. Tax Treatment:
|
By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat the applicable Notes as a pre-paid
cash-settled derivative contract for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the Notes are uncertain and the Internal Revenue Service could assert that the Notes should
be taxed in a manner that is different from that described in the preceding sentence. Please see the section below, “Supplemental Discussion of U.S. Federal Income Tax Consequences,” and the discussion (including the opinion of Ashurst
LLP, our special U.S. tax counsel) in the product prospectus supplement dated September 14, 2021 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.
|
Secondary Market:
|
RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in each of the Notes after the issue date. The amount that
you may receive upon sale of your Notes prior to maturity may be less than the principal amount of your Notes.
|
Listing:
|
The Notes will not be listed on any securities exchange.
|
Clearance and
Settlement:
|
DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under “Ownership and Book-Entry Issuance” in the prospectus dated September 14,
2021).
|
Terms Incorporated
in the Master Note:
|
As to each of the Notes, all of the applicable terms appearing above the item captioned “Secondary Market” on pages P-2 and P-3 of this pricing supplement and the terms appearing under the
captions “General Terms of the Notes” and “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the product prospectus supplement dated September 14, 2021, as modified by this pricing supplement.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
Example 1 —
|
Calculation of the Payment at Maturity where the Percentage Change is positive.
|
|
Percentage Change:
|
2%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x (2% x 300%)] = $1,000 + $60 = $1,060
|
|
On a $1,000 investment, a 2% Percentage Change results in a Payment at Maturity of $1,060, a 6% return on the Notes.
|
Example 2 —
|
Calculation of the Payment at Maturity where the Percentage Change is positive (and the Payment at Maturity is subject to the Maximum Redemption Amount).
|
|
Percentage Change:
|
10%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x (10% x 300%)] = $1,000 + $300 = $1,300
However, the hypothetical Maximum Redemption Amount is $1,150 per $1,000 in principal amount.
|
|
On a $1,000 investment, a 30% Percentage Change results in a Payment at Maturity of $1,150, a 15% return on the Notes.
|
Example 3 —
|
Calculation of the Payment at Maturity where the Percentage Change is negative.
|
|
Percentage Change:
|
-60%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x -60%] = $1,000 - $600 = $400
|
|
On a $1,000 investment, a -60% Percentage Change results in a Payment at Maturity of $400, a -60% return on the Notes.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
• |
You May Not Receive the Full Principal Amount at Maturity — Investors in each of the Notes could lose all or a substantial
portion of their principal amount if there is a decline in the level of the applicable Reference Asset. If the applicable Final Level is less than the applicable Initial Level, you will lose 1% of the principal amount of your Notes for
each 1% that the applicable Final Level is less than the applicable Initial Level.
|
• |
The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt Security of Comparable Maturity —
There will be no periodic interest payments on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. The return that you will receive on the Notes, which could be negative, may
be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return you would earn if you purchased one of our conventional senior interest bearing debt securities.
|
• |
Your Potential Payment at Maturity Is Limited — The Notes will provide less opportunity to participate in the appreciation of the applicable Reference Asset than an
investment in a security linked to that Reference Asset providing full participation in the appreciation, because the payment at maturity will not exceed the applicable Maximum Redemption Amount. Accordingly, your return on the Notes
may be less than your return would be if you made an investment in a security directly linked to the positive performance of the applicable Reference Asset.
|
• |
Payments on the Notes Are Subject to Our Credit Risk, and Changes in Our Credit Ratings Are Expected to Affect the Market Value of the Notes — The Notes are our senior unsecured debt securities. As a result, your receipt of the applicable amount due on the maturity date for your Notes is dependent upon our ability to repay our obligations at that time. This
will be the case even if the level of the applicable Reference Asset increases after the Trade Date. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
|
• |
There May Not Be an Active Trading Market for the Notes—Sales in the Secondary Market May Result in Significant Losses — There
may be little or no secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and our other affiliates may make a market for one or more of the Notes; however, they are not required to do so. RBCCM
or any of our other affiliates may stop any market-making activities at any time. Even if a secondary market for any of the Notes develops, it may not provide significant liquidity or trade at prices advantageous to you. We expect that
transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial.
|
• |
The Initial Estimated Value of the Notes Is Less than the Price to the Public — The initial estimated value of each of the Notes
that is set forth on the cover page of this pricing supplement does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary market (if any exists) at any time. If
you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the level of the applicable Reference
Asset, the borrowing rate we pay to issue securities of this kind, and the inclusion in
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
• |
The Initial Estimated Value of the Notes that Is Set Forth on the Cover Page of This Pricing Supplement Is an Estimate Only, Calculated as of the Time the Terms of the Notes
Were Set — The initial estimated value of the Notes is based on the value of our obligation to make the payments on the Notes, together with the mid-market value of the derivative
embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term
of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is significantly different than we do.
|
• |
Our Business Activities May Create Conflicts of Interest — We and our affiliates expect to engage in trading activities related to the applicable Reference Asset that
are not for the account of holders of the Notes or on their behalf. These trading activities may present a conflict between the holders’ interests in the Notes and the interests we and our affiliates will have in their proprietary
accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the level of the applicable Reference
Asset, could be adverse to the interests of the holders of the Notes. We and one or more of our affiliates may, at present or in the future, engage in business with companies included in the applicable Reference Asset, including making
loans to or providing advisory services. These services could include investment banking and merger and acquisition advisory services. These activities may present a conflict between our or one or more of our affiliates’ obligations and
your interests as a holder of the Notes. Moreover, we, and our affiliates may have published, and in the future expect to publish, research reports with respect to one or more of the Reference Assets. This research is modified from time
to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the applicable Notes. Any of these activities by us or one or more of our affiliates may affect the level of one
or more of the Reference Assets, and, therefore, the market value of the applicable Notes.
|
• |
You Will Not Have Any Rights to the Securities Included in the Applicable Reference Asset — As a holder of the Notes, you will
not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities included in the applicable Reference Asset would have. The Final Level for your Notes will not reflect any
dividends paid on the securities included in the applicable Reference Asset, and accordingly, any positive return on any of the Notes may be less than the potential positive return on those securities.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
• |
The Payments on the Notes Are Subject to Postponement Due to Market Disruption Events and Adjustments — The payment at maturity
and the Valuation Date for each of the Notes are subject to adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market
disruption event, see “General Terms of the Notes—Market Disruption Events” in the product prospectus supplement.
|
• |
An Investment in the Notes Linked to the MXEA Is Subject to Risks Relating to Non-U.S. Securities Markets — Because foreign
companies or foreign equity securities included in the MXEA are publicly traded in the applicable foreign countries and are denominated in non-U.S. currencies, an investment in the Notes linked to the MXEA involves particular risks. For
example, the non-U.S. securities markets may be more volatile than the U.S. securities markets, and market developments may affect these markets differently from the U.S. or other securities markets. Direct or indirect government
intervention to stabilize the securities markets outside the U.S., as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information
concerning the foreign issuers may vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the foreign issuers may be subject to accounting, auditing and financial
reporting standards and requirements that differ from those applicable to U.S. reporting companies.
|
• |
Notes Linked to the MXEA Are Subject to Foreign Currency Exchange Rate Risk — The payment amount on the Notes linked to the MXEA will be calculated based on that
Reference Asset, and the prices of the applicable stocks are converted into U.S. dollars for purposes of calculating the level of that Reference Asset. As a result, investors in the Notes linked to the MXEA will be exposed to currency
exchange rate risk with respect to each of the currencies represented by the MXEA. An investor’s net exposure will depend on the extent to which the currencies represented by the MXEA strengthen or weaken against the U.S. dollar and the
relative weight of each relevant currency represented by the MXEA. If, taking into account such weight, the dollar strengthens against such currencies, the level of the MXEA will be adversely affected and the amount payable, if any, at
maturity of the Notes linked to the MXEA may be reduced.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
◾ |
defining the equity universe;
|
◾ |
determining the market investable equity universe for each market;
|
◾ |
determining market capitalization size segments for each market;
|
◾ |
applying index continuity rules for the MSCI Standard Index;
|
◾ |
creating style segments within each size segment within each market; and
|
◾ |
classifying securities under the Global Industry Classification Standard (the “GICS”).
|
◾ |
Identifying Eligible Equity Securities: the equity universe initially looks at securities listed in any of the countries in the MSCI Global Index Series, which will be classified as either Developed Markets (“DM”) or Emerging Markets
(“EM”). All listed equity securities, including Real Estate Investment Trusts and certain income trusts in Canada, are eligible for inclusion in the equity universe. Conversely, mutual funds, ETFs, equity derivatives, and most
investment trusts, are not eligible for inclusion, are eligible for inclusion in the equity universe. Conversely, mutual funds, ETFs, equity derivatives, and most investment trusts, are not.
|
◾ |
Classifying Eligible Securities into the Appropriate Country: each company and its securities (i.e., share classes) are classified in only one country.
|
• |
Effective with the November 2015 semi-annual index review, companies traded outside of their country of classification (i.e., “foreign listed companies”) will become eligible for inclusion in the MSCI Country Investable Market
Indexes along with the applicable MSCI Global Index. In order for a MSCI Country Investable Market Index to be eligible to include foreign listed companies, it must meet the Foreign Listing Materiality Requirement. To meet the Foreign
Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign listings should represent at least (i) 5% of the free float-adjusted market capitalization of the relevant MSCI Country
Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI Investable Market Index.
|
• |
The security is classified in a country that meets the Foreign Listing Materiality Requirement, and
|
• |
The security’s foreign listing is traded on an eligible stock exchange of: a DM country if the security is classified in a DM country, a DM or an EM country if the security is classified in an EM country, or a DM or an EM or a FM
country if the security is classified in a FM country. Securities in that country may not be represented by a foreign listing in the global investable equity universe if a country does not meet the requirement.
|
• |
Equity Universe Minimum Size Requirement: this investability screen is applied at the company level. In order to be included in a market investable equity universe, a company must have the
required minimum full market capitalization. The size requirement also applies to companies in all developed and emerging markets.
|
• |
Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement: this investability screen is applied at the individual security level. To be eligible for inclusion in a market
investable equity universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the equity universe minimum size requirement.
|
• |
DM and EM Minimum Liquidity Requirement: this investability screen is applied at the individual security level. To be eligible for inclusion in a market investable equity universe, a security
must have adequate liquidity. The twelve-month and three-
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
• |
Global Minimum Foreign Inclusion Factor Requirement: this investability screen is applied at the individual security level. To be eligible for inclusion in a market investable equity universe,
a security’s Foreign Inclusion Factor (“FIF”) must reach a certain threshold. The FIF of a security is defined as the proportion of shares outstanding that is available for purchase in the public equity markets by international
investors. This proportion accounts for the available free float of and/or the foreign ownership limits applicable to a specific security (or company). In general, a security must have an FIF equal to or larger than 0.15 to be eligible
for inclusion in a market investable equity universe.
|
• |
Minimum Length of Trading Requirement: this investability screen is applied at the individual security level. For an initial public offering (“IPO”) to be eligible for inclusion in a market
investable equity universe, the new issue must have started trading at least three months before the implementation of a semi-annual index review (as described below). This requirement is applicable to small new issues in all markets.
Large IPOs are not subject to the minimum length of trading requirement and may be included in a market investable equity universe and the Standard Index outside of a Quarterly or Semi-Annual Index Review.
|
• |
Minimum Foreign Room Requirement: this investability screen is applied at the individual security level. For a security that is subject to a foreign ownership limit to be eligible for
inclusion in a market investable equity universe, the proportion of shares still available to foreign investors relative to the maximum allowed (referred to as “foreign room”) must be at least 15%.
|
• |
Investable Market Index (Large + Mid + Small);
|
• |
Standard Index (Large + Mid);
|
• |
Large Cap Index;
|
• |
Mid Cap Index; or
|
• |
Small Cap Index.
|
• |
defining the market coverage target range for each size segment;
|
• |
determining the global minimum size range for each size segment;
|
• |
determining the market size-segment cutoffs and associated segment number of companies;
|
• |
assigning companies to the size segments; and
|
• |
applying final size-segment investability requirements.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
◾ |
updating the indices on the basis of a fully refreshed equity universe;
|
◾ |
taking buffer rules into consideration for migration of securities across size and style segments; and
|
◾ |
updating FIFs and Number of Shares (“NOS”).
|
◾ |
including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the Index;
|
◾ |
allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and
|
◾ |
reflecting the impact of significant market events on FIFs and updating NOS.
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|
|
|
Enhanced Return Notes
Each Linked to a Different Equity Index
|