With the ultimate aim to introduce one of Europe’s “fastest growing” trading products into Asia — something called “daily leverage certificates,” the French bank Societe Generale said on Monday that it has teamed with the Singapore Exchange for this purpose.
By betting on the daily rise and fall of the underlying asset, investors are allowed to multiply their returns by the certificates, or DLCs, which are also exchange-traded products. An index, a stock, foreign exchange or commodities products can be included in those assets.
When he or she correctly bets on an asset’s rise or fall, the DLC multiplies the return that a trader would normally receive. The DLC may entitle that trader to a 15 percent return after an index does in fact move 5 percent higher and a trader had in fact laid a bet on the index on the assumption that the index will rise. The instrument is designed primarily for intra-day trading.
The Singapore Exchange (SGX) said that the MSCI Singapore, Hang Seng Index and Hang Seng China Enterprises Index, SocGen and the Singapore Exchange (SGX) are the indexes that the first suite of 10 DLCs will track in Asia. They will multiply traders’ returns by either three or five times and will commence trading in Singapore on July 17.
“There’s a strong appetite for leverage instruments among Singapore investors … but the choices are not that many, so I think it’s in the right time and the right place to start this product in Asia,” Keith Chan, head of cross asset listed distribution at SocGen Asia Pacific, said of the choice to issue the product first in the Southeast Asian city state.
similar products available in Asia such as structured warrants have also warranted growing demands, the SGX also agreed. Reaching 13.9 billion shares, in May this year, its turnover in the structured warrants space grew 30 percent year-on-year.
“There’s a certain segment of Asian investors that will be keen from a leverage product standpoint as well as the ability express their view, long or short, in these instruments. And DLCs will have components of that,” said Chan Kum Kong, SGX’s head of research and products.
The DLCs are available to retail investors that meet certain specifications, such as the experience of trading in more complex financial products and are designed to be traded predominantly on an intra-day basis.
Such trading instruments have seen larger growth than other listed structured products in the region after they had emerged in Europe in 2012. SocGen said that DLCs were the most traded listed structured products in Europe in 2015 and 2016.
European investors hold positions from days to weeks and are mainly retail. The French bank said that the range from 10,000 euros ($11,400) to 50,000 euros is the range that average trade sizes for the instruments primarily note.
SocGen will ask pricing of the Singapore-listed certificates when trading starts in two weeks and will set the bid because it is the issuer and designated market maker of the DLCs.
(Adapted from CNBC)