The Singapore Exchange (SGX) says it will commence trading of daily leverage certificates (DLCs) based on Asian indices from July 17, making it the first exchange to offer such investment products in Asia.
The first batch of DLCs, also known as constant leveraged products or factor certificates, will be issued by Societe Generale, France’s third largest bank and Europe’s sixth largest by assets.
“SGX is pleased that Societe Generale, one of the largest issuers of DLCs in Europe, has chosen Singapore as the first venue in Asia to launch DLCs, one of the fastest growing listed structured products in Europe since 2012,” Chew Sutat, head of equities and fixed income at SGX, says in a statement.
He continues: “This first-of-its-kind offering in Asia will provide investors in the region an exchange-traded instrument to capture leveraged returns on daily market moves.”
The first batch of DLCs will consist of ten long and short DLCs offering fixed leverage of three or five times the daily returns of the underlying indexes, namely MSCI Singapore, the Hang Seng Index and the Hang Seng Enterprises Index.
For example, an investor who expects the Hang Seng Index to rise over the trading day can select the 3x long DLP or 5x long. That would allow the investor to enjoy a gain of 3% or 5% for every 1% increase in the underlying index. However, if the index declines, the investor will incur losses of the same magnitude.
The DLCs fall under the exchange’s specified investment products (SIP) which means they will only be available to SIP-qualified retail investors.
DLCs have become a popular investment product for investors in Europe since they were introduced five years ago.
“Since its emergence in 2012, DLCs have become the fastest growing listed products by volume in Europe and we see strong appetite for leveraged products from Asian investors,” says Keith Chan, head of cross-asset listed distribution at Societe Generale’s global markets in Asia Pacific.
Luuk Strijers, SGX’s head of products, equities and fixed income, tells Asia Asset Management (AAM) that the DLCs are expected to attract investors who want to capitalise on short-term market trends.
“DLCs have less complex product features compared to warrants, callable bull/bear contracts and options, which may suit a larger audience,” he tells AAM. “We think that the transparency and simplicity of DLCs on SGX will offer a fresh new trading option for investors to capture short-term market moves.”
The exchange will be keeping a close watch to gauge investors’ interest in the new product.
“Should there be signs of positive investor interest in such products, there may be room for issuers to list higher leverage DLCs and more DLC listings on other market indices. In the same vein, SGX will consider widening the range of products and work with issuers to expand the range of offerings to investors,” Mr. Strijers adds.
