Certificates

What are certificates and what types of certificates are available on the SGX?

Certificates are issuer-led structured financial products that offer investment opportunities based on different market themes and expectations.

Before investing in certificates, it is important that you read and understan the nature and risks of such instruments. You should carefully consider whether such trading is suitable for you in the light of your financial objective and situation.

Types of Certificates

a. Participation Certificates

Participation Certificates are essentially zero strike warrants. With an exercise of ( close to ) zero, such certificates will track the performance of the underlying asset(s) such as single stocks, stock indices and thematic indices etc. with no leverage or a gearing ration of one.

Investors buying a participation certificate will have synthetic ownershp of the underlying shares without the entitilement of dividends and will effectively replicate the performance of the underlying. Upon maturity, cash settlement will be executed and the certificate will be redeemed for cash at market value on the valuation date.

b. Discount Certificates

Discount Certificates, also known as a call spread warrant, are financial instrunments that allows an investor to buy into the performance of an underlying asset at a discount to its actual price. The potential gain to the investor is limited to a maximum amount from the onset (cap). This cap is fixed when the instrumnet is issued and remains constant for the entire lifetime of the instrument.

c. Daily Lock-in Certficates

Daily Lock-In Certificates are structured products with a daily accrual feature where the investor accumulates a lock-in amount throughout the life of the certificate if the underlying shares or indices perform in a certain way ( for example, the underlying price does not fall below 88% or above 95% of the intial price level). These products may have specific feature which investors should also consider, for example a knock out feature where the certificate will be subject to early termination and settlement.

Interpreting the Trading Name of Certificates

As Certificates are products customized by the respecitive issuers, the trading name of Certiificates will start with the issuer code followed by the product information. In general, the features below willl be reflected in the trading name.

1. Issuer
AA ABN AMRO Bank
DB Deutsche Bank
RB Rabobank

2. Product Type
ZPC Participation Certificates
DC Discount Certificates
DLC Daily Lock-In Certificates

3. Underlying Instrument
This information may not be indicated depending on the product structure.

4. Special Features ( if any )
. Products that are exotic
K Procducts with a knock-out feature

5. Expiry Date
The expiration date is represented in this format, yy mm dd.

Source : Pulses, july 2007