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Shift your trading performance into higher gear


Daily Leverage Certificates
Shift your trading performance into higher gear

A new type of security, never before seen in Asia, has begun trading on the SGX securities market: Daily Leverage Certificates (DLCs).

First introduced in Europe in 2012, DLCs are also known as constant leverage products or factor certificates, and received wide interest from investors in Europe shortly after their launch.

SGX is Asia’s first venue to offer DLCs, allowing investors to gain fixed leveraged exposure to developed Asian market indices.

Tracking the MSCI Singapore Index, Hang Seng Index and Hang Seng China Enterprises Index, DLCs offer investors fixed leverage of 3 to 5 times of the daily performance of the underlying index without the features impacting pricing for options such as implied volatility1, time decay2, or margin calls.

As the first issuer of DLCs in Asia, Societe Generale has launched 10 Long and Short DLCs on the Asian indices mentioned above.

What do DLCs offer?

  • Fixed leverage of up to 5 times, both long and short
  • Low capital outlay; possible losses limited to invested amount
  • No margins
  • No implied volatility impact
  • No time decay impact
  • Transparent pricing and structure

Trade Rising and Falling Markets

DLCs are designed to be traded over brief periods of time, predominantly on an intraday basis. Because they allow investors to go either long or short, DLCs offer great flexibility: investors can trade both rising and falling markets. Long and short DLCs are available for each underlying index and leverage level.

For example, a bullish investor who thinks that the underlying index is likely to rise over the trading day can select a 3x Long DLC, which will rise in value by 3% for each 1% rise in the underlying index (before costs & fees).

A bearish investor who expects the underlying index to fall can instead select the 3x Short DLC, which will rise in value by 3% for every 1% fall in the underlying index (before costs & fees). At the same time, if the market moves against the investor, the DLC will amplify losses in the same way.

Compounding Effect

If the investor’s trading horizon is longer than one day, it is important to note that the performance of the DLC may differ from the leverage factor of the DLC. The performance of the underlying index and the DLC are reset at the end of each trading day, meaning that when markets open the next day, the performance of the underlying index and the DLC will be measured from the closing levels recorded on the previous trading day.

This means that any subsequent performance of the DLC is calculated based on the performance achieved the day before, and the same process is repeated on each trading day. Gains and losses are compounded in this manner, if an investor holds a DLC for more than one day.

Airbag Mechanism

An airbag mechanism is built into the DLC to slow the rate of loss in the value of the DLC in extreme market conditions. Each DLC listed will have a pre-set trigger for the airbag mechanism. This trigger is usually activated upon a 10% movement in the underlying index for a 5x DLC and a 20% movement for a 3x DLC (based on the closing price of the underlying index in the previous trading day).

Trading DLCs

DLCs can complement a portfolio by off erring enhanced returns over a shorter time frame. You can take advantage of daily market news or anticipate economic events. Provided that the markets go the right way for you, these amplified returns can be an effective way to boost the overall return of your portfolio.

DLCs are products with features that are more complex in nature and are only suitable for investors who possess the investment knowledge of more complex products and have a high risk tolerance. Hence, all investors need to be qualified to trade in specified investment products (“SIP”) to be able to trade DLCs. Speak to your broker to find out more on how you can qualify to trade SIPs. Investors should also read the listing documents provided by the issuer for the risks involved in trading DLCs which can be found under “Company Information” on SGX website.

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  1. Implied volatility is the market’s expectation of the fluctuation in the price of the underlying asset over the remaining lifespan of the product. This measure is typically used in the pricing of structured warrants
  2. Time decay is the change in an option’s or a warrant’s price as it gets closer to the option’s or the warrant’s expiry date. The option or warrant value (chance of getting “in-the-money”) declines over time (i.e. as it gets nearer to the expiry date).

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