New financial product for sophisticated retail investors

A new financial product for sophisticated retail investors, known as daily leverage certificates (DLCs), has come to town. Issued by French bank Societe Generale, 10 different DLCs - also called constant leverage products or factor certificates - will be made available on the Singapore Exchange (SGX) from July 17.

The certificate is an exchange- traded financial product that offers fixed daily leveraged exposure to an underlying asset, such as an index. Investors can "trade and capture enhanced returns, both up and down, on short-term market moves", said the bank yesterday.

The DLCs will be listed on SGX and start trading on July 17. The underlying indices include the MSCI Singapore and Hang Seng Index.

The bank said in a statement: "Designed for sophisticated retail investors who trade actively, Societe Generale's DLCs allow investors to enhance their potential returns from the daily rise or fall of the underlying benchmark indices, by multiplying the daily performance by a factor of three or five."

The new products are designed to be traded mainly on an intra-day basis. Owing to a daily compounding effect, they are not designed to be held long term, the bank stressed. Investors need to be qualified in investing in specified investment products to trade DLCs.

In March, it was reported Hong Kong would allow retail investors to trade its Hang Seng indices via such sophisticated exchange-traded products. The Financial Times had said: "The products are short-term trading tools and reset on a daily basis, a process that can incur higher transaction costs and detract from longer-term performance."

Societe Generale will provide real-time pricing of the DLCs on SGX. They can be bought and sold by investors at any time during SGX market hours through a securities trading account with brokers.

Mr Keith Chan, head of cross asset listed distribution at Societe Generale's global markets in the Asia-Pacific, said: "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."

A version of this article appeared in the print edition of The Straits Times on July 04, 2017, with the headline 'New financial product for sophisticated retail investors'. Print Edition | Subscribe