French bank Societe Generale said Monday it has teamed with the Singapore Exchange to introduce one of Europe's "fastest growing" trading products into Asia — something called "daily leverage certificates."
The certificates, or DLCs, are exchange-traded products that allow investors to multiply their returns by betting on the daily rise and fall of the underlying asset. Those assets can be an index, a stock, foreign exchange or commodities products.
The DLC multiplies the return a trader would normally receive when he or she correctly bets on an asset's rise or fall. So if a trader bets that an index will rise, and then the index does in fact move 5 percent higher, the DLC may entitle that trader to a 15 percent return. The instrument is designed primarily for intra-day trading.
In Asia, the first suite of 10 DLCs will track the MSCI Singapore, Hang Seng Index and Hang Seng China Enterprises Index, SocGen and the Singapore Exchange (SGX) said. They will commence trading in Singapore on July 17, and will multiply traders' returns by either three or five times.
"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.
SGX agreed that there has been growing interest in similar products available in Asia such as structured warrants. Its turnover in the structured warrants space grew 30 percent year-on-year in May to reach 13.9 billion shares.
"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.
Mid-day trading for qualified investors
The DLCs are designed to be traded predominantly on an intra-day basis and are available to retail investors that meet certain specifications, such as the experience of trading in more complex financial products.
Such trading instruments emerged in Europe in 2012 and have seen larger growth than other listed structured products in the region. In 2015 and 2016, DLCs were the most traded listed structured products in Europe, SocGen said.
European investors are mainly retail and hold positions from days to weeks. Average trade sizes range from 10,000 euros ($11,400) to 50,000 euros, the French bank said.
SocGen, as the issuer and designated market maker of the DLCs, will set the bid and ask pricing of the Singapore-listed certificates when trading starts in two weeks.