The Daily Leverage Certificate is a product launched by SGX that was offered by Societe Generale on 17 July 2017. This product is available for trading on the SGX securities market. DLCs are slightly complex, moderate risk financial products which give investors a leveraged return based on the daily performance of an underlying reference index.

DLCs have a finite lifespan and will be delisted on its expiry date. The final exercised value of the DLCs will be calculated and paid to investors automatically on the expiry date (which is after 3 years).
Note that: (if the Expiry Date is not a Business Day, then the Expiry Date shall fall on the preceding Business Day and subject to adjustment of the Valuation Date upon the occurrence of Market Disruption Events as set out in the Conditions of the Certificates)

What is DLC?

The Daily Leverage Certificate offers investors fixed daily exposure in the following 3 leading Asian Indices. It also allows investors to leverage and capture amplified movements of the reference index. Investors can either “long” or “short” it, as it allows you to bet on both the rises and falls of the index.

The underlying indices that the Daily Leverage Certificate will track are the 3 key indices in the Singapore and Hong Kong exchanges:

• MSCI Singapore Index (SIMSCI)
• Hang Seng Index (HSI)
• Hang Seng China Enterprises Index (HSCEI)

What DLC does that really attract investors is that it increases investors’ returns as it increases investors’ exposure level to the indices.

How Does it work?

The basic principle is pretty straightforward – let’s say if the underlying index moves 1% from its closing price of the previous trading day, the value of a 3x DLC will move by 3%, and that of a 7x DLC will move by 7%.

DLCs offer a fixed leveraged return of 3 – 5 times of the daily performance of the underlying asset. 3x simply means it is 3 times leverage and 5x means it is 5 times leverage. Leverage amplifies the returns and losses of investors, be it rising or falling market.

Below is an illustrative returns for an investment of 1 unit of the 3x Long DLC, that was bought at $2.00 when the 3x Leveraged STI Index was trading at 9,000 and sold on the same Trading Day.

What are the fees like?

Management Fee per annum	0.40%
Gap Premium per annum (a hedging cost against extreme market movements overnight.)	3x : 1.8% 5x : 3% 7x : 4.2%
Issue Price	SGD 2.50
Strike Level	0
Notional Amount per Certificate	SGD 2.50

Who will find it useful?

Of course, DLCs are not meant for everyone. They are meant for sophisticated retail investors who wants to do short term trades. It is also suitable for investors who would like to have leveraged returns form the daily movement of benchmark indices.

At the same time, all investors need to be Specified Investment Products (SIP) qualified to invest in DLCs. Those who are not familiar with DLCs or do not have high risk tolerance should not consider trading DLCs. One should only consider trading DLCs if you have a high risk tolerance.

Special feature: The Airbag Mechanism

With the Airbag Mechanism, now you don’t have to worry that there will be a risk that losses may exceed deposits as each DLC will have a pre-set trigger for its air bag. Now what exactly does “Airbag mechanism” mean?

For example, if you were to buy a stock on a 5:1 margin, a leverage of 5x is used and the underlying asset losses 10% of its value, what it does is that the air bag trigger will come into effect to automatically trigger an intraday reset of the underlying index. The airbag mechanism will only be triggered if the underlying asset moves in the opposite direction of the product. For example, if the STI rises by 20%, the airbag mechanism for the 5x Short STI DLC will be triggered.

But do take note that the air bag will not prevent you from losing your entire investment where the leveraged movement of the underlying reference index exceeds the value of the DLC.

For example, a 5x DLC, with an airbag that is set to trigger if the underlying reference index falls by 10% will become futile its underlying reference index suffers a sharp fall of 20% or more in the course of a trading day, or at opening of a trading day due to overnight movements.

To have a better understanding, check out how our professional traders/ investors make profits out of DLC in the SGX Bull Charge Stock Challenge!

(click on the view now button)

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