Certificates

What they are, Structure and Emission

Certificates are instruments that allow you to invest in alternative ways on the stock, currency and commodity markets. Investment certificates are securitized derivatives, which means a combinations of financial contracts embodied in single securities by the issuers; which can be traded like stocks.

What are derivatives:

In general, derivatives are contracts whose price derives from the value of another underlying defined financial instrument:

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They are contracts used for hedging or trading.

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They are listed on financial markets, although the majority of them are traded between operators, off-market, or OTC (Over The Counter).

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The most prominent derivative contracts are Futures and Options.

CERTIFICATES STRUCTURING AND ISSUING PROCESS:

STRUCTURE

Certificates consist of options strategies, designed to allow the investor to benefit from downside protection, coupon flow or yield enhancement.

They are passive management instruments which, in their simplest form, replicate the performance of the underlying instrument. This replication is generated through a process that does not allow the manager to make investment choices.

Among the many combinations, the structure will allows you to benefit from capital protection, regular interval coupon payment and a great number of other option. Certificates, unlike a direct investment in shares, do not give the right to dividends distributed by the underlying instrument.

Dividend however, are used by the certificate issuer to finance the purchase of options; that gives the certificate the opportunity to generate a different performance from that of the underlying instrument.

There is a sort of an exchange between the dividend and the options, which brings clear benefits to investors in certificates when the markets are lateral or bearish.

In order to provide an efficient certificate structure, the issuer evaluates the economic impact of the dividends on the price of the selected securities. When there are no dividends, there are different strategies that can be implemented.

ISSUING

A certificate will be issued after determining the value for the calculation of the payoff at maturity and for the positioning of all the relevant levels.

This value is the “strike” price. The strike price is technically the exercise price of an option; in the certificates it corresponds to the so-called “initial fixing of the underlying,” which is established at the observation date specified in the prospectus.

The strike price is essential for the life of the certificate; from there all the levels are then set, such as “barriers,” “caps,” and “autocallable triggers.” Such levels will never change during the life of the certificate.

MARKETS

Certificates of Investment are traded on all major Stock Exchanges. Their liquidity is ensured by Market Makers, which facilitate the meeting of Supply and Demand.