Societe Generale is planning to launch Daily Leverage Certificates (DLCs) on single stocks in Singapore's exchange later this year. The French bank said it's ready and waiting for the regulators' approval.

"We don't have the specific time, but we hope to see this within the year," said Keith Chan (pictured), head of cross asset listed distribution for Asia Pacific at Societe Generale. DLCs allow investors to multiply their returns by betting on the performance of an underlying asset that could be an index, a stock, foreign exchange or commodities products.

The new range of products will be tracking the most liquid, big cap stocks in Singapore and Hong Kong, according to Chan. "It's still a new product, so we'll probably [focus on] a few big ones to start. As investors get used to [the product], or know how the product works, we could easily expand."

The top 10 companies by market capitalisation both in Singapore and in Hong Kong are mainly banks, while that in Hong Kong includes China's technology giant, Tencent.

Societe Generale teamed up with the Singapore Exchange (SGX) to introduce the certificates for the first time in Asia in July last year. A suite of 16 DLCs currently listed on the bourse track the MSCI Singapore, Hang Seng Index and Hang Seng China Enterprises Index. Since the launch, the DLCs linked to indices have generated over SGD$3 billion (USD$2 billion) in turnover, according to the SGX, providing tailwinds for the overall turnover growth of structured products listed on the exchange. In this fiscal year ending in June, the Singaporean exchange saw a whopping 65% on-year rise in its leveraged products shelf which includes warrants.

The increasing appetite comes on the back of the simplicity of the DLCs, according to Chan. "When we talk to investors, they understand the product quite easily and then during discussions, they express interest in single stock DLCs." Unlike warrants, these leverage instruments have no time decay or implied volatility, meaning that the value of DLCs is not time dependent nor determined by the change in volatility. Chan also pointed out that some investors use the product to hedge their stock holdings.

"It's an easy way to hedge because all you need is a stock account," said Chan. "On the SGX, it's traded like a share so they can easily get in a short position on the index."

The DLCs that commenced trading last summer multiplies traders' returns by either three or five times and, in January this year, the bank came up with DLCs with fixed leverage of seven times. Calling it the right way to do it, Chan said the bank is undergoing talks with the SGX about the leverage for stock DLCs. "We want to introduce it slowly, so that investors understand and expand their investments," said Chan.

The global financial crisis in 2008 and 2009 prompted a sharp downturn in sales of Asia-Pacific structured products market, particularly in Hong Kong and Singapore. Local lawmakers grilled financial institutions as well as regulators on how the products were manufactured and distributed. As of August 9, 285 products were live on the Singaporean market, carrying some USD$4 billion in volume, according to SRP data. This compares to USD$103 billion of more than 5.7 million live products in Germany and USD$78 billion held by over 15,000 products in South Korea. Japan and South Korea are considered to have fared the best among the Asian markets in 2009. The products exclude non-retail.

Related stories
Demand for leverage in Singapore on the rise, Societe Generale

Low interest rates are fueling the search for yield, SGX

Societe Generale debuts daily leverage certificates in Asia on SGX