Société Générale (SG) has partnered with the Singapore Exchange (SGX) to launch the first-ever autocallable structured certificates in Asia.
The first batch to be available for trading will be autocallable structured certificates linked to the Hong Kong shares of Alibaba with a one-year maturity. United Overseas Bank (UOB) and its sister company UOB Kay Hian, a brokerage firm also headquartered in Singapore, will be the primary distributors of the new certificates.
The autocallable structured certificates listed on SGX are inspired from the commonly traded structured products in Europe - Olivia Chen, SG
The new capital-at-risk products offer investors a predefined enhanced yield as long as certain conditions are fulfilled, according to SG. If the underlying stock rises above a certain upper threshold, the autocallable certificates will trigger an early redemption feature, but if it falls below a certain lower threshold, investors will receive physical delivery of the underlying shares at expiry.
‘Investors’ appetite for listed structured products has grown and there is strong demand for more options that offer both risk management and enhanced returns,’ said Michael Syn (right), senior managing director and head of equities at SGX.
‘As our customers become increasingly sophisticated, structured certificates will bring a new dimension to our diverse suite of products and enable investors to capture more opportunities in today’s dynamic markets,’ said Syn.
The specified investment product (SIP), as classified by SGX, will be launched in regular series and open to eligible investors for subscription via distributors.
The range will be expanded with other yield enhancement certificates - discount certificates and barrier discount certificates - as well as participation certificates - outperformance certificates, barrier outperformance certificates and digital participation certificates, according to SGX.
The new products are the French bank’s response to investor demand for diversification and market access, as well as ‘more transparency and liquidity’ to support customers’ investment strategies amidst Changing market conditions, said Olivia Chen (main picture), head of distribution sales in Southeast Asia and Australia at SG.
In Singapore, the existing listed structured products comprise structured warrants and daily leverage certificates (DLCs) – SG and Macquarie Bank are the issuers of the former while the French bank is the sole issuer of the latter. SG is also an active player in the derivative warrants (DWs) and callable bull/bear certificates (CBBCs) space in Hong Kong SAR.
Chen noted that structured certificates differ from the instruments above as they consist of mainly investment products with no leverage.
“Autocallable certificates are designed for investors who believe that the performance of the underlying asset will be range bound over the term of the product and are seeking an enhanced yield on their investments subject to the fulfilment of certain conditions, with the possibility of early expiry of the product,” she added.
The project started before 2020, according to Chen. “The autocallable structured certificates listed on SGX are inspired from the commonly traded structured products in Europe, although using single stocks as underlying assets while European clients invest also on structured products on indices and with longer tenors,” she said.
“This activity in Europe has reached a mature and industrialised stage with a very diverse product offering and we hope to build a similar offer in Asia to have our Asian clients fully benefit from our strong capabilities and long experience gathered in Europe.”
Specifically, the autocallable structured certificates are a subset of ‘express certificates’, which’re listed predominantly in Germany, said Chen.
There’s little discussion about the launch of structured certificates in Hong Kong SAR, a main competing listing venue for Singapore, a trader of DWs and CBBCs at an investment bank told SRP.
“Asian retail investors love leveraged products. Inline warrants and equity-linked investments (ELIs) have failed to gain traction in the listed segment,” said the source, adding that DLC, which offers a leverage of 2x to 7x on SGX, has the potential to become a new product, but the introduction has been partly hindered by its similarity with the existing leveraged exchange-traded funds (ETFs) in Hong Kong SAR.
Year-to-date, Germany has seen the listing of 5,503 express certificates in Frankfurt or Stuttgart, 112 of which are marketed by SG. The top three issuers are Landesbank BW (1,865 products), DekaBank (1,071) and DZ Bank (737), according to SRP data.
Meanwhile, SG has been the largest issuer of open-end turbo certificates listed in Frankfurt and Stuttgart on back of 321,199 issuance year-to-date, followed by J.P. Morgan (315,405) and BNP Paribas (277,509).
Note: The story has been updated to include further comments from SG and an investment banking trader.