SGX to list daily leverage certificate

SOCIETE Generale will list the Singapore Exchange's (SGX) first daily leverage certificates, offering sophisticated investors a chance to make outsized short-term bets on certain markets.

The first suite of products, which are also called constant leveraged certificates in other markets, will comprise 10 issues offering three to five times leverage on the daily performance of the MSCI Singapore, Hang Seng Index and Hang Seng China Enterprises Index.

The products will begin trading from July 17.

Daily leverage certificates have been the subject of some controversy, especially surrounding confusion about their daily resetting.

The certificates offer a constant leverage to the daily performance of their underlying market, which means that performance is compounded daily. A certificate that offers three times leverage will therefore not return three times the performance of the underlying if held for more than a day, and will tend to underperform if held for more than a trading day and if the underlying is volatile. Prevailing advice on the product is that it should be used only for short-term bets.

Confusion about the daily resetting led to a loss of appetite among regulators and investors for the product after the global financial crisis in 2008. On SGX, the last leveraged exchange-traded product was issued about eight years ago, in 2009.

But sentiment has begun to shift in recent years. Daily leverage certificates have been significant contributors to market turnover in Europe, and SGX's regional peers in Hong Kong and South Korea have also offered new products over the past year.

In Singapore, the Monetary Authority of Singapore (MAS) in 2016 clarified the circumstances under which leveraged and inverse exchange-traded products may be offered, including treating them as Specified Investment Products that are available to retail only with certain safeguards. Among other restrictions, the leveraged and inverse products are also prohibited from containing the term ETF, which is short for exchange-traded fund.

Shortly after that, SGX published a Web page about leveraged and inverse products. In February this year, SGX head of products for equities and fixed income Luke Strijers said that such products could be coming in the April-to-June quarter.