Conditional Digital Capital Protected Certificate

What is a Conditional Digital Capital Protection Certificate?

Conditional Digital Capital Protection Certificates are financial instruments that allow for investment in an underlying financial asset such as a share or equity index, a currency, a commodity or an interest rate. One of the main features of this type of instrument is the possibility for the investor to receive a regular income contingent upon the underlying asset trend.

Who are Digital Capital Protection Certificates suitable for?

This type of Certificate is designed for investors with a high propensity to risk and who have expectations of stability or moderate rise or fall in the value of the underlying asset. The Digital Conditional Digital Capital Protection Certificates allows investors to achieve a regular income consisting of a periodic premium and capital protection is conditional on the underlying financial asset not falling below (for Long Digital Certificates) or rising above (Short Digital Certificates ) a certain threshold, called the Barrier Level.

Investment products that offer a regular income if certain condition are met

Listing and trading of Conditional Digital Capital Protection Certificate

Conditional Digital Capital Protection Certificates are financial instruments that can be bought or sold, in Italy, either on SeDeX or EuroTLX, Multilateral Trading Facilities of the Italian Exchange. Methods and trading hours of such multilateral trading facilities are specified in the relevant Rule books, available on the website of the Italian Exchange. For example, trading in the continuous phase may take place on the open market daysfrom 9:05am to 5:30pm on SeDeX and from 9:00am to 5:30pm on EuroTLX.

Features of Conditional Digital Capital Protection Certificates

UNDERLYING: a share, share index currency, commodity or any other financial asset upon which the value of the Certificate is dependant;
INITIAL EVALUATION VALUE: the initial evaluation price of the underlying asset on the date fixed at the time the Certificate is issued;
MATURITY: the date on which the Certificate ceases to exist or 'matures';
ISSUER: the financial institution issuing the Certificate;
MINIMUM LOT: the minimum number of Certificates that can be bought and sold;
ISIN: the alphanumeric code that uniquely identifies the financial instrument;
BARRIER LEVEL: the value of the underlying under which the investor loses capital protection on the certificate;
DIGITAL AMOUNT: a premium paid determined at the time of issue which is paid to the certificate holder on the occurrence of a Digital Event;
DIGITAL LEVEL: the level established at the time of issue determining a Digital Event.
DIGITAL VALUATION PERIOD: the periods established at the time the certificate is issued in which digital events can be observed, or not as the case may be.

Operation and pay-off of Conditional Digital Capital Protection

Conditional Digital Capital Protection Certificates provide the investor with the opportunity to receive a periodic income made up of the Digital Amount established at the time of issue and on occurrence of a Digital Event. A Digital Event occurs when the reference value of the underlying asset, in the respective digital evaluation periods is equal to or higher (Long version) or below (Short version) the Digital level. Otherwise, a Conditional Digital Capital Protection Certificate will not provide a premium. At maturity, the protection of the issue price of the Certificate is subject to not having reached a certain price level from the underlying financial asset, called Barrier Level. On maturity of the Conditional Digital Capital Protection Certificate, in the Long version, there are three possible scenarios that the holder of the Certificate may encounter, listed below:

The final evaluation value of the underlying financial asset is equal to or above the initial evaluation value: the investor receives a settlement amount equal to the issue price enhanced by the digital amount;
The final evaluation value of the underlying financial asset is below the initial evaluation value but higher than the Barrier Level: the capital is protected and the settlement price corresponds to the issue of the Certificate;
The final evaluation value of the underlying financial asset is below the Barrier Level: the investor at maturity incurs a loss commensurate with that which he would have had by investing directly in the underlying asset as at the date of initial evaluation of the Certificate.

Example of how they operate

Assuming a Conditional Digital Capital Protection Certificate having as its underlying asset the Eurodollar exchange rate and the following characteristics:

Maturity	3 years
Issue Price	100 Eur
Initial Evaluation Date	21/07/2014
Initial Reference Value	1,35
Intermediate Evaluation Date	21/07/2015 – 21/07/2016
Final Evaluation Date	21/07/2017
Digital level	1,35
Digital amount	5€
Multiplier	74,0740
Level Barrier	1,08 Dollar (equal to 80% of the Initial Reference Value)

Below are some of the possible scenarios that an investor may encounter during the life of a Conditional Digital Capital Protection Certificate:

First Digital valuation Date, July 21, 2015:
- The Eurodollar rate is quoted at a level equal to or higher than the initial evaluation (e.g. 1,3670). In this case, the condition of the Digital Event has occurred. The investor will then receive a Digital amount of 5 Eur for each Certificate held;
- The Eurodollar rate is quoted at a level lower than the original level (e.g. 1,34). In this case, the condition of the Digital Event has not occurred. The investor does not receive the Digital amount.
Second Digital valuation Date, July 21, 2016:
- The Eurodollar rate is at a level equal to or higher than the initial evaluation (e.g. 1,3640). In this case the condition of Digital Event has occurred. The investor will receive the Digital Amount of 5 Eur.
- The Eurodollar rate is at a level lower than the initial evaluation (for example 1,3330). In this case the conditions for the Digital event have not taken place. The investor does not receive the Digital amount.
Final maturity July 21, 2017:
- the Eurodollar rate is at a level equal to or higher than the initial evaluation (e.g. 1,37). In this case the condition of Digital Event has occurred and the investor will receive the Digital Amount of 5 Eur for each Certificate held. As it is the final maturity date of the Certificate, the investor receives a Settlement Amount equal to the issue price of the Certificate;
- The Eurodollar rate is at a level lower than the initial evaluation (e.g. 1,3380). In this case the condition for the Digital event has not occurred but the failure of the underlying asset to reach the Barrier level allows the investor to achieve a Settlement Amount equal to the issue price of the Certificate;
- The Eurodollar rate is at a level lower than the initial evaluation and below the Barrier Level (e.g. 1,05). In this case the conditions for the Digital event have not occurred and therefore the Digital amount is not paid. The final evaluation value of the Underlying is also below the Barrier Level and therefore the investor loses the capital protection. The investor participates in the loss of value of the Underlying at maturity and the Redemption Amount is equal to 77,78 Eur.

Graph showing Conditional Digital Capital Protection Certificate pay-off

For further information on the terms you can consult the appropriate section GLOSSARY

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