Digital Capital Protection Certificate
What is a Digital Capital Protection Certificate?
Digital Capital Protection Certificates are financial instruments that allow investments in an underlying financial asset such as a share, a stock index, a currency, a commodity or an interest rate. One of the characteristics of this type of instrument is the possibility for the investor to receive a periodic income, determined at the time it is issued, in addition to the protection of all or part of the principal sum at maturity.
Who are Digital Capital Protection Certificates suitable for?
This type of Certificate (long version) is suitable for investors who have bullish or relative stability expectations of the value of the underlying asset. It is a suitable investment for those who have a propensity for low risk wanting to protect the capital completely as the investor may benefit by protecting the capital while at the same time receiving a periodic income when certain conditions are met.
Investment with capital protection that offers a regular income if certain conditions are met
Listing and trading of Digital Capital Protection Certificate
Digital Capital Protection Certificates are financial instruments that can be bought or sold, in Italy, 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 days from 9:05am to 5:30pm on SeDeX and from 9:00am to 5:30pm on EuroTLX.
Features of 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 or STRIKE PRICE: 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;
- 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.
Operation and pay-off of a Digital Capital Protection
The Long version of a Digital Capital Protection Certificate, provides the investor with the opportunity to receive a regular predetermined income. This remuneration is called a Digital Amount and is paid at the occurrence of a digital event. It occurs when the reference value of the underlying asset, during the respective digital evaluation periods, is at or above the Digital level. At maturity, there are two possible scenarios the investor holding the Digital Capital Protection Certificate may encounter:
- If the value of the underlying financial asset is quoted at a level equal to or higher than the initial evaluation, he receives the return of the issue price of the Certificate plus the last Digital Amount determined at the time the instrument was issued;
- If the value of the underlying financial asset is quoted to a level below that of initial evaluation he receives only the issue price of the Certificate.
Example of how they work.
Assuming a Digital Capital Protection Certificate having as its underlying asset the Euro/USD exchange rate with 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 amount | 5€ |
Below are some possible scenarios that an investor may encounter throughout the life of a Digital Capital Protection Certificate:
- First Digital valuation Date, July 21, 2015:
- The Euro/USD exchange rate is quoted at a level equal to or higher than the initial evaluation (e.g. 1,3670). In this case, the digital event condition has occurred. The investor will then receive a digital amount of 5 euro for each Certificate held;
- The Euro/USD exchange rate is quoted at a level below that of the initial evaluation (e.g. 1,34). In this case, the digital event condition has not occurred. The investor does not receive the amount of digital.
- Second Digital valuation Date, July 21, 2016:
- Final maturity July 21, 2017:
- The Euro/USD exchange rate is quoted at a level equal to or higher than the initial evaluation (e.g. 1,37). In this case the digital event condition has occurred and the investor receives the digital amount and the issue price of the Certificate. In total, the settlement value paid to the investor is 105 euros for each Certificate held;
- The Euro/USD exchange rate is quoted at a level below that of the initial evaluation (e.g. 1,3480). In this case the digital event condition has not occurred and the investor does not receive the digital amount. The settlement price is equal to the issue price (100 euro), given that the protection is equal to 100% of the issue price.
Graph showing Digital Capital Protection Certificate pay-off
For further information on the terms you can consult the appropriate section GLOSSARY