Express Certificate

What are the Express Certificates

Express Certificates are financial instruments belonging to the category of Conditional Capital Protection Certificates that allow for investment in a underlying financial asset, such as a share, a share index, a currency, a commodity or an interest rate. Their distinctive feature is that they can expire in advance, upon the occurrence of predetermined conditions, established at the time the Certificate is issued, redeeming to the investor the issue price as well as an additional amount. The protection of the issue price of the Certificate is subject to the failure of the underlying asset to reach a certain value set at the time of issue. This threshold is called Barrier level.

Who are Express Certificates suitable for?

Express Certificate instruments are suitable for investors with high propensity towards risk and expectations of stability or a moderate rise (in the case of Long Express Certificates) in the value of the underlying asset. The capital protection that characterizes an Express Certificates conditional on the level reached by the underlying during the life of the product.Express Certificates are instruments that have a tenure usually of many years. Their specificity is the ability to mature in advance of one of the intermediate evaluation dates which were predetermined at the time of issue of the Certificate. As the Express Certificate matures in advance it is necessary that at one of the intermediate evaluation dates of the underlying financial asset is quoted at a value greater than or equal to the level of early exercise predetermined in the issue phase.Typically this level corresponds to the initial evaluation value of the Certificate's underlying. In the event of early maturity, the investor in addition to receiving the issue price of the Certificate also receives an additional amount determined when the certificate was issued. If an Express Certificate reaches the final maturity without having fulfilled the requirements for the early redemption, there are three possible scenarios that the holder of the Certificate may encounter, listed below:

The value of the underlying financial asset is greater than or equal to the level of final redemption: the investor receives payment of the issue price of the Certificate plus a fixed premium;
At maturity the value of the underlying financial asset is below the level of the final evaluation but higher or equal to the Barrier: the investor receives payment of the issue price of the Certificate without the payment of any additional premium;
At maturity the value of the underlying financial asset is below the Barrier level: investors lose the capital protection and are subject to the negative performance that would have been gained by investing directly in the underlying asset.

Investment products that give the possibility to be paid before the expiry date

Listing and trading of Express Certificates

The Express Certificate 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 days from 9:05am to 5:30pm on SeDex and from 9:00am to 5:30pm on EuroTLX.

Features of the Express Certificate:

UNDERLYING: a share, share index, currency, commodity or any other real or financial asset upon which the value of the Certificate is linked;
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;
BARRIER LEVEL: the value of the underlying under which the investor loses capital protection on the certificate;
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;
EARLY REDEMPTION LEVEL: the value of the underlying fixed at the issuance of the Certificate that, if the condition is respected, causes an early redemption of the Certificate;
INTERMEDIATE EVALUATION DATE: the calendar date when the value of the underlying is checked to determinate a possible early redemption of the Certificate.
EARLY REMPTION AMOUNT: the amount paid to the investor if the condition for early redemption is respected;
MULTIPLIER: the number of underlying assets controlled by each Certificate and equal to the ratio between the subscription price at the time the Certificate is issued and the Initial Reference Value of the underlying financial asset;

Operation of an Express Certificate

Express Certificates are financial instruments that typically have a multi-year duration. Their specificity lies in the ability to mature prematurely on one of the predetermined interim valuation dates set at the time of issuance of the Certificate. For an Express Certificate to mature prematurely, it is necessary that on one of the interim valuation dates, the underlying financial asset quotes at a value greater than or equal to the predetermined early exercise level set at the time of issuance. Typically, this level corresponds to the initial valuation of the underlying financial asset at the Certificate's inception. In the event of early maturity, in addition to receiving the return of the Certificate's issuance price, the investor receives an additional amount determined at the time of issuance of the Certificate. If an Express Certificate reaches its final maturity without meeting the requirements for early maturity, there are three possible scenarios that may occur for the investor at maturity:

If the value of the underlying financial asset is equal to or greater than the final exercise level, the investor receives the payment of the Certificate's issuance price plus a predetermined premium.
At maturity, if the value of the underlying financial asset is lower than the final exercise level but equal to or higher than the barrier level, the investor receives the payment of the Certificate's issuance price without any additional premium
At maturity, if the value of the underlying financial asset is lower than the barrier level, the investor loses the conditional capital protection and incurs the negative performance that would have been experienced by investing directly in the underlying asset.

Example of how Express Certificates operate

Assuming an Express Certificate has the FTSE Mib Index as its underlying asset and the following characteristics.

Maturity	2 years
Issue Price	100 Eur
Initial Evaluation Date	21/07/2014
Initial Reference Value	20.000 points
Intermediate Evaluation Date	21/07/2015
Final Evaluation Date	21/07/2016
Amount of early redemption	107 Eur
Multiplier	0,005
Barrier Level	14.000 points (equal to 70% of the initial evaluation value)
Level of early redemption	100% * initial reference value

Below are some of the possible scenarios that an investor may encounter during the life of an Express Certificate:

First intermediate evaluation date: July 21, 2015:

The FTSE Mib is quoted at a level equal to or higher than that of initial evaluation. The FTSE Mib is quoted at 21.200 points and the Express Certificate expires prematurely. The investor receives the issue price of 100 Eur plus 7 euro, a total of 107 Eur.
The FTSE Mib The FTSE MIB is the main share index of the Borsa Italiana or Italian Stock Exchange. This index, which covers approximately 80% of the domestic market capitalization, is composed of shares of 40 most quoted Italian and foreign companies listed on the markets managed by Borsa Italiana or Italian Stock Exchange. is quoted below the initial evaluation value. The FTSE Mib is quoted at 19.800 points and the Express Certificate does not expire prematurely. The investor does not receive any compensation.

Final Maturity July 21, 2016:

The FTSE Mib is quoted at a level equal to or greater than the initial evaluation. The FTSE Mib is worth 20.020 points. The investor receives the issue price of 100 Eur plus 7 Eur, a total of 107 Eur;
The FTSE Mib is quoted at a level lower than quoted initially but higher than the Barrier level. The FTSE Mib is worth 14.985 points. The investor receives the issue price of 100 Eur;
The FTSE Mib is quoted below the Barrier level. The FTSE Mib is worth 13.715 points and the investor loses the capital protection, recording a loss. The underlying showed a fall of 31,425%. The investor will be paid 68,57 Eur for each Certificate held.

Chart showing the payoff of Express Certificates

The graph below shows an Express Certificate with a three year term and early redemption amounts characterised by the presence of the Memory Effect.

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

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