A Certificate is a financial instrument issued by a financial intermediary that allows the investor to take a position on an underlying financial asset, such as shares, a stock index, a currency, a commodity or an interest rate.
The obligation of payment flows due to the holder of the Certificate is paid for by the issuing financial institution, which details the specific characteristics of each financial instrument in the appropriate information prospectus edited at the time of issue.
By virtue of the multiplicity of payoffs offered by the different types of Certificate, these financial instruments respond to the different risk/reward requirements of investors.
Depending on its features, the Certificate allows investments to be made on different time horizons and on different market views: it is possible to find suitable Certificates with upward, downward or lateral prospects of values for a wide range of underlying financial assets on which they are issued.
This allows the investor to achieve financial solutions suitable to meet his own requirements and an adequate risk-return profile.
Depending on the characteristics of the type of instrument, Certificates also allow for the development of strategies designed to benefit from rises and falls, even moderate ones, in the underlying financial asset and from markets characterised by phases with substantial lateral movements.
Through the use of Certificates, investors are able to develop strategies to optimise the overall risk of their portfolio through the geographic and sector diversification offered by the wide range of underlying financial assets.
As they are instruments issued by a financial intermediary, Certificates expose the investor to the issuers' risk, that is to say the risk linked to the issuer's ability to fulfill its obligations.
Depending on the investors attitude to risk tolerance, Certificates also allow for different types of capital protection: from those which do not guarantee protection to those that ensure partial or conditional protection if certain parameters - established at the time the Certificate was issued - are met, and also including those generally suitable for investors with a preference for low risk investments which guarantee total capital protection.
ACEPI, the Italian Association of Certificates and Investment Products places Certificates into four categories depending on their specific characteristics and the level of capital protection offered to the investor. These are: Leverage Certificates, Capital Protected Certificates, Conditional Capital Protected Certificates and Non Capital Protected Certificates.
Capital Protected CertificatesIn the Long or Short versions of these certificates, the first allows you to participate in upward movement of the underlying financial asset and the second in the downward movement, while protecting the issue price or a percentage of it to maturity.
Allows for the receipt of a regular income if at the evaluation date the underlying share is at a level equal to or higher than the initial evaluation, protecting the capital or part of it on maturity.
Conditional Capital Protected CertificatesThis type of Certificate allows you to participate in the upward (or downward) movement of the underlying asset, while providing additional income as long as the underlying asset does not reach the barrier level.
Express Certificates have the peculiarity of being able to expire prematurely returning the issue price plus a premium if on one of the predetermined dates the underlying asset is higher than or equal to a predetermined level.
Participation in the upward and downward movement of the underlying asset at maturity, subject to the presence of a barrier level which if breached provides less capital protection for the certificate.
A product that participated in the upward or downward movement of an underlying financial asset. The main feature of this certificate is the proportional replication of the underlying trend, as well as the presence of an AirBag which attenuates losses in the event of downward movement.
A product offering the opportunity to achieve regular premiums which are conditional on the state of "non-default" of one or more reference entities.
Provides a regular income if at the evaluation dates, the underlying asset is at a level equal to or higher than that of initial evaluation. The capital protection is conditional upon failure to reach the barrier level.
Premium Certificates pay fixed premiums over the life of the instrument regardless of the performance of the underlying asset. At maturity, the capital protection is conditional upon failure to reach the barrier level.
Cash Collects reward the investor with fixed premiums for a number of months during the life of the certificate. In addition it pays extra premiums for the following months if the value of the underlying asset is equal or above the barrier level. At maturity, the capital protection is conditional upon failure to reach the barrier level.
Non Capital Protected CertificatesThey replicate, upwards or downwards performance of the underlying financial asset without having a leverage effect.
Leverage CertificatesConstant Leverage Certificates are financial instruments that offer the opportunity to invest with the aim of replicating the performance of a Leverage Index. The Leverage Index in turn amplifies the daily performance of a Reference Asset (such as, for example, a stock index, a share, a commodity or its related future contract) by applying the Constant Leverage, with an upward (Long Leverage Indices) or downward (Short Leverage Indices) strategy.
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