Accelerator Certificate

What is an Accelerator Certificate?

Accelerator Certificates are financial instruments belonging to the category of Conditional Capital Protected Certificates and allow for investment in upward trends of an underlying financial asset, such as a stock or sector index, a commodity, an exchange rate, an ETF or a fund. One of the characteristics of this type of instrument is the ability to replicate in proportionally the performance of the underlying asset.

Who are Accelerator Certificates suitable for?

This type of Certificate is designed for investors with a propensity towards high risk, who take a view on the evolution of the underlying financial asset values and are willing to risk the capital invested in the event of a negative scenario, as the final pay-off is dependent on the performance of the underlying asset during the lifetime of the Certificate.

Suitable investment for those who want to leverage the performance of the underlying

Listing and trading of Accelerator Certificates

Accelerator 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 days from 9:05am to 5:30pm on SeDeX and from 9:00am to 5:30pm on EuroTLX.

Features of an Accelerator Certificate

UNDERLYING a share, stock index, currency, commodity or any other financial or real asset on which the value of the certificate depends.
STRIKE PRICE the initial reported value of the underlying asset at a date pre-established upon the issuance of the certificate;
BARRIER LEVEL the value or price of the underlying asset below which the investor loses capital protection;
MATURITY the date when the certificate is extinguished;
ISSUER the financial institution that has issued the certificate;
MINIMUM LOT the minimum number of certificates that may be bought or sold;
ISIN the alphanumeric code that uniquely identifies the financial instrument;
PARTICIPATION FACTOR expressed as a percentage, representing the multiple value of the underlying performance recognised at maturity in the event the final evaluation value of the underlying asset is higher than the initial evaluation;
AIR BAG a feature of the Certificate that is activated when the final evaluation value of the underlying breaches the Barrier level and that allows the investor to suffer a smaller loss than that which would have occurred had he invested directly in the underlying financial asset;
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;
CAP It is expressed as a percentage of the maximum share in the profits of the underlying that the issuer pays on maturity to the holder of the Certificate;

Operation and pay-off of an Accelerator Certificate

The main feature of the Accelerator Certificate is the ability to replicate proportionally the performance of the underlying financial asset based on the participation rate, allowing the investor to mitigate the losses accrued in the underlying asset during the life of the Certificate thanks to '"Air Bag", a factor that is activated when the value of the underlying at maturity has violated the "Barrier Level". Participation in the movements of the underlying financial asset may be limited to a maximum value, called Cap. The following scenarios may occur at maturity:

The final evaluation value of the underlying financial asset is greater than the initial evaluation In this case, the investor receives the full issue price of the Certificate plus the accrued performance from the underlying, multiplied by the participation rate;
The final evaluation value of the underlying financial asset is lower than the initial evaluation but a Barrier event has not occurred In this case, the investor receives just the issue price of the Certificate;
The final evaluation value of the underlying financial asset is lower than the Barrier Level In this case the investor loses the conditional protection on the capital but the factor Airbag allows the investor to mitigate losses. In any case, the settlement amount can not exceed the issue price of the Certificate.

Example of how they work

Assuming an Accelerator Certificate having as its underlying asset the FTSE Mib index with the following characteristics:

Maturity	2 years
Issue Price	100 €
Initial Evaluation Date	21/07/2014
Initial reference value	20.000 Index Points
Final Evaluation date	21/07/2016
Participation factor	150%
Maximum Redemption Level	145 Eur (Capped at 145%)
Barrier Level	10.000 Index Points (equal to 50% of the Initial Reference Value)
Air Bag Rate	200%

On maturity of the Certificate the value of the underlying financial asset is assessed. Below are some possible scenarios that an investor may encounter:

The final value of the FTSE Mib is above the level of initial evaluation and equal to 32.000 points (+60%). In this case the performance gained from FTSE Mib is above the Cap fixed at the time of issue. The settlement amount due to the investor for each Certificate held is equal to the maximum redemption level, which is equivalent to 145 euro;
The final value of the FTSE Mib is above the initial evaluation level and equal to 22.000 points (+10%). Using the values assumed in the example, the settlement amount to the investor for each Certificate held is equal to:
Settlement Amount= {{20.000 points + [(22.000 points – 20.000 points) x 1,5]} x 0,005} = 115 Eur;
The final value of the FTSE Mib is below the initial evaluation level but higher than the Barrier Level assuming a value of the FTSE Mib equal to 18.000 points (-10%). In this case the investor is not affected by the negative performance of the underlying financial asset during the life of the Certificate, as the value of the underlying security meets the conditions for the capital protection. The settlement amount due to the investor for each Certificate held is equal to the issue price, which is equivalent to 100 Eur;
The final FTSE Mib value is below the initial evaluation level and that of the Barrier level. Assuming a FTSE Mib value of 9.000 points (-55%). Using the assumed values in the example, the settlement amount due to the investor for each Certificate held is equal to:
Settlement amount = (9.000 points x 2 x 0,005) = 90 Eur (-10%).

Graph showing an exemple of Accelerator Certificate pay-off

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

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