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Cash Collect

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What are Cash Collect Certificates?

Cash Collect Certificates are financial instruments that can be used to invest in an underlying financial asset such as a stock, an index, a currency, a commodity or an interest rate. The main feature of the Cash Collect Certificates is the payment of a monthly premium over the life of the instrument: fixed monthly premiums for the first months and additional monthly premiums for the remaining periods depending on the performance of the underlying asset up until maturity. At maturity, the investor will receive the issue price of Euro 100 plus the last premium if the underlying asset is equal to or above a specific fixed level (“barrier level”) set at issuance. On the other hand, if the price of underlying asset is below the barrier level , the investor is long in the underlying asset. In case of a downside performance, the Cash Collect Certificate allows an investor to reduce the loss thanks to the fixed premiums paid in the first four months of the certificate’s life.

Who are Cash Collect Certificates suitable for?

This type of certificate is designed for investors with a propensity toward high risk, having an expectation of relative stability, or a moderate rise or fall of the price of a given financial asset. Capital protection is guaranteed as long as the underlying financial asset does not fall below a certain threshold level known as the barrier level; in this case the investor may be subject to significant losses and the final payoff would reflect the performance of the underlying asset.

Listing and trading of Cash Collect Certificates

Cash Collect Certificates are financial instruments that, in Italy, can be bought or sold 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.

Cash Collect Certificate features

  • 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;
  • PREMIUM PLUS (UNCONDITIONAL): the premium distributed to the investor regardless of the performance of the underlying asset;
  • DIGITAL PREMIUM (CONDITIONAL): the premium distributed to the investor if the value of the underlying asset at the digital valuation date is equal to or above the barrier level;
  • PREMIUM AT MATURITY (CONDITIONAL): the premium distributed at maturity in the event in which the underlying asset at the final valuation date is equal to or above the barrier level; MULTIPLIER: the number of underlying assets controlled by each certificate and the ratio between the subscription price at the time of certificate’s issue and the initial reference value.
  • : the quantity of underlying controlled by each Certificate and equal to the ratio between the subscription price when issuing the Certificate and the Initial Reference Value of the underlying financial asset

Operation and pay-off of Cash Collect Certificate

Cash Collect Certificates distribute fixed premiums, regardless of the trend of the underlying financial asset in the first four months of the life of the certificate. The payment of these premiums occurs at pre-established dates, which are determined at the time of the issuance of the certificate. In addition to the fixed premiums, Cash Collect Certificates also provide for the payment of conditional premiums if the value of the underlying financial asset is equal to or above the barrier level at the pre-established dates determined at the time of issuance. There are two possible scenarios at maturity:

  1. the final value of the underlying financial asset is equal to or above the barrier level: in this case, the certificate reimburses the issuance price plus the last premium;
  2. the final value of the underlying financial asset is below the barrier level: in this case, the investor receives a reimbursement correlated with the performance of the underlying asset.

Example of an investment in a Cash Collect Certificate

Let’s assume the UBI Banca Cash Collect Certificate with the following characteristics:

Maturity1 year
Issue Price100 €
Initial Evaluation Date16 January 2017
Initial value of reference3,284 €
Unconditional and conditional premiums1,25 €
Payment dates for unconditional premiums16 February 2017, 16 March 2017, 18 April 2017, 16 May 2017
Payment dates for conditional premiums16 June 2017, 17 July 2017, 16 August 2017, 18 September 2017, 16 October 2017, 16 November 2017, 16 December 2017, and 16 January 2018
Final Evaluation date11 January 2018
Conditional premium at maturity1,25 €
Multiplier30,45067
Barrier Level2,463 € (equal to 75% of initial value of reference)

The investor will receive four unconditional monthly premiums of €1.25 on the following dates: 16 February, 16 March, 18 April and 16 May 2017. The Cash Collect Certificate will also pay eight conditional monthly premiums of €1.25 on 16 June, 17 July, 16 August, 18 September, 16 October, 16 November, and 16 December 2017 if the value of the UBI Banca security is equal to or above the barrier level of €2.463. At maturity, on 16 January 2018, there are two possible scenarios for the investor:

  1. If the UBI Banca stock price is equal to or above the barrier level (€2.463), for example at €3.84, the investor will receive the issuance price of €100 plus the conditional premium of €1.25, for a total of €101.25 for each certificate;
  2. If the UBI Banca stock price is below the barrier level (€2.463), for example at €2.34, the investor will not receive the final conditional premium of €1.25 and loses the conditional protection of the capital, thereby incurring a loss. The underlying financial asset’s performance is -28.74%. As a result, for every certificate held, the investor will be paid €71.26.
img Cash Collect iconografica
img Cash Collect payoff

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

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