Daily Leverage Certificates
DLC Hotline: (65) 6226 2828
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US DLC performance on a US market close-to-close basis
US DLC performance during SGX trading hours
Underlying Type | Product | Airbag Trigger |
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Index | 5x Daily Long 7x Daily Long |
-10% |
Index | 5x Daily Short 7x Daily Short |
+10% |
Stock | 3x Daily Long | -20% |
Stock | 3x Daily Short | +20% |
Scenario example: 3x DLC on a US Stock – sharp intraday move during US trading hours
If the Air Bag is triggered overnight (during US trading hours) when the US stock falls (for Long DLC) or rises (for Short DLC) by more than 20% (airbag trigger level for 3x DLC), but less than 33% within the Observation Period, then the DLC theoretical value and exposure will be reset when the Air Bag is triggered, and then reset again when the relevant US exchange closes.
In this case, a US stock DLC’s theoretical closing price will be different from if there was no Air Bag mechanism in place (which is the same effect as an Air Bag triggered on DLCs with a Singapore or Hong Kong underlying asset, except that investors cannot trade the US stock DLC as this will occur during US trading hours). On the next SGX trading day, DLC performance will be based on the reference value determined at the close of the relevant US exchange.
If the Air Bag is triggered overnight (during US trading hours) when the US stock falls (for Long DLC) or rises (for Short DLC) by approximately more than 33% within the observation period, the DLC will be permanently suspended on the next SGX trading day and will be delisted subsequently. Investors will lose the entire value of their investment.
This example highlights that there is a specific risk that overnight, investors incur a significant or even entire loss of the amounts invested, and will not be able to exit their investments in the DLC at that time.
The Issuer has determined that the Long DLCs on the US Stocks fall under the scope of Section 871(m) of the U.S. Internal Revenue Code (“Section 871(m) Regulations”) which generally impose a 30% withholding tax. Therefore, in the event that U.S. source dividend payments or any dividend equivalents are made in respect of the underlying US Stock, the Issuer will apply the general tax rate of 30% to the payments subject to withholding under the Section 871(m) Regulations without regard to any applicable treaty. Therefore, in such cases, an investor’s individual tax situation will not be taken into account.
Let’s look at the example below, to understand the dividend impact on the Long DLC on the US stocks which would have to take into account the applicable withholding tax of 30%.
Long DLC | Short DLC (Withholding Tax Not Applicable) |
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The 30% withholding tax may be reduced by an applicable tax treaty, eligible for credit against other U.S. tax liabilities or refunded, provided that the beneficial owner claims a credit or refund from the United States Internal Revenue Service (“IRS”) in a timely manner, but the Issuer makes no assessment as to whether any such tax credits will be available. Investors should consult their tax adviser regarding the potential application of the Section 871(m) Regulations to their investment in the DLCs.
Investors can refer to “Taxation”, “Risk Factors”, "Leverage Strategy Formula" and "Terms and Conditions" in the relevant listing documents of the DLCs for more details.
In respect of corporate adjustment events on the underlying stock (excluding ordinary cash distributions), trading in the respective DLCs may be suspended on the relevant ex-date of the underlying stock and trading in the DLCs will resume on the next immediate trading day on the SGX. Please note that trading in the DLCs on the SGX may be suspended for more than one trading day in certain circumstances.
Please see the below illustrative example of the treatment on the US Stock DLC in the event of a corporate action adjustment, subject to changes as determined by the Issuer depending on the nature of the corporate action.
Investors can refer to "Leverage Strategy Formula" and "Examples and illustrations of adjustments due to certain corporate actions" in the relevant listing documents of the DLCs for more details.
US Stock Last Cum Date | US Stock Ex-Date | US Stock Ex-Date + 1 Singapore BD |
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SGX Session (9am-5pm) |
US Market Session (Overnight) |
SGX Session (9am-5pm) |
US Market Session (Overnight) |
SGX Session (9am-5pm) |
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Trading Status of the US Stock DLC |
Trading as per usual | No Trading as SGX market is closed |
Suspended | Resume trading at SGX market open |
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Adjustments of Corporate Action (this is a generic example where all figures are purely hypothetical) |
US Stock close as of Last Cum Date = $100 US Stock Long & Short DLC intrinsic close as of Last Cum Date = $1 Adjustment Factor = 0.80 (for DLC calc) US Stock close as of Last Cum Date after adjustment = $100 * 0.8 = $80 | US Stock close as of Ex-date = $82 (for DLC calc) US Stock performance = 82/80 - 1 = +2.5% Expected US Stock 3x Long DLC performance = 2.5% x 3 = 7.5% and thus intrinsic close = $1.075 (before cost and fees) Expected US Stock 3x Short DLC performance = -2.5% x 3 = -7.5% and thus intrinsic close = $0.925 (before cost and fees) Note: should the Ex-date be a US business day, such date will count as an observation date for the US Stock DLCs for purpose of the leverage strategy calculation despite the DLC being suspended | US Stock DLC performance is with reference to US Stock Close as of Ex-date (i.e. $82) and Long/Short DLC intrinsic close as of Ex-date (i.e. $1.075 and $0.925 respectively) |
Reminder
Terms not defined herein shall have the meanings ascribed thereto in the SLD of
the relevant Certificate. Investors should ensure that they understand the nature of the Certificates and
carefully study the risk factors set out in the BLD and the relevant SLD. Full disclaimer here.