Certificates typologies

what's a certificateThe market for certificates presents a number of categories of instruments. These categories are in constant evolution as the supply of such products is characterized by a continuous innovation process aimed to meet new investors’ needs and markets’ dynamics.

ACEPI’s chosen criteria have led to the definition of four categories of certificates, linked to the presence of capital protection. Capital protection may be unrelated to external events, or depend on certain conditions. In the latter case, it is common to set a barrier that determines the extinction of the capital protection if exceeded, thus affecting the certificate’s payment at maturity.

In addition, each typology of certificate may present some peculiarity:

  • Standard: refers to the original, plain vanilla typology of certificate. It is still the most common typology and presents a simpler structure compared to the other typologies’.
  • Autocallable: allows an early redemption in case pre-arranged conditions hold.
  • Protection: offers capital protection even for certificates which do not belong to the Equity Protection category.
  • Short: allows the investor to profit from the downward movements in the value of the underlying asset.
  • Worst of: characterized by the presence of multiple underlying assets, the worst-performing of which will determine the overall performance of the certificate.
  • Best of: characterized by the presence of multiple underlying assets, the best-performing of which will determine the overall performance of the certificate.
  • Rebound: involves the exercise of options when the underlying asset reaches a pre-arranged barrier.
  • Asian: the underlying asset’s value is relevant not only when the certificate is issued and at maturity, but also during the life of the instrument. For example, the value at maturity of the underlying asset may be computed as an average of monthly prices.
  • Coupon: this typology of certificates offers the payments of coupons (as well as other redemption premiums) during the life of the instrument if certain conditions hold.
  • Booster: such certificates allow the investors to take advantage more than proportionally from upwards/downwards movements when the underlying asset’s value reaches pre-arranged levels.
  • Digital: this is a typology of certificates which allows redemption premiums under condition that the underlying asset’s value exceeds a pre-arranged level, which is fixed when the certificate is issued and does not depend on the level reached by the underlying asset’s price.
  • Double Chance: these certificates pay coupons even when the underlying asset’s price is lower than the strike price, under condition that the conditional protection option has been activated.
  • Cliquet: such certificates are characterized by the presence of financial options that are activated if the underlying asset’s value reaches pre-arranged levels on certain dates.

Besides, some certificates may be characterized by a Cap, that is, a pre-arranged limit to potential profits; some may be Quantum-type, that is, they may offer a protection against the volatility of the underlying asset caused by changes in currency value.

In addition, the effects of upwards or downwards movements in the price of the underlying asset may affect more (or less) than proportionally the certificate, thus allowing the investor a bigger (smaller) exposition to the volatility of the underlying asset.