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US Daily Leverage Certificates (DLCs) On SGX: NASDAQ-100 Index; S&P 500 Index

Handle with care: DLCs are an instrument that can be used to make profits during periods of high volatility.


First introduced on the SGX by Societe Generale in 2017, Daily Leverage Certificates (DLCs) are derivatives that offer investors fixed daily leverage exposure to stocks or indexes that the DLC is tracking.

As with all derivatives, DLCs derive their value from the underlying asset(s) that they are tracking, as opposed to investing in the asset(s) itself. When we buy a DLC, we are exposed to the daily price change of the underlying asset(s) that the DLC is tracking.

One advantage of DLCs is that they allow investors to make profits in either market direction. If we think the prices of a particular stock or index will go down, we can purchase a short DLC. If we think prices will go up, we can buy a long DLC.

DLC utilises leverage. On the SGX, DLCs offer a leverage of up to 3 times, 5 times or 7 times the exposure of the asset that it’s tracking. For example, if a particular asset goes up by 5% in a single day, then a 5X Long DLC will increase by 25% for that day. Similarly, a 5X Short DLC will decline by 25% for that day.

While there are DLCs in Singapore that allow us to gain exposure to companies and indexes that are listed in Singapore and Hong Kong, we only recently got our first DLCs on the SGX that offers investors with fixed daily leverage exposure to the U.S. market.

Note that DLCs are meant to offer fixed daily leverage exposure to the indexes or single stocks that it’s tracking. Investors can capture amplified returns within a day. However, if DLCs are held beyond one day, then returns may deviate from the 5 times returns that the DLC is supposed to generate.

In this edition of 4 Stocks This Week, we find out more about the newly listed DLCs that will track indexes in the U.S. market.

Read Also: Using Daily Leverage Certificates (DLCs) In Volatile Stock Markets

DLC For S&P 500 Index

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities. As its name suggests, the index includes the 500 leading U.S. publicly traded companies. It’s also typically seen as a benchmark for many investors when looking at how the U.S. stock market is performing.

Listed in March 2022, the 4 DLCs that currently track the S&P 500 all offer 5 times leverage. The key difference between the 4 DLCs are as such.

– 2 of the DLCs are long DLCs, and 2 of them are short DLCs.

– The reason why there are two DLCs each for long and short positions is that they are offered at different price points to provide investors with more choices.

For example, the S&P 5xLongSG250228A, which is a long DLC tracking the S&P 500, has an issue price of $1.50m, while the S&P 5xLongSG250228, also a long DLC listed on the same day, had an issue price of $0.50. Depending on how much you wish to invest, you can choose either DLC. The same concept applies to short DLCs that are tracking the S&P 500.

NASDAQ-100

The Nasdaq 100 index is a basket of the 100 largest and most actively traded U.S. companies that are listed on the Nasdaq.

Listed in April 2020, there are now 4 DLCs on the SGX that tracks the performance of the Nasdaq-100. All 4 DLCs offer 5 times, fixed daily leverage exposure to the Nasdaq-100.

Similar to the DLCs for the S&P500.

– 2 of the DLCs are long DLCs and 2 of them are short DLCs.

– The reason for having two DLCs each for long and short positions is because they are offered at different price points to provide investors with more choice.

For example, the NDX 5xShortSG240425A is a short DLC tracking the Nasdaq-100. If the Nasdaq-100 goes down by 2% for that day, the DLC value will increase by 10% for that day. It has an issue price of $2.00. Likewise, the NDX 5x ShortSG240425 works exactly the same way, with the only difference being that its issue price was listed at $0.90.

Read Also: How You Can Start Trading Hong Kong Stocks On The SGX

One thing worth noting is that due to the trading hours difference between the SGX and when the U.S. market opens, the DLC intra-day price movements will be closely linked to the performance of the 3-mini S&P 500 and Nasdaq-100 future which is trading during Asian hours.

If you are keen to find out more about the U.S. DLCs, do check out the Societe Generale page.

Do note that DLCs are Specified Investment Products (SIP).

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