Discount Certificates Tutorial

Discount certificates are designed to provide an enhanced return in sideways markets, compared to a direct investment in the underlying.

Discount certificates make it possible for you to buy an underlying instrument for less than its current market price. However, the maximum payback on a discount certificate is limited to a predetermined amount (cap).

Discount certificates normally have a term to maturity of one to three years. At maturity, a determination is made of where the price of the underlying instrument stands.

If it is at or above the cap, you’ll earn the maximum return and receive payment of the amount reflected by the cap.

If the price of the underlying instrument is below the cap on the maturity date, you’ll receive either the corresponding number of shares or a cash settlement reflecting the value of the underlying instrument on the maturity date.

Pay-out Profile

Assume a discount certificate on ABC share. The certificate has a cap of EUR 40.00, and a purchase price of EUR 36.00. The table below shows scenarios depending on the final price of the underlying.