M6A — CM-SIP: Specified Investment Products (Derivatives and CIS)
Structured Warrants and Daily Leverage Certificates
Chapter 5 covers the two leveraged products retail traders meet most on SGX. Structured warrants are bank-issued, option-like instruments with a limited life, priced on volatility and time. DLCs give a fixed 3x to 7x multiple of the underlying's daily move, reset every day, with an airbag and overnight costs. The exam tests the IBF warrant formulas (intrinsic value, premium, gearing, break-even), compounding arithmetic, airbag mechanics and the comparison with CFDs.
6 sections·~3 min read
✓Checked against the IBF CMFAS CM-SIP syllabus chapter 5; IBF CM-SIP Summary of Updates Jan 2026 v1.1 sections 5.6.1 and 5.6.3; SGX Mainboard Rules Chapter 5 (rulebook.sgx.com); SIAS structured warrant guide; SGX DLC Product Guide (information as of Nov 2020) and SGX DLC FAQ (1 Nov 2018); checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
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Must-know for the exam
✓Structured warrants are issued by third-party financial institutions (SGX Mainboard Rules Chapter 5), usually cash-settled, with a designated market maker. Holders are unsecured creditors of the issuer.
✓Call warrant IV = MAX{0, (S - X)/n}; put warrant IV = MAX{0, (X - S)/n}, where n = conversion ratio (IBF update, section 5.6.1).
✓Call premium % = (nW + X - S)/S x 100; put premium % = (nW - X + S)/S x 100 (IBF update, section 5.6.3). Premium = % move needed to break even at expiry.
✓Break-even: call = X + nW; put = X - nW. Gearing = S / (nW). Effective gearing = gearing x delta.
✓Warrant prices rise with volatility (calls and puts), fall with time decay; dividends hurt calls and help puts.
✓DLCs (SGX guide): fixed leverage of up to 7x on the move from the previous close, long and short, no margin, loss limited to the amount invested, traded and cleared like shares via CDP.
✓Daily reset compounds returns: +1% for five days gives a 3x Long DLC +15.93% (3.1 times); -1% for five days gives -14.13%; sideways markets erode value.
✓Airbag (SGX guide): triggered only by adverse moves; 30-minute suspension; New Observed Level = lowest (long) or highest (short) level in the 15 minutes after trigger. Illustrative triggers: index 3x 20%, 5x 10%, 7x 10%; single stock 5x 15%. Confirm in each listing document.
✓Overnight gap beyond 100% / leverage (5x: 20%, 7x: 14.3%) can wipe out a DLC before the airbag acts.
✓DLC costs: intraday only brokerage, fees and spread. Overnight: management fee (0.40% a year is about 0.0011% a day in SGX's example), gap premium, funding and rebalancing costs.
Why this matters in the exam
•Warrants and DLCs are sold to retail traders who often misunderstand time decay, compounding and the airbag. Expect formula questions on warrants and multi-day arithmetic on DLCs, plus comparisons: warrant versus company warrant, DLC versus warrant, DLC versus CFD.
Structured warrants: the rules and the formulas
•Issuer: a bank, not the company. No new shares, so no dilution (unlike company warrants).
•Settlement: stated at launch (SGX Rule 508); usually cash. In-the-money warrants pay out at expiry; out-of-the-money warrants expire worthless.
•Liquidity: a designated market maker quotes within a disclosed maximum spread, but may not quote when the underlying is suspended.
•Risks: limited life, time decay, gearing, issuer credit, currency on foreign underlyings, suspension.
•Worked example (call): S = $10.00, X = $9.00, n = 10, W = $0.15. IV = (10 - 9)/10 = $0.10. Premium = 10 x 0.15 + 9 - 10 = $0.50, or 5.0%. Break-even = 9 + 1.50 = $10.50. Gearing = 10 / 1.50 = 6.7.
•Worked example (put): S = $20.00, X = $22.00, n = 5, W = $0.50. IV = (22 - 20)/5 = $0.40. Premium = 5 x 0.50 - 22 + 20 = $0.50, or 2.5%. Break-even = 22 - 2.50 = $19.50.
•Trap: gearing is not the expected move. Use effective gearing (gearing x delta): gearing 8, delta 0.5, share +2% gives the warrant about +8%.
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