JP Morgan launches LSE-listed certificates

JP Morgan is marketing ‘bull’, ‘leverage bull’, ‘leverage bear’ and ‘discount’ certificates. They are marketed on the basis of being an easy and efficient way to gain exposure to the price movements of a share or a group of shares by replicating the performance of an underlying asset. They also, like covered warrants, have the advantage of being exempt from tax duty.

JP Morgan’s bull certificates are designed to let investors bet that a particular index or basket of shares or indexes will rise by tracking the value of the underlying. Leverage bull and leverage bear certificates come with a knock-out barrier: the value of leverage bulls goes up at a relatively fast rate – compared with a direct position in the underlying – as the underlying increases in price. But it also has a knock-out on the downside, so the certificate becomes worthless if a certain price barrier is broken. The converse is true for a leverage bear certificate.

Discount certificates let investors replicate exactly the performance of a stock, an index or a basket, but they are sold at a markdown because the upside is capped – the investor sells a call option with the option premium knocked off the cost of the certificate.

Toby Peters, an associate in JP Morgan’s London equity derivatives marketing department and head of UK warrants, said he believes discount certificates will be popular because many investors have a moderate bull view of equity prices. "I think they [investors] are not particularly concerned about giving up upside beyond a certain level,” Peters said.

JP Morgan listed the certificate on Monday. Peters said none have been sold yet, but the US bank's marketing drive only began today.

David Lake, director of UK warrants at French investment bank SG in London, said he is waiting to see how JP Morgan’s certificates perform before deciding whether to issue rival products. He is sceptical of the need for the discount and bull certificates. “Our feeling at the moment is that these kinds of products are actually quite similar to contracts for difference or spread bets, because there is no gearing element,” said Lake.