Trading Certificates Requires Quality Ground Preparation

The initiative of the Zagreb Stock Exchange to introduce new financial instruments, including market certificates for which they have prepared education, is welcomed by market participants. – A brief presentation of the features of certificates is an excellent step towards understanding their position within the investment universe – comments Aljoša Šestanović, CEO of POBA ICO Invest, who is also a holder of the globally recognized CFA title (Chartered Financial Analyst).

However, despite the warm welcome, financial experts warn of important segments before trading certificates begins. – Their introduction to our less developed capital market requires a whole range of other prerequisites such as preparing the appropriate infrastructure of key institutions, the exchange, SKDD, regulators, but also investment companies – warns Šestanović. Hrvoje Krstulović, CEO of Erste Securities, explains market certificates in more detail and emphasizes that the idea is to bring asset classes that are currently not available on the domestic market, such as gold, oil, foreign stock indices, and similar.

– In addition, there are certificates that allow investors to earn even in a stagnating or declining market. This would enable investors to realize the entire spectrum of their investment needs and the possibility of earning on them. For example, oil will decline, gold will stagnate, DAX will rise – says Krstulović, adding that as a consequence of the greater complexity of such instruments, it is very important for every investor to fully understand all the risks involved in such an investment in order to make their investment decision.

Moreover, it is necessary to address some other important questions that Šestanović directs – how to protect small investors, structure the risk management system in investment companies, organize the clearing of certificates, guide potential investors on their features, and transparently warn of the risks they carry (especially when it comes to turbo knock-out certificates). Nevertheless, he emphasizes that the most important questions are who the potential investors in such instruments on our market are, what their level of education is, and what the potential transaction volume would be.

– Otherwise, we expose ourselves to the risk of creating an illiquid segment of the market – emphasizes Šestanović, who agrees that the existence of a high degree of liquidity of the underlying variables on which the certificates are based is essential and which was also highlighted in the education. However, given that due to increased risk aversion in investments, the liquidity of the underlying instruments, i.e., shares on our exchange has been very weak in recent years, Šestanović warns that careless structuring of instruments creates a potential danger of manipulation by irresponsible market participants.

– The regulator, like other relevant institutions, should have been particularly cautious in structuring rules for their trading, as well as rules for trading other complex instruments, but at the same time open to proposals and financial innovations. Therefore, my suggestion is that there should be no rush – emphasizes Šestanović, who suggests that there should be no rush in their introduction without carefully prepared answers to the aforementioned questions. On the other hand, Krstulović also emphasizes the complexity of the entire process, which makes it difficult to predict the date when trading of the first certificates would begin, but hopes that it could be soon.  (Jasmina Trstenjak)