SeDeX and Cert-X Markets
Borsa Italiana provides investors with two dedicated markets for trading securitized derivatives: SeDeX and Cert-X.
The SeDeX market has been in existence since 2004 and represents the evolution of the Covered Warrant Market (MCW), created in 2000, while Cert-X is the segment for securitized derivatives of the EuroTLX market, which became part of the Borsa Italiana group in 2013.
The products listed on SeDeX and Cert-X are primarily aimed at retail customers, although Cert-X also offers products targeted at professional clients.
The Italian secondary market is one of the most active in the European landscape for securitized derivatives.
Segmentation and product types
On both markets it is possible to find different types of securitised derivatives, whose major classes are warrants and certificates.
In particular covered warrants are differentiated in plain vanilla covered warrants and structured/exotic covered warrants, while certificates are divided between leverage certificates (with variable leverage (class A) and with fixed leverage (class B)) and investment certificates (benchmark (class A) and structured (class B)).
By a regulatory point of view, all the securitised derivatives types could be listed on both markets, but actually it is on SeDeX only that investors can find all of them fully represented, while Cert-X market has specialized mainly as a trading venue for investment certificates or other structured products listed after a public offer or following a private placement. On Cert-X investors can find products for professional only clients and currency-denominated securitised derivatives.
Covered warrants and certificates are issued by a subject called the issuer that can be (or be guaranteed by) a company or a vehicle subject to prudential supervision or a pure vehicle if compliant with the conditions established by Borsa Italiana rules.
All certificates and covered warrants, being derivative instruments, always refer to an underlying whose price determines the product price, together with the contractual characteristics of the instrument as defined in the base prospectus or in the final terms (or equivalent documentation).
Microstructure
Both markets are not guaranteed, and contracts between parties are settled on a T+2 basis at the chosen depository (Euronext Securities Services Milan or ICSDs).
The market model allows trading during regular hours of 09:05 - 17:30 for the Cert-X market and the possibility of extended trading hours on SeDeX with two different morning opening times (08:00 or 09:05) and three different evening closing times (17:30, 20:30, or 22:00).
The role of the Liquidity Provider
The Liquidity Provider (LP) is a mandatory and important figure responsible for ensuring the liquidity of the quoted instruments. Borsa Italiana defines the minimum obligations that LPs must adhere to and monitors their compliance. LPs must fulfill obligations related to order book presence, minimum displayed quantity, and maximum bid-ask spread. LPs can quote in bid-ask mode, bid-only mode, or bid-only-before-buy-back mode, an enhanced mode for trading buy-backs.