What does the collateralization of the wikifolio certificates mean for me as an investor?
The investment in certificates is generally accompanied by an issuer risk. This means that if the issuing company is no longer able to meet its financial obligations, the risk becomes imminent and the creditors may incur losses. In order to limit losses from a possible insolvency, an issuing company can specifically collateralize its securities in the interest of its customers.
For this purpose, the equivalent value of the investments in the collateralized securities is deposited in whole or in part with the selected custodians. The deposit is usually supervised by a trustee specifically appointed for this purpose. If the issuing company were to face economic difficulties, the trustee would access the deposited collateral and pay it to the creditors.
The reports on the collateralization of wikifolio cetificates are available on the website of Lang & Schwarz: www.ls-tc.de/en/wikifolio/trust-reports
Some time ago, I invested in wikifolio certificates; are these investments also included in the collateralization solution?
Yes, the collateralization solution is effective for ALL wikifolio certificates, no matter when a wikifolio certificate was purchased or how high the sum of investments in a wikifolio certificate.
Where can I find the terms and conditions of the collateralization for my wikifolio certificate?
For wikifolio certificates issued after 8 March 2017, there is a new section in the base prospectus that describes the collateralization. All wikifolio certificates issued before 8 March 2017 are included in the scope of the collateralization due to a so called “contract for the benefit of third parties” between the trustee and the issuing house.
The Base Prospectus dated June 4th 2020 [German] is available as usual on the website of Lang & Schwarz.
How exactly does the collateralization solution for wikifolio certificates work?
In order to fulfill its obligations, Lang & Schwarz maintains the equivalent value of all outstanding wikifolio certificates, both in securities as well as in cash holdings. Securities and cash holdings together form the so-called hedge. The securities are kept at a bank account at the house bank. The cash accounts are held at different banks and partly specifically for the collateral.
The trustee appointed by Lang & Schwarz assumes the function of checking the collateral on behalf of the investors and determining the degree of collateralization. In the event that the conditions for the realisation of the collateral arise, the trustee assumes the realization of the collateral and the payment of the redeemed money to the creditors.
The deposited securities holdings meet the sole purpose of collateralizing the wikifolio certificates. As for cash holdings deposited with HSBC Trinkaus, a collateralization for the part that is not used for other transactions of the issuer or the Lang & Schwarz TradeCenter AG & Co. KG takes place.
The collateral available to the creditors of the certificates will be realized only for the benefit of these creditors and not for other creditors of Lang & Schwarz. Proceeds from the realization will be paid out to the creditors of the certificates (less realization costs and costs for the trustee). If their claims exceed the proceeds of the realization, the remaining claim is the so-called default claim. These default-claims are satisfied from the general assets that an insolvency administrator of Lang & Schwarz can liquidate.
Example: if the proceeds of the liquidation amount to 95 % after deduction of costs, 5 % of the claims of the creditors of the certificates remain which have to be satisfied from the general assets which are available to all creditors.
Are wikifolio securities special assets within the meaning of the German Investment Code (KAGB)?
A wikifolio index certificate is a bearer note and not a fund or other UCITS. It is, therefore, not an investment fund within the meaning of the German Investment Code. Against the background that individualized hedging of the wikifolio index certificates is not intended and the cash balances deposited with the house bank are partly used for other transactions within Lang & Schwarz, a separation from the company's own assets is also not possible according to § 92 para. 1 sentence 2 of the German Investment Code.
Who bears the costs of collateralizing the wikifolio certificates?
Neither the investor nor the wikifolio trader incur any additional costs from the collateralization solution. Lang & Schwarz and wikifolio.com bear the expenses resulting from the collateralization.