Many "unknowns" have caused losses in some retail investors' investment warrants. Our photographer/Wu Jun has issued 21 warrants products to major shareholders of 17 listed companies in Shanghai Stock Exchange as part of the negotiated consideration in the share reform since the first share reform warrant, Baosteel Warrants, was traded in Shanghai Stock Exchange in August 2005. Among them, the most discussed one is the last put warrant of China Southern Airlines that withdrew from the historical stage in Shanghai Stock Exchange, and the extensive losses and the establishment of the system are the important reasons.
The author believes that the main effect of warrant creation is to prevent manipulation and excessive speculation, and has achieved remarkable results in this regard. A few retail investors suffered losses mainly because they did not understand the warrants and their rules, the purpose of the Exchange's requirement for each participant to sign the risk disclosure statement, and the true intention of the creation.
As for the creation system, there are two questions most discussed in the market: one is why there should be an creation system for warrants? Second, why can the seemingly "risk-free benefit" creation business only be shared by institutional investors represented by innovative securities companies, rather than ordinary investors?
In the mature overseas warrant market, there are generally market-oriented supply and demand balance mechanisms. There are two main ways, one is the continuous issuance mechanism, and the other is the free issuance mechanism. The former refers to the continuous sale of the issued warrants by the original issuer, which is obviously impractical for the share reform warrants generated with the share reform in China, because the share reform warrants are the consideration given to the holders of tradable shares free of charge by the holders of non tradable shares. The holders of non tradable shares cannot continue to sell, so the burden of balancing supply and demand naturally falls on the "free issue mechanism" On the body.
It is simpler to find out why the market is concerned about "the creation is only undertaken by innovative securities companies rather than all investors", that is, the regulators have comprehensively considered the risks of creation. If the founder implements the creation, it needs to provide 100% exercise performance guarantee: create warrants, provide corresponding full amount of positive shares, and put, it needs corresponding full amount of capital, which indicates that the creation has both costs and risks, which is a great test for the performance ability, risk control ability, and credit level of the founder. The innovative securities companies reviewed and recognized by the Securities Association of China according to strict standards obviously meet the conditions. If the qualification management is released for ordinary investors who lack risk control and management ability, it is obvious that the final result can only be one, that is, the situation is seriously out of control.
It is worth noting that the creation increases the supply of warrants, affects the price of warrants, and thus affects the earnings of some participants, so some participants believe that the creation itself is the source of their losses, but is this the case?
Take the put warrant of China Southern Airlines as an example. No matter whether it is created or not, with the rise of China Southern Airlines' stock, its intrinsic value tends to zero, and the transaction price gradually approaches zero as the maturity date approaches. Investors who buy at a high level or take over the last will lose money, and the higher the price, the greater the loss. On the contrary, if there is no mechanism, the price of warrants may be more distorted, further deviating from its intrinsic value, and ultimately causing more losses to small and medium-sized investors who blindly follow the trend.
Therefore, the root cause of the loss of warrant investment lies in the investment behavior based on the irrational price judgment, and the creation mechanism reduces the overall risk of the warrant market and protects the interests of investors in a wider range by suppressing the irrational price rise.
Li Xinze
