Answer to the basic knowledge of warrants: what are the terms of warrants

There is no prescribed form of terms for warrants, especially covered warrants. The terms of warrants of different types, the same type but different series, or the warrants of different issuers will be different. These terms are formulated according to their own characteristics on the basis of following certain laws and regulations, and need to be clarified by the issuer in the relevant documents of information disclosure. In general, the terms of a warrant should at least clarify the following elements:

Issuer: It can be a listed company or a third party holding relevant assets. Listed companies issue their own share capital warrants

Equity warrant or company warrant; The covered warrant is issued by a third party (generally an international investment bank) holding relevant assets (Hong Kong and Taiwan are called derivative warrants). The so-called "reserve" means that the issuer already has relevant assets or is able to hold relevant assets so as to exchange them to the holder on the maturity date.

Underlying assets: Underlying assets refer to the underlying assets attached to the issuance of warrants, that is, the tradable assets pointed by warrant holders when exercising their rights. The underlying asset can be a security (such as company shares), a stock index, a commodity or a currency. Some warrants can also use a combination of assets or a package of stocks as the underlying assets.

Right attribute: refers to whether the rights granted by the warrant to the holder are call or put rights, which can be divided into two types of attributes: call and put.

Exercise price: the purchase (or sale) price of the underlying securities agreed by the warrant.

Exercise period: the period during which the warrant can be exercised.

Execution mode: according to the different relationship between the exercise period and the validity period of the warrant, it can be divided into American style warrants (the exercise period is always within the validity period), European style warrants (the exercise can only be performed at the end of the validity period) and hybrid warrants (the exercise can be performed for a long time before the expiration of the validity period).

Settlement method: physical delivery or cash settlement.

Exercise proportion: the exercise proportion is the number of underlying assets required to be transferred when a warrant is exercised. For example, when a warrant of Baosteel shares with a 1:10 exercise ratio is exercised, one warrant can subscribe for 10 shares of Baosteel shares.

Some exotic covered warrants may also contain some special elements such as barrier level, ceiling level and index appreciation. (Guosen Securities Research Institute Ge Xinyuan)