It is imperative to launch warrant products - Shanghai and Shenzhen Stock Exchanges answer questions about launching innovative warrant products (2005-07-18)
Recently, Shanghai Stock Exchange and Shenzhen Stock Exchange respectively issued the Interim Measures for the Administration of Warrants of Shanghai Stock Exchange and the Interim Measures for the Administration of Warrants of Shenzhen Stock Exchange (hereinafter referred to as the Interim Measures). Our reporter interviewed the responsible persons of the two institutes in this regard.
Warrants only provide a tool for the split share structure reform
Reporter: It is understood that the two companies have been preparing for the launch of warrant products for quite a long time. Please introduce this aspect.
Person in charge: Warrants are relatively mature securities in overseas securities markets, which have developed rapidly in recent years. Since 2000, the two institutes have organized special forces to track the development of the global warrant market, study the necessity and feasibility of launching warrant products in China's securities market, design business plans, and actively make relevant technical preparations. The CSRC has always attached great importance to and paid close attention to the warrant product innovation work of the two companies, and strengthened leadership and provided strong support for the regulations, ideas, steps and principles of warrant product innovation. A number of securities companies and other intermediaries actively participated in the research, design and demonstration of the product, and actively carried out market education and promotion. All these have created conditions for the introduction of warrants.
At present, the scheme design, technology development and related research work related to warrants have been basically completed. The Interim Measures have been approved by the CSRC and officially announced to the public. The preparations for launching warrant products have been basically completed.
Reporter: In the recent pilot reform of non tradable shares, companies have used warrants to solve the problem of non tradable shares. What is the relationship between the two?
Person in charge: Warrants mainly have the functions of price discovery and risk management. They are an effective tool for risk management and resource allocation. In recent years, the competition in product development between stock exchanges has become increasingly fierce, and countries (regions) are competing to launch a wide range of warrant products. At present, the introduction of warrant products only provides a tool for listed companies to choose from. From the perspective of the current pilot companies' schemes, only a few companies have used warrant instruments in their schemes.
The main purpose of the two warrants is to comply with the market's demand for product innovation and develop the internationally accepted and widely used warrant market. As an independent financial product, warrants have a wide range of uses. This has been introduced in detail in our warrant series research reports (see major securities newspapers and two websites).
Investors should fully establish risk awareness when trading warrants
Reporter: Do investors need to open new accounts to trade warrants?
Person in charge: The purchase and sale of warrants is similar to that of stocks. The required account is a stock account. Investors with existing stock accounts do not need to open new accounts. Investors can buy and sell warrants by inputting information such as account, warrant code, price, quantity and trading direction through declaration channels such as computer terminals, online trading platforms, telephone entrustment, etc. provided by securities companies.
Reporter: What are the risks of investors buying and selling warrants? What are the considerations in the Interim Measures?
Principal: Warrant is a kind of securities product with leverage effect, which has certain investment risks. Investors should fully establish risk awareness when buying and selling warrants. To sum up, investors need to pay attention to the following risks: First, the risk of violent price fluctuations. Due to the high leverage of warrants, the price of warrants only accounts for a small proportion of the price of underlying securities, which may cause severe fluctuations in the price of warrants; For example, the closing price of T-1 warrants is 2 yuan, and the closing price of underlying stocks is 10 yuan. On T day, the underlying stock fell to 9 yuan. If the warrant also fell by the limit, according to the Interim Measures, the limit price of the warrant on T day was 2 - (10-9)? 25%=0.75 yuan. The warrant fell 62.5% within one day, more than the stock. Of course, warrants have the same effect when underlying securities rise. Second, timeliness risk. The warrant has a certain period, and the holder should exercise the right in consideration on or before the expiration date in time, because the warrant will have no value after the expiration date; Third, performance risk. The essence of the warrant is a contract between the issuer and the holder, and there is a risk of default of the warrant issuer. The currently designed warrant scheme provides sufficient guarantee for the issuer's performance, so the risk of default is low. However, in developed countries, warrant products are complex and diverse. Different issuers have different credit ratings, and their hedging strategies and risk levels are also different. The issuer may not pay enough securities or cash when the holders exercise their rights.
In order to protect the rights and interests of investors and maintain the trading order of the securities market, the Interim Measures give full consideration to the corresponding risk prevention and control measures. First of all, strengthen the warning of investment risks, require the members of the two exchanges to comprehensively introduce the relevant business rules to the investors in the initial trading of warrants, fully disclose the possible risks, and require them to sign the risk disclosure letter. Secondly, the size and liquidity of the underlying stocks corresponding to the listed warrants are strictly restricted to reduce the possibility of abnormal volatility of warrant prices and market manipulation. For example, the Interim Measures stipulate that the market value of the underlying stocks of warrants in circulation shall not be less than 3 billion yuan, and the shares in circulation shall be less than 300 million shares. It is estimated that there are no more than 20 listed companies that meet these conditions. Thirdly, the warrant issuer should provide performance guarantee in principle, as it puts forward higher requirements on the performance ability of the warrant issuer. Finally, in the overseas warrant market, the "continuous offering" mechanism is also an effective way to control the risk of warrant trading, and we will learn from this approach when appropriate, such as allowing qualified institutions to create warrants, so as to increase the supply of warrants in the secondary market when necessary, and prevent warrant prices from leaving the reasonable price area.
The launch of new products including warrants is an urgent need of the market
Reporter: Warrants are a product with high risk. Is the time ripe for launching warrants now?
Person in charge: The characteristics of warrants determine that their price fluctuation is higher than that of underlying securities. In this sense, warrants are financial products with relatively high risks and returns. However, the product structure of China's securities is relatively simple, which affects the efficiency and activity of the market to a certain extent. A perfect securities market needs various financial products with different risk return characteristics. We believe that the launch of new products, including warrants, is an urgent need for the market. First, the policy environment is conducive to product innovation. In the past, when considering warrant products, there were large institutional obstacles. However, after the launch of the "National Ninth Rule", the environment of the securities market has changed greatly, which greatly promoted the launch of new products. Secondly, China's securities market has already begun to use warrants as a financial tool, and participants are not unfamiliar with the characteristics and functions of warrants. Convertible corporate bonds in China's securities market are the combination of stocks and warrants. Historically, there have been warrant transactions in both Shanghai and Shenzhen markets. For example, in June 1992, the Shanghai Stock Exchange launched China's first warrant: Dafeile Rights Issue Warrant. Finally, the market has a strong demand for warrants. It is understood that many securities companies, in order to seek development, have begun to sell products similar to warrants to their customers through various channels, but such products are private and cannot be listed for trading. It is imperative to launch standardized tradable warrant products.
For securities accounts with significant abnormal transactions, warrant transactions can be restricted
Reporter: The development of new products such as warrants cannot be smooth, especially how to prevent malicious speculation after the listing of warrants will be a thorny problem. How do the two companies deal with various possible abnormalities after the listing of warrants?
Person in charge: The abnormal trading of warrants, especially market manipulation, will damage the interests of investors and seriously endanger the development of the warrant market, which is indeed an important task in the front-line supervision of the Exchange. The Exchange will set reasonable monitoring indicators in advance to timely inspect and specially monitor the dramatic fluctuation of warrant trading price or serious deviation from the trading price of the underlying securities; Verbal warnings and appointment talks will be given to relevant institutions in abnormal transactions; For securities accounts with significant abnormal transactions, warrant transactions may be restricted; If there is suspicion of insider trading or market manipulation, report to the CSRC for investigation and punishment. In addition, the Exchange will also improve the disclosure of warrant trading information and publish the list of warrant holders who can circulate the number of warrants and hold more than 5% of the number of warrants before the daily opening of the market, so as to enhance the transparency of the market.
Reporter: What are the similarities and differences between the two Provisional Measures?
Person in charge: The Interim Measures issued by the two exchanges are basically the same. The only difference is that Article 31 of the Interim Measures of the SSE stipulates that "the declared number of warrants to exercise is an integral multiple of 100", while the Interim Measures of the Shenzhen Stock Exchange allows the exercise of fractional numbers of warrants.
Source: Shanghai Securities News
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
