Table 1 Difference between equity warrant and covered warrant
Stock warrant covered warrant
Securities companies, investment banks and other financial institutions whose issuer's listed company meets certain conditions
Issuance purpose: financing hedging, financing and income increase
Underlying asset stock stock, index or other
The duration is generally 1-5 years, generally 3 months to 2 years
Settlement method Physical delivery (stock payment) Physical delivery or cash delivery
As a result of exercise, the total number of shares increased, the total number of shares with dilution effect remained unchanged, and there was no dilution effect
□ Financial Derivatives Department of CIC Securities
Warrant refers to the certificate issued by the issuer, and the holder has the right to buy or sell a specific amount of underlying securities at a specific price during a specific period. By definition, warrants are similar to options, but they are not the same product. Option is a standardized contract traded on the exchange. As long as it can be traded, an option contract will be generated. Theoretically, the supply is unlimited. The terms of the option contract are formulated by the exchange, and the choice of the subject matter is relatively limited. Warrants are issued by financial institutions such as listed companies or securities companies, and can be traded on exchanges or over-the-counter, with limited supply. On the same point, the basic elements of warrants, such as performance terms, are very similar to the concept of option in options.
There are many types of warrants, mainly including:
According to different issuers, warrants can be divided into equity warrants and covered warrants. The equity warrant is a kind of warrant issued by the issuer of the underlying assets of the warrant (generally a listed company). The holder has the right to subscribe for shares from the listed company at the agreed time and price, and the listed company must issue shares to the equity warrant holder. The covered warrant is a kind of warrant issued by an institution other than the issuer of the underlying assets of the warrant. The holder has the right to purchase the shares held by the issuer at the agreed price within the agreed time. Covered warrants are based on existing stocks. The stocks they subscribe for are not newly issued stocks, but stocks that have been circulated in the market. The comparison between equity warrants and covered warrants is shown in Table 1.
According to the different time of performance, warrants can be divided into European style warrants, American style warrants and Bermuda style warrants. European warrant refers to the requirement that the warrant holder can only propose to buy or sell the underlying assets on the expiration date of the warrant. The American style warrant refers to the right of the warrant holder to exercise the right to buy or sell the underlying assets on any business day before the expiration date of the warrant. Bermuda style warrants, also known as amended American style warrants, can exercise the right to buy or sell the underlying assets within a series of specified dates before the expiration date of the warrants. After the expiration date, the holders of European style warrants, American style warrants and Bermuda style warrants will lose the right to require execution.
According to different rights, warrants can be divided into call warrants and put warrants. The warrant is a right to buy, and the warrant holder has the right to buy the agreed amount of underlying assets at the agreed time and price. The put warrant is a kind of right to sell, and the warrant holder has the right to sell the agreed amount of underlying assets at the agreed time and price.
According to different execution prices, warrants can be divided into three types: in price warrants, out of price warrants and price leveling warrants. The call (put) warrants whose underlying asset price is higher (lower) than the exercise price are in the money warrants. The call (put) warrants whose underlying asset price is lower (higher) than the exercise price are out of the money warrants. The call (put) warrant with the price of the underlying asset equal to the exercise price is a price equalization warrant. In addition, warrants can also be divided into spread warrants and non spread warrants according to whether the exercise price has upper and lower limits. Spread warrants have upper and lower limits of the exercise price, which can be divided into upper limit warrants and lower limit warrants. Once the price of the underlying assets reaches the upper and lower limits of the exercise price, it is deemed that the warrants are due and will be delivered and performed in cash. Non spread warrant refers to the warrant without upper and lower limit of execution price.
According to different settlement methods, warrants can be divided into cash settlement warrants and physical delivery warrants. Cash settled warrants refer to that when the warrant holder exercises, the issuer only conducts cash settlement for the difference between the market price of the underlying securities and the exercise price. Physical delivery warrants refer to the actual transfer of underlying securities when warrant holders exercise their rights, and the issuer shall purchase or sell the agreed amount of underlying securities at the agreed price. (The article is only for reference, and the profit and loss caused by investment based on it has nothing to do with it.)
