What hap­pens when war­rants ex­pire?

The Sun (Malaysia) - - SUNBIZ -

AS a war­rant ap­proaches ex­piry, some of the most com­mon ques­tions our in­vestors ask are:

What hap­pens to my war­rant when it ex­pires? Will I lose my in­vest­ment amount?

In this week’s col­umn, we look to an­swer th­ese ques­tions, and to ex­plain the for­mula used to cal­cu­late the cash set­tle­ment amount (CSA), that is, if there is any.

Briefly, should the war­rant ex­pire with value, the in­vestor will re­ceive the cash set­tle­ment amount via a cheque.

As all struc­tured war­rants in Malaysia are cur­rently cash-set­tled, there will be no un­der­ly­ing shares ex­changed for war­rants. War­rants which ex­pire without any value will not re­quire the holder to top up any dif­fer­ences.

How do I cal­cu­late the CSA for AIRASIA-C33? Con­sider the ex­am­ple of AIRASIA-C33 – a call war­rant ex­pir­ing on Oct 28, 2016, which has an ex­er­cise ra­tio of 2.5 war­rants to one share, and an ex­er­cise price of RM2.10. The set­tle­ment price will be the av­er­age clos­ing price of the un­der­ly­ing share for the five mar­ket days prior to the ex­piry date. For this case, the clos­ing prices used will be: Oct 21, 2016: RM2.80 Oct 24, 2016: RM2.82 Oct 25, 2016: RM2.82 Oct 26, 2016: RM2.80 Oct 27, 2016: RM2.78

Based on th­ese five clos­ing prices, the av­er­age clos­ing price will be cal­cu­lated as RM2.8040. Us­ing the CSA for­mula be­low, in­vestors can de­ter­mine the CSA of AIRASIA-C33 to be RM0.2816 per war­rant.

CSA = (Set­tle­ment Price – Ex­er­cise Price) / Ex­er­cise Ra­tio = (RM2.8040 – RM2.10) / 2.5 = RM0.2816 per war­rant

Sup­pose an in­vestor has 100,000 units of AIRASIA-C33 on ex­piry, the to­tal CSA the in­vestor can ex­pect to re­ceive is RM28,160 which is cal­cu­lated as 100,000 x RM0.2816. A cheque will be is­sued by Mac­quarie to the reg­is­tered ad­dress of the holder within seven work­ing days after the ex­piry date. War­rants that ex­pire out-of-the-money On the flip­side, should the set­tle­ment price of AIRASIA-C33 be be­low the war­rant’s ex­er­cise price of RM2.10, this war­rant will be deemed out-of-the­money (OTM) and will ex­pire worth­less. How­ever, in such cases, in­vestors will not be re­quired to make any mar­gin top-ups. The max­i­mum ex­po­sure to the in­vestor is set up front at the start of the trade, which is the in­vest­ment cap­i­tal.

To find out more, please re­fer to https://www.malaysi­awar­rants.com. my/eduhtml?p=eduhtml, or con­tact us at 03-2059 8840.

To view the full list of struc­tured war­rants avail­able on Bursa Malaysia, kindly visit malaysi­awar­rants.com.my

Pro­vided for Malaysian res­i­dents’ in­for­ma­tion only. It is not an of­fer or rec­om­men­da­tion to trade and is not re­search ma­te­rial. Past per­for­mance is not in­dica­tive of fu­ture per­for­mance. You should make your own as­sess­ment and seek pro­fes­sional ad­vice.

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