Chief Group > Securities > HK Stocks > Warrants
Warrants

Warrants

What are Warrants?

Warrants are an instrument which gives investors the right - but not the obligation - to buy or sell the underlying asset (e.g. a stock) at a pre-set price on or before a specified date.

How many types of Warrants are there in the market?

There are two main types of warrants: subscription warrants and derivative warrants.

Subscription warrants are issued by a listed company and give holders the rights to buy the underlying shares of the company. They are either attached to new shares sold in initial public offerings, or distributed together with declared dividends, bonus shares or rights issues. Subscription warrants are valid between 1 and 5 years. Upon exercise, the underlying company will issue new shares and deliver them to the warrant holders.

Derivative warrants are issued by financial institutions. Unlike subscription warrants which must be call warrants, derivative warrants can be call or put warrants. Most of the derivative warrants in the market have a shorter life, ranging from 6 months to 2 years normally, although the current Listing Rules allow a maximum life of 5 years.

What are Call Warrants and Put Warrants?

Holders of call warrants have the right, but not obligation, to purchase from the warrant issuer a given amount of the underlying asset at the exercise price within a certain time period.

Conversely, holders of put warrants have the right, but not obligation, to sell to the warrant issuer a given amount of the underlying asset at the exercise price within a certain time period.

Derivative warrants are “exercised” when holders use their rights to purchase or sell the underlying assets. In Hong Kong derivative warrants are usually settled in cash when they are exercised at expiry dates.


Top