SC introduces enhanced structured warrants guidelines to boost equity derivatives market
The Securities Commission (SC) today introduced a set of enhanced guidelines to further facilitate the issuance of structured warrants, which are expected to develop the equity derivatives market and build greater market liquidity. The new Guidelines also contain provisions aimed at upholding market integrity.
Specifically, the SC’s Guidelines for the Issue of Structured Warrants will provide an alternative method of issuing structured warrants as well as allow the introduction of a new investment instrument known as Bull Equity Linked Structures (Bull ELS). In addition, the new guidelines would further facilitate the issuance of other forms of structured warrants such as call warrants and basket warrants.
These latest guidelines are an enhancement and expansion of, and replace the existing Guidelines for the Issue of Call Warrants, which were introduced in 2003. The formulation of the new guidelines involved public consultation earlier this year with key industry participants. The revised guidelines and further details of the measures and amendments in a set of Frequently Asked Questions (FAQs) are available on the SC website here.Placement method allowed for more efficient and cost-effective issuance of structured warrants
To further promote the structured warrants market and create a more efficient and cost-effective issuance process, the new guidelines permit issuance by way of placement in addition to the existing issuance method of initial public offering. This is also consistent with the issuance process in other international markets, and will facilitate the multiple offerings of structured warrants during the validity period of the base prospectus, and result in a shorter time-to-market for listing of structured warrants.
Under the placement method, issuers are required to register a base prospectus with the SC, which will be valid for one year, supported by term sheets prior to the actual issuance of each structured warrant during the validity period of the base prospectus.
Introduction of Bull Equity Linked Structures
Bull ELS is an investment-yielding instrument linked to designated shares, and provides investors with returns depending on the closing price of the underlying shares on maturity.
If the closing price of the underlying share on maturity is at or above a certain price determined by the issuer (the strike price), the investor will receive a cash amount at the total par value of the ELS (total investment plus premium).
On the other hand, if the closing price of the underlying share on maturity falls below the strike price, the holder will either receive a cash settlement amount equal to the closing price of the share on maturity or a predetermined quantity of the underlying share.Robust provisions to safeguard market integrity
In addition to the measures to further liberalise and streamline the existing issuance requirements for structured warrants, the new guidelines contain provisions aimed at upholding market integrity.
These include more robust provisions on the criteria of eligible issuers for non-collateralised structured warrants, reduction of the minimum issue size to RM5 million, streamlining of the maximum size for both collateralised and non-collateralised structured warrants to no more than 20% of the share capital of the underlying company and streamlining the method of calculating the settlement price irrespective of whether the structured warrant issue is exercisable European or American style.