Singapore Exchange

An Investor’s Guide to Structured Warrants

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IntroductionStructured warrants are financial instruments issued by a third-party financial institution, usually banks (referred to herein as “issuer”), and are traded in the securities market of the Singapore Exchange, Singapore Exchange Securities Trading Limited (SGX or SGX-ST).

Structured warrant holders have the right but not the obligation to buy (for call warrants) or sell (for put warrants) an underlying asset at a predetermined price either on the expiry date (European-style warrants) or on or before the expiry date (American-style warrants). Underlying assets may be a particular security or a basket of securities or an index, and such securities may or may not be listed or quoted on SGX. The issuer of a structured warrant need not be the issuer of the underlying asset.

Structured warrants offer investors an alternative instrument to participate in the price performance of an underlying asset at a fraction of the underlying asset price. They can also be used as hedging tools to reduce or diversify investors’ portfolio risks. Holders or buyers of structured warrants are referred to as having a ‘long’ position, while the issuers of structured warrants are referred to as having a ‘short’ position as they have sold the structured warrant.

Structured warrants have a limited lifespan and if not exercised, become worthless at expiration. (See section on “Exercise Style” under “Key Features of Structured Warrants” below.)

Structured warrants are different from company warrants which are issued by a listed company to raise funds for the company and give the holder the right to subscribe for or buy one share of that company. A comparison of the key features of structured warrants and company warrants are set out on page 16.

Investor SuitabilityStructured warrants are for investors who are willing to accept the risk of substantial losses

up to the principal investment amount, possibly within a very short timeframe. Investors

should also have sufficient understanding of the product and should possess either a high

level of knowledge or sufficient trading experience to properly evaluate and assess the

product structure, associated risks, valuation, costs and expected returns. All investors need

to be Specified Investment Products (SIP) qualified to invest in structured warrants.

The information in this Guide is of a general nature and is not exhaustive. Investors should read all listing documentation provided by the issuer of the structured warrants for the features, risks and other information related to the product. The listing documentation can be found under “Company Information” on the SGX website. All examples provided in this Guide are for illustrative purposes only and all calculations are before cost and fees.

Date of publication: January 2018.

The information herein is updated as at the date of publication.

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Call or Put WarrantsStructured warrants can be issued either as call warrants or put warrants. Call warrants benefit from an upside price movement in the underlying asset, while put warrants benefit from a downward trend.

Exercise Price / Strike PriceThis is the predetermined price, whichis fixed in advance before the structured warrant is listed. It is a price at which the holder of the structured warrant can buy (for a call warrant) or sell (for a put warrant) the underlying asset.

Expiry DateStructured warrants have a finite lifespan and will lapse on its expiry date.

Exercise StyleStructured warrants can be either American or European-style warrants. At the date of publication of this Guide, the structured warrants listed on SGX are primarily European-style warrants1.

American-style warrants can be exercised any time prior to and on the expiry date, whereas European-style warrants can only be exercised on the expiry date.

Holders of European-style warrants will not be required to deliver an exercise notice. The exercise of such structured warrants will be determined by whether the structured warrant is In-The-Money.

If such structured warrant is In-The-Money, the structured warrant will be deemed to have been automatically exercised on the expiry date at the time specified in the listing documentation. If the structured warrant is At-The-Money or Out-Of-The-Money, the structured warrant will be deemed to have expired on the expiry date at the time specified in the listing documentation.

Holders of American-style warrants will be required to execute and deliver an exercise notice to the issuer in accordance with the requirements specified in the listing documentation.

Key Features of Structured Warrants

1 All investors should refer to the listing documentation for the relevant structured warrant to ascertain how that particular structured warrant is to be exercised.

Exercise Expiry

Conv

ersio

n

Underlying Call or Put Exercise

Style Date

Ratio

Assets Warrants Price

Features of Structured Warrants

Conversion RatioConversion ratio (also known as “entitlement ratio”) is the number of structured warrants that a holder will need to buy (or sell) 1 unit of the underlying asset. A structured warrant with a conversion ratio of 5:1 means that 5 structured warrants are needed to convert into 1 unit of the underlying asset.

Underlying AssetsStructured warrants are a form of derivative as they derive their value from the underlying asset, which are the assets that investors have the right to buy or sell. Structured warrants can be issued on a wide range of asset classes. Currently, the structured warrants traded on SGX are issued on local or foreign underlying assets such as equities or equity indices.

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Definition of “Moneyness”“Moneyness” is determined by whether the price of the underlying asset is higher or lower than the exercise price / strike price of the structured warrant.

For a call warrant, if the exercise price is below the underlying asset price, that call warrant will be “In-The-Money” (ITM). If the exercise price is above the underlying asset price, it will be “Out-Of-The-Money” (OTM).

The converse is true of put warrants. If the exercise price of a put warrant is above the underlying asset price that put warrant will be “In –The-Money”. If its exercise price is below the underlying asset price, it will be “Out-Of-The-Money”.

If the strike price is equal to the underlying asset price, a call warrant or put warrant will be “At-The-Money” (ATM).

Scenario Call Warrant Put Warrant

Underlying Asset Price > Exercise Price In-The-Money Out-Of-The-Money

A call [put] warrant is “In-The-Money” if the price of the underlying asset is higher [lower] than the exercise price of the call [put] warrant.

Underlying Asset Price = Exercise Price At-The-Money At-The-Money

A call or put warrant is At-The-Money if the price of the underlying asset is equal to the exercise price of the structured warrant.

Underlying Asset Price < Exercise Price Out-Of-The-Money In-The-Money

If the price of the underlying asset is lower [higher] than the exercise price of the call [put] warrant, the structured warrant is Out-Of-The- Money.

Generally, only structured warrants which are “In-The-Money” will be exercised by the holders as otherwise, they will be able to buy (or sell) the underlying assets directly at the same or better price.

Structured Warrants Listed on SGXTypes of Structured WarrantsStructured warrants listed on SGX can be either call or put warrants.

They enable investors to gain short to long term leverage exposure to the performance of the underlying assets in both bullish and bearish markets.

Types Call Warrants Put Warrants

Market View A bullish view of the underlying asset (i.e. the investor takes the view that the price of the underlying asset will go up).

A bearish view of the underlying asset (i.e. the investor takes the view that the price of the underlying asset will go down).

Rights of structured warrant holders*

Holders have the right, but not the obligation, to buy the underlying assets from the issuers at a predetermined exercise or strike price either on the expiry date (European-style warrants) or on or before the expiry date (American-style warrants).

Holders have the right, but not the obligation, to sell the underlying assets to the issuers at a predetermined exercise or strike price either on the expiry date (European-style warrants) or on or before the expiry date (American-style warrants).

Lifespan Average lifespan of 3 to 9 months.Structured warrants with longer tenures of up to 3 years are also offered.

Settlement if the structured warrant expires In-The- Money

Cash-settled if the settlement price is above the exercise price.

Cash-settled if the settlement price is below the exercise price.

Maximum Potential Loss Total investment outlay.

*As it is a right and not an obligation, structured warrant holders should only exercise their structured warrants if it is to their benefit.

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How Do Structured Warrants Work?

Illustration 1 – European-style Call Warrants Issued on Stock X

European-style Call Warrant On Stock X

Current Price of Underlying Stock X $10.00

Exercise Price of Call Warrant $10.00

Conversion Ratio of Call Warrant 5 structured warrants:1 share

Current Call Warrant Price $0.20

Scenario 1: Settlement Price Is Higher Than the Exercise Price The Call Warrant Expires In-the-Money

At Expiry, Settlement Price of Stock X $12.00

Cash Payout per Call Warrant [($12.00 - $10.00) / 5] $0.40

Profit per Call Warrant ($0.40 - $0.20) $0.20

% Change in Underlying Stock X Price [i.e. (($12.00 - $10.00) / $10.00) x 100%]

Profit of 20%

% Change in Call Warrant Price [i.e. (($0.40 - $0.20) / $0.20) x 100%]

Profit of 100%

Scenario 2: Settlement Price Is Equal To Or Lower Than The Exercise Price The Call Warrant Expires worthless / Out-Of-The-Money

At Expiry, Settlement Price of Stock X $8.00

Cash Payout per Call Warrant $0

Loss per Call Warrant $0.20 (structured warrant price) (i.e. investor will lose his entire investment capital)

% Change in Underlying Stock X Price [i.e. (($8.00 - $10.00) / $10.00) x 100%]

Loss of 20%

% Change in Call Warrant Price Loss of 100% (structured warrant will expire worthless as the investor will not exercise it)

Profit & Lossper structured warrant ($)

Payout Graph of Call Warrant on Stock X

Exercise Price

Break-even0.20

Maximum loss 10.00 11.00 12.00Price of Stock X ($)

-0.20

}

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Illustration 2 – European-style Put Warrants Issued on Stock Y

European-style Put Warrant On Stock Y

Current Price of Underlying Stock Y $10.00

Exercise Price of Call Warrant $10.00

Conversion Ratio of Put Warrant 5 structured warrants:1 share

Current Put Warrant Price $0.20

Scenario 1: Settlement Price Is Lower Than the Exercise Price The Put Warrant Expires In-The-Money

At Expiry, Settlement Price of Stock Y $8.00

Cash Payout per Put Warrant [($10.00 - $8.00) / 5] $0.40

Profit per Put Warrant ($0.40 - $0.20) $0.20

% Change in Underlying Stock Y Price [i.e. (($8.00 - $10.00) / $10.00) x 100%]

Loss of 20%

% Change in Put Warrant Price [i.e. (($0.40 - $0.20) / $0.20) x 100%]

Profit of 100%

Scenario 2: Settlement Price Is Equal To Or Higher Than The Exercise Price The Put Warrant Expires worthless / Out-Of-The-Money

At Expiry, Settlement Price of Stock Y $12.00

Cash Payout per Put Warrant $0

Loss per Put Warrant $0.20 (structured warrant price) (i.e. investor will lose his entire investment capital)

% Change in Underlying Stock Y Price [i.e. (($12.00 - $10.00) / $10.00) x 100%]

Profit of 20%

% Change in Put Warrant Price Loss of 100% (structured warrant will expire worthless as the investor will not exercise it)

Payout Graph of Put Warrant on Stock Y

Profit & Lossper structured warrant ($)

Exercise Price

Break-even

Maximum loss9.008.00 10.00Price of Stock Y ($)

0.20

-0.20}

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Factors Determining the Price of a Structured WarrantTwo Components of a Structured Warrant’s Price

A structured warrant’s price can be broken down into two components – the intrinsic value and the time value.

Structured Warrant Price = Intrinsic Value + Time Value

Intrinsic value refers to the value of the structured warrant if it were to be exercised immediately. This is the portion of the underlying asset’s value, if any, that may be contained in the structured warrant price. The intrinsic value is calculated by subtracting the exercise price from the current underlying asset price and multiplying the result by the exercise /conversion ratio. It is the positive surplus between the spot price of the underlying asset and the exercise price of the structured warrant when it is In-The-Money. Structured warrants which are At-The-Money or Out-Of-The-Money have zero intrinsic value (but may have time value).

Time value of a structured warrant is also a component of the structured warrant’s price which structured warrant holders pay for the right to buy or sell the underlying asset to its issuer at a predetermined price for the remaining lifespan of the structured warrant. It reflects the probability that the price of the underlying asset will trade above (call warrant) or below (put warrant) the exercise price of the structured warrant during the remaining lifespan of the structured warrant and is calculated on the basis of the remaining time to expiration and the volatility of the underlying asset. This value declines with the passage of time and the decline is known as Time Decay. The rate of decline accelerates as the structured warrant’s lifespan becomes shorter and as the expiry date gets closer. At expiry, a structured warrant’s time value is zero and hence the value of the structured warrant will be equal to its intrinsic value.

Rate of Time Decay with the Passage of Time

The above graph depicts the rate of decay of a structured warrant’s time value with the passage of time, assuming a stable implied volatility and underlying asset price.

TimeValue

Expiry / Maturity

Rate of Time Decay(From Long Term to Short Term)

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A structured warrant’s price is determined by six key factors. The first four factors have stronger influence on a structured warrant’s price as compared to the last two factors. Like other securities, the price of a structured warrant may also be affected by market forces, i.e. the supply and demand of the structured warrant.

1) Current Price of the Underlying Asset

Current Price of Underlying Asset

Change in Structured Warrant Price

Call PutIncrease

Decrease

An appreciation in the price of the underlying asset will cause the call warrant price to rise as the probability that the warrant will expire In-The-Money has increased, while the put warrant price will fall as its probability to expire In-The-Money has decreased. In contrast, a weakening in the price of the underlying asset will attribute to an increase in the price of the put warrant but a decrease in the price of the call warrant.

2) Exercise Price of the Structured Warrant

Exercise Price of WarrantChange in Structured Warrant Price

Call PutIncrease

Decrease

A call warrant with a high exercise price has a lower probability of expiring In-The-Money while a low exercise price will increase that probability. Hence, a call warrant on the same underlying asset and same expiry date but with a higher exercise price will be priced cheaper than one with a lower exercise price. A high exercise price will increase the probability of a put warrant expiring In-The-Money while a low exercise price will reduce that probability. As such, a put warrant on the same underlying asset and same expiry date but with a high exercise price will be priced higher than one with a lower exercise price.

3) Implied or Perceived Future Volatility of the Underlying Asset

Implied Volatility of the Underlying Asset

Change in Structured Warrant Price

Call PutIncrease

Decrease

Volatility is another factor in determining a structured warrant’s price. Volatility is a measure of the fluctuation of the underlying asset price over a period of time. It can be historical or implied.

Historical volatility measures the actual price fluctuation of the underlying asset over a certain period in the past. It reveals how the underlying asset behaved in the past.

Implied volatility is the market’s expectation of the underlying asset price fluctuation over the remaining lifespan of the warrant. The higher the implied volatility, the wider the expected fluctuation of underlying asset price, and hence, a higher probability that the warrant will expire In-The-Money and the investor making a higher profit. In addition, a higher implied volatility also attributes higher risks to issuers. Hence, warrants with high implied volatility will be priced higher for both call and put warrants.

Implied volatility of a warrant changes over time. Implied volatility increases when the market expects wider price movements from the underlying asset in the future. The reverse can also happen if the market expects the underlying asset to be more stable in the future with less volatile fluctuation.

4) Lifespan of the Structured Warrant

Time to ExpiryChange in Structured Warrant Price

Call PutLonger

Shorter

If the time to expiry for a structured warrant is longer, the structured warrant will have more time for the underlying asset to move in the direction favourable to the structured warrant holder. Hence, the price of a structured warrant is higher if it has a longer time to expiry.

5) Dividend Yield of the Underlying Asset

Dividend Yield of the Underlying Asset

Change in Structured Warrant Price

Call PutIncrease

Decrease

A holder of a structured warrant is not entitled to receive any dividends payable on the underlying asset.

In theory, the higher the dividend yield payment, the lower will be the price of a call warrant and the higher will be the price of a put warrant. This is because a higher cash dividend payment will result in the price of the underlying asset (e.g. stock) to decline more when the underlying asset trades ex-dividend, than a smaller cash dividend payment. The change in the underlying asset price in turn affects the structured warrant price.

In practice, however, expected dividends are likely to have been priced into the price of a structured warrant by the issuers at the time of issuance. Hence, expected dividend yields are likely to have a limited impact on a structured warrant’s price on ex-dividend date.

6) Interest Rates

Interest Rates Change in Structured Warrant Price

Call PutIncrease

Decrease

Interest rates affect a structured warrant’s price through the holding cost of buying the underlying assets to hedge the structured warrants sold. The price of a call [put] warrant increases [decreases] when interest rates are high [low]. However, the impact of interest rates on the price of a structured warrant is not likely to be very significant.

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Structured Warrant CalculatorA structured warrant’s price is derived using option pricing models such as the Black-Scholes model by entering these six key factors into the model or calculator.

Structured warrant calculators are available through the Internet and on some issuers’ websites. These calculators may be used by investors to compute an approximate fair price for a structured warrant2.

As each calculator may be based on a different pricing model and different input values and assumptions may be made by different market participants to compute a structured warrant’s price, it is important for investors to note that the fair value derived from a structured warrant calculator may differ from the market price quoted on the trading screen.

SGX also offers a Structured Warrant Calculator on the Structured Warrants page on the SGX website (sgx.com).

Technical Terms Commonly Used in the Structured Warrant MarketsPremiumThe premium of a structured warrant reveals by how many percent the price or level of the underlying asset has to change (rise for call warrant and fall for put warrant) for structured warrant holders to break-even, assuming the structured warrant is held to expiry.

Premium fora call warrant =

Exercise Price + (Structured Warrant Price x Conversion Ratio) - Spot Price x 100%

Spot Price

Premium fora put warrant =

Spot Price + (Structured Warrant Price x Conversion Ratio) - Exercise Price x 100%

Spot Price

DeltaDelta measures by how much a structured warrant’s price will move due to a change in the price of the underlying asset. It measures the price sensitivity of the structured warrant relative to the price movement of the underlying asset.

The delta of a call warrant ranges between 0 and +1 while the delta for a put warrant ranges between 0 and -1. The delta of a call warrant is positive as the warrant price and the underlying asset price move in the same direction. The delta of a put warrant is negative because the structured warrant price and the underlying asset price move in opposite directions.

For example, if a call warrant has a delta of 0.5 and the price of the underlying asset changes by $0.10, the structured warrant price will move by approximately (0.5 x $0.10) / 5 = $0.01, assuming 5 structured warrants are needed for conversion into 1 unit of the underlying asset.

Change inWarrant Price =

Delta of Structured Warrant Price x Change in Price of Underlying Asset

Spot Price

A structured warrant that is deep Out-Of-The-Money has a delta close to 0. If the price of the underlying asset moves closer to the exercise price of a structured warrant, the delta changes and approaches 0.5 for a call warrant and -0.5 for a put warrant. In contrast, a structured warrant that is deep In-The-Money has a delta very close to 1.0 for a call warrant and -1.0 for a put warrant. For a structured warrant that is At-The-Money, its delta is close to 0.5 for a call warrant and -0.5 for a put warrant.

2 The use of such calculators is subject to the T&Cs (including disclaimers) of the providers of such calculators.

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3 Data like price the price of Underlying Asset, price of the Structured Warrant, Conversion Ratio and Delta can be found on the Structured Warrants’ issuer website.

Gearing and Effective Gearing

The gearing of a structured warrant tells the investor how much cheaper it is to gain exposure to the underlying asset by investing in the structured warrant rather than directly buying the underlying asset.

For example, a gearing of 5 means it is 5 times cheaper for an investor to get an exposure equivalent to one unit of the underlying asset through buying the structured warrant. Alternatively, it means that an investor needs only to invest 1/5 of the underlying asset’s cost to buy the structured warrant in order to get an exposure to one unit of the underlying asset.

Gearing =

Price of Underlying Asset

Structured Warrant Price xConversion Ratio

A more important figure to look at is the structured warrant’s effective gearing. Effective gearing is the estimated percentage change in the structured warrant price relative to 1% change in the price of the underlying asset. If a structured warrant has an effective gearing of 4, this means the structured warrant price will change by approximately 4% for 1% change in the price of the underlying asset.

Effective Gearing = Gearing x Delta

Example 3

Price of Underlying Asset $24

Structured Warrant Price $0.22

Conversion Ratio 9

Delta 0.62

Gearing = 24 / (0.22*9) = 12.12

Effective Gearing of this structured warrant = 12.12 x 0.62 = 7.51

This means that for every 1% movement in the underlying asset price, theoretically, the price of the structured warrant is expected to move by 7.5% in the same direction.

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Lower Capital OutlayAs only a fraction of the underlying asset’s cost is required to buy the structured warrants, investors can free up some capital by buying the structured warrants instead of the underlying assets. Investors can then use such freed up capital for other investments or purposes.

Portfolio ProtectionPut warrants can be used to hedge against a decline in a portfolio’s value. Investors can buy put warrants on the portfolio’s constituents. The put warrants will increase in value if the price of the underlying asset falls. This increase in value will help to offset the fall in the underlying asset price.

No Margin CallsUnlike Contracts for Difference and options, structured warrant investors do not have to make a cash top-up if the price of the underlying asset moves in a direction which is adverse to their positions.

LiquidityAll structured warrants listed on SGX have designated market makers to provide continuous bid and ask prices. Investors can buy and sell structured warrants anytime during market hours.

Diverse Market AccessStructured warrants traded on SGX are issued on equities and indices. Index and basket warrants offer investors with the opportunity to participate in an overall market or a sector without having to own a large portfolio of constituents. Structured warrants issued on underlying assets listed on other exchanges provide investors an avenue to invest in overseas markets.

Losses Capped at Invested CapitalThe maximum potential loss is limited to the total amount paid for the structured warrants which is a fraction of the underlying asset price whereas the potential losses from a direct investment into the underlying asset can be much higher. Potential gains however, are unlimited for call warrants.

LeverageStructured warrants let investors gain exposure to an underlying asset at a fraction of its price. Hence for the same investment outlay, a structured warrant provides an increased exposure to the underlying asset. Trading structured warrants therefore offers the benefits of leverage or gearing in varying degrees. A small percentage change in the price of the underlying asset can lead to a large percentage change in the price of the structured warrant.

Loss

es

Outlay Protection

Benefits of Structured Warrants

Diverse Market Liquidity

No

Mar

gin

Access

Cal

l

Limite

d Dow

nsid

e

Lev

erage

L

ower Capital Portfolio

Benefits of Trading Structured WarrantsTrading in warrants can offer a number of benefits to investors.

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Although structured warrants can be an appealing alternative to investing directly in the underlying asset due to the smaller capital outlay required and the leverage they offer, investors should be aware of the substantial risks involved in trading structured warrants. The price of structured warrants may fall in value as rapidly as it may rise and investors may sustain a total loss of their investment.

Time – Limited LifespanStructured warrants have a limited lifespan and will expire. If they expire At-The-Money or Out-Of-The-Money, investors holding onto these structured warrants will lose their entire investment capital used to purchase the structured warrants.

Issuer Risk Structured warrant holders are unsecured creditors of issuers. They have no preferential claim to any assets that an issuer may hold in the event the issuers are unable to fulfill their obligations.

Market Risk Similar to other investments in the securities market, the market value of a structured warrant is susceptible to other prevailing market forces including the demand and supply of the structured warrants.

Leverage – “A Double-Edged Sword”As structured warrants are geared instruments, leverage can be a “double-edged sword” which will magnify gains as well as losses. Returns can be magnified if the price of the underlying asset moves in the direction favourable to the structured warrant-holder’s position. However, losses can also be magnified if the price of the underlying asset moves against the structured warrant-holder’s position. Any move in the underlying asset’s price will therefore have a greater percentage impact on the price of the structured warrant.

Currency Risk If the price of the underlying asset is denominated in a foreign currency other than Singapore dollars, investors will be exposed to foreign exchange rate fluctuations.

Suspension from Trading Trading of structured warrants will be halted or suspended if the underlying stock is halted or suspended. In the interest of maintaining a fair and orderly market, SGX may also halt or suspend the trading of structured warrants in certain situations.

Liquidity RiskThe Designated Market Maker (DMM) appointed for a structured warrant may not fulfill its obligations due to unforeseen circumstances that may arise. Hence, investors may not be able to sell their structured warrants (or sell them at a reasonable price) in the market despite a commitment from the DMM to provide a market for that structured warrant. Please see section on “Designated Market Makers” below.

Extraordinary CircumstancesThere could be circumstances which will permit the issuer of the structured warrant to bring forward the expiry date or delist the structured warrants (other than at expiry). This will be stated in the structured warrants listing documentation.

4 The above is not exhaustive. Investors should read the listing documentation provided by the issuer of the structured warrant for a comprehensive list of the general and specific risks associated with that structured warrant.

Risks Associated with Trading Structured Warrants4

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How to Trade Structured Warrants on SGX?

Investors trade structured warrants the same way they buy and sell shares and other securities listed on SGX. They can execute the trades through their broker or online trading account. No separate account is needed for the trading of structured warrants, and trades are settled on the same basis as share transactions, that is on the third business day after the trade date.

The transaction fees of trading structured warrants on SGX include brokerage fees and SGX trading and clearing fees (see SGX website). As at the date of publication of this Guide, there is no stamp duty levied on the trading of structured warrants.

Rule Of Thumb: Know your own risk profile and the amount of risk you can take before trading any securities.

How to Decipher the Name of a Structured Warrant?

The structured warrants listed on SGX can be identified by their trading names which also reveal some important characteristics of the structured warrants.

For a structured warrant issued on a stock, the trading name convention used by SGX is as follows:

For a structured warrant issued on an index, the trading name is comparable. The only difference however is the addition of the index exercise level of the structured warrant, which is shown in between the name of the underlying asset (the index) and the structured warrant’s issuer.

Trading & Settlement of Structured Warrants

ABC

ABC##### XXX

XXX eCW180226 A

Name ofUnderlying Asset

Exercise styleE = European-styleA = American style

Structured Warrant Type CW = Call Warrant PW = Put Warrant

Issuer

Name ofUnderlying Asset

Exercise price

Issuer

StructuredWarrant

Expiry Date(YYMMDD)

When an issuer lists more than one structured warrant with the same underlying and expiry date, the structured warrants are distinguished by letters A, B, C, D, etc. after the expiry date.

Example

DBS MB eCW180226European-style Call Warrant on DBS sharesissued by Macquarie Bank Ltd. expiring on 26 Feb 2018

Example

HSC11100UBeCW171228European-style Call Warrant on the HSCEI Index with an exercise price of 11,100 issued by UBS AG 26 Feb 2017

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A Designated Market Maker (“DMM”) (i.e. a market-maker registered with SGX-ST) is required under the SGX-ST Rules to provide competitive bid and offer quotations on a continuous basis, within the maximum spread, and for not less than the minimum quantity, set out below:

Maximum Bid and Offer Spread – 10 ticks or $0.20, whichever is greater Minimum Quantity subject to Bid and Offer Spread – 10,000 structured warrants

Please refer to Chapter 5 of the SGX-ST Rules on Designated Market-Maker and Directive No. 3 on Obligations of a Designated Market-Maker for more information.

Notwithstanding the above, please note that the DMM may not provide quotations in the following circumstances5:

During the pre-market opening and five minutes following the opening of the SGX-ST market on any trading day.

If the structured warrants are valueless (i.e. where the issuer’s bid price is below the minimum bid size for such securities as prescribed by the SGX-ST), the DMM will not provide the bid price. In such an instance, the DMM will provide the offer price only.

When trading in the shares or securities relating to or constituting the underlying index is suspended or limited in a material way for any reason.

Where the structured warrants are suspended from trading for any reason Market disruption events

Where the issuer or the DMM faces technical problems affecting the ability of the DMM to provide bids and offer quotations.

Where the ability of the issuer to source a hedge or unwind an existing hedge, as determined by the issuer in good faith, is materially affected by the prevailing market conditions, and the issuer informs the SGX-ST of its inability to do so as soon as practicable.

In cases where the issuer has no structured warrants to sell, then the DMM will only provide the bid price.

If the stock market experiences exceptional price movement and volatility.

When it is a public holiday in Singapore and/or the SGX-ST market and/or the relevant stock exchange for the underlying index or securities are not open for dealings.

Last Trading Day and Expiry Date of Structured Warrants

Investors should take note that the last trading day of a structured warrant is not the same as its expiry date. The last trading day of a structured warrant in the “Ready”6 and “Unit Share”7 markets is five business days before its expiry date. For the purpose of settlement, the trading in the “Buying-in”8 market however continues up to and including the expiry date.

Designated Market Makers

5 The above may not be exhaustive. Investors should read the listing documentation provided by the issuer of the structured warrant for a comprehensive list of the general and specific risks associated with that structured warrant.

6 Ready Market: The established principal market operated by SGX-ST wherein bona fide buy and sell orders for securities are made that allow for price discovery and where trade settlement is made within a reasonable period of time.

7 Unit Share Market: The securities market operated by SGX-ST in which an order may be matched in any quantity of less than one board lot.8 Buying-in Market: The market operated by SGX-ST for the sale and purchase of securities to be bought-in by CDP pursuant to the CDP Clearing Rules.

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Settlement for In-The-Money Structured Warrant on ExpiryOn exercise, structured warrants must be either physically settled or cash settled. The settlement method must be specified at the time of the launch of an issue. At the date of publication of this Guide, the structured warrants listed on SGX are all cash settled warrants.

For cash-settled structured warrants which are In-The-Money, the settlement amount less any transaction cost will be deposited into the structured warrant holder’s bank account on the fifth business day from the structured warrant’s expiry date. Therefore, structured warrant holders do not have to take any action in this regard.

The cash settlement price for structured warrants on stocks is based on either (a) the average of the closing prices of the underlying securities (subject to any adjustment to reflect any capitalization issue, rights issue, distribution or the like) for the 5 market days prior to and including the market day immediately before the relevant exercise/expiry date; or (b) the closing price of the underlying securities on the market day immediately before the exercise/expiry date, as determined by the structured warrant issuer at the time of the launch of an issuance.

For structured warrants on indices, the settlement level is generally determined based on the final settlement level of the index futures contract for the month in which those structured warrants expire.

Call Warrant =

(Settlement Price - Exercise Price)

Conversion Ratio

Put Warrant =

(Exercise Price - Settlement Price)

Conversion Ratio

For underlying assets denominated in foreign currencies, issuers will convert the settlement surplus into Singapore dollars by applying the appropriate foreign exchange rate.

Generally, only structured warrants which are “In-The-Money” will be exercised by the holders as otherwise, they will be able to buy (or sell) the underlying assets directly at the same or better price. Hence, structured warrants which are At-The-Money or Out-Of-The-Money will not be exercised and will lapse at expiry.

16

Structured Warrants Company Warrants

Issuer Financial institution, like an investment bank

Listed company

Purpose of Issue As a leverage/hedging investment tool for investors

To raise funds for the company

Lifespan Average lifespan of 3 to 9 months (maximum tenure of 3 years)

Often 3 years or longer

Settlement Primarily cash settled Physical delivery of shares when the warrant is exercised

Impact to Shareholding None, as no new shares will be issued by the company (i.e. issuer of the underlying stock).

Causes dilution as new shares will be issued by the company (i.e. issuer of the underlying stock).

Liquidity Designated Market Makers are appointed to provide liquidity9

No Designated Market Makers are appointed

Transparency Prices are calculated using option pricing models

Prices are determined by market forces

Maximum Liability / Maximum Loss Capped at total investment sum and transaction fees10

Capped at total investment sum and transaction fees

Exercise-style Usually European style Usually American style

SIP Qualification Required Yes No

Structured Warrants vs Options

Structured Warrants Options

Issuer Financial institution, like an investment bank

Developed by an exchange

Trading Market Traded in the securities market Traded in the derivatives market

Trading Mechanism Investors can only be buyers (no writing of positions)Bullish view: Investors can buy a call warrantBearish view: Investors can buy a put warrant

Bullish view: Investors can buy a call option or write a put optionBearish view: Investors can buy a put option or write a call option

Product Features Wide range of exercise prices and expiry dates which are determined by the issuers

Contracts are standardised with limited expiry periods and exercise prices

Settlement Primarily cash-settled Index options settle in cash, while stock options settle by physical delivery

Maximum Liability / Maximum Loss Capped at total investment sum and transaction fees

Potentially unlimited liability / losses for short sales

Margin Requirements None Applicable to an option writer but not option buyer

Structured Warrants vs Company Warrants

9 As at the date of this Guide, all structured warrants listed on SGX have DMMs appointed for those structured warrants. 10 E.g Brokerage fees, trading and clearing fees.

Contact UsFor more information, please contact asksgx@sgx.com

sgx.com/warrants

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