WarrantsWhat is Warrants?
Warrants are capital markets instruments that give the holder the right, but not the obligation, to buy ('call' warrant) or to sell ('put' warrant) an underlying asset at a specified price (the 'strike' price or 'exercise' price) on or before a predetermined date where such right is exercised by registered delivery or cash settlement. The holder of a warrant buys not the underlying security itself, but the right to buy or sell such underlying security, against the payment he makes.
» are securitized options;
-listed on a stock exchange and traded in the relevant market segment.
- traded in the secondary market.
- settled in the same way as other securities.
» are financial instruments of type called “structured products” are not issued for financial needs of the issuers
» are solely under the responsibility of the issuer.
» entitle the holder to buy (from) or to sell (to) the issuer an underlying security, a basket of securities, or an index, on or before a particular date, at a predetermined price, against the premium he pays.
» represent a right, and not an obligation, for the holder.
FACTORS INFLUENCING THE WARRANT PRICE
Price of the Underlying Asset
There is a positive correlation between the price of the underlying instrument and a call warrant, while this correlation is negative in the case of put warrants. As the price of the underlying asset increases, the price of call warrants increases and the price of put warrants decreases.
There is a negative correlation between the exercise price of a warrant and call warrants, while this correlation is positive in the case of put warrants. As the exercise price increases, the price of call warrants decreases and that of put warrants increases.
Days to Maturity
There is a positive correlation between the days to maturity and both call and put warrants. As the days to maturity increase, the price of both call and put warrants increases.
There is a positive correlation between the volatility of the underlying asset and both call and put warrants. As the volatility of the underlying asset increases, the price of both call and put warrants increases.
Market Interest Rate
There is a positive correlation between the interest rate and call warrants, while this correlation is negative in the case of put warrants. As the interest rate increases, the price of call warrants increases and that of put warrants decreases.
There is a negative correlation between the dividend distributed by the company on whose equities the warrant is written and the price of call warrants, while this correlation is positive in the case of put warrants. As dividends increase, the price of call warrants decreases and that of put warrants increases.
Factors Influencing the Warrant Price
|Warrant Price (CALL)||Warrant Price(PUT)|
|Price of underlying asset||+||-|
|Days to maturity||+||+|
|Market interest rate||+||-|
Trading of warrants on Borsa İstanbul is regulated by a Circular issued by IMKB in accordance with the CMB arrangements.
Warrants are traded on the Warrant Market established within Borsa İstanbul Collective Products Market by “market making in multiple price - continuous auction system”. This system is operated by entry of buy/sell quotations by the market maker member in charge of the warrant and entry of buy/sell orders by members (including the market maker member) for such warrant. Each warrant has to be assigned a market maker, otherwise they can not be traded.
Borsa İstanbul member intermediary institution, determined by the issuer upon the approval of the CMB, and responsible for giving quotations for the warrants under its responsibility, in order to ensure the fair, orderly, and efficient functioning of the market, and to contribute to the formation of a liquid and continuous market for such warrants.
A two-sided order that the market maker enters Borsa Istanbul Equity Market Automated Trading System (System), which includes information about the price at which and the quantity of the warrant that he is ready to buy and sell.
Main Trading Rules
- Orders are entered into the System according to price and time priority and are matched with the buy/sell orders and/or the quotations within the appropriate quotation interval (including quotation prices).
- The market maker member enters quotations for the relevant warrant. No order entry is accepted for warrants before the market maker member enters a quotation.
- Base price method is not applicable in warrant trading. Therefore, there is no upper or lower limit in price formation (margin is free).
- All trades in the market are realized within the interval of buy/sell quotations given by the market maker (including quotation prices) (the quotations given by the market maker are temporary price limits, in a way).Orders that fall out of the interval are also accepted to the System, but may be matched only when they are within the quotation interval.
- No orders or quotations are entered for warrants during the opening session.
-Orders entered for warrants may be cancelled during the session.
Warrants are traded during the continuous auction of the Equity Market. The first session is between 09:35-12:30 and the second session takes place between 14:15-17:40 hours.