HA NOI (VNS)— Covered warrants, a new stock market initiative, will soon be applied to the HCM City Stock Exchange, it was announced on Thursday.
A covered warrant allows holders the right to buy or sell equities at a predetermined price on or prior to a set date.
For example, if an investor sees a profitable future in a company's shares but does not have enough money to buy, they can instead purchase a warrant worth 1-2 per cent of the share value.
If their prediction is wrong, the loss is worth only the original 1-2 per cent, but if they have invested well then they can enjoy the profits.
Covered warrants are similar to options, offering leverage for investors. The issuers, often brokerages or banks, are independent of the issuers of equities.
The equities, including domestic and foreign stocks, indices, and treasury deposit receipts, will be reviewed quarterly. Taiwan's stock market requires the issuers of warrants to have certificates from competent authorities and risk management systems before they can do business.
In order to control risk, watchdogs usually set limits for domestic stocks. In Taiwan, for example, shares used for warrants account for up to 22 per cent of freely transferable shares.
Compared to other stock markets, Vietnamese securities products were sketchy, comprising only of stocks, bonds and fund certificates, according to the exchange's deputy director Phan Thi Tuong Tam.
"We are working to promptly put this product into trading, aiming at brokerages," she added.
Warrants were released in Hong Kong in the 1990s, and have grown strongly in the Asian market since 2003, reaching the current trading value of US$900 billion per annum. — VNS