FAQs
FAQs on Structured Warrants
Basics
- Why invest in structured warrants?
Finding an alternative investment to shares? If you are facing one or more of the following, you may want to consider investing in structured warrants.
- Have limited capital to invest in shares
- Smaller capital outlay and hence, lower transaction costs and commissions
- Want to diversify investments
- Wish to free up capital invested in shares while maintaining market exposure
- Benefits of Investing in Structured Warrants
The "unlimited upside, limited downside" feature of warrant gives investors profit opportunity with loss always limited to the cost of investing in the warrant.
- Warrant price is a fraction of the price of underlying instrument and provides cheaper entry to invest in a company's shares.
- Warrants enable investors to lock in the price of the underlying shares and allow time until maturity date for investors whether or not to convert investments directly into underlying shares.
- The transaction costs and commissions are relatively lower as compared to share investment.
- How does structured warrant work?
An investor with a bullish outlook on an underlying instrument would seek to buy a call warrant which gives him the opportunity to enjoy the upside gains when the price of the underlying instrument goes up. Likewise, when an investor has a bearish view of the underlying instrument, he would then seek to buy a put warrant to allow him to gain from the downward movement of the underlying instrument.
Type of Structured Warrants Description When will holder profit? Call Warrant Gives holder right to buy the underlying share at a specified price within a limited period of time. Allow holder to profit from share price increases.
Click here for call warrant scenariosPut Warrant Gives holder right to sell the underlying share at a specified price within a limited period of time. Allow holder to profit from share price decreases.
Click here for put warrant scenarios
Call Warrants Scenarios A, B, C
Call Warrant Scenario A
(In the money)Scenario B
(Break-Even)Scenario C
(Out of money)Share Price (At expiry) RM14.00 RM12.50 RM10 Share price (Current) RM12.00 Exercise price RM11.00 Conversion ratio 5:1 Call warrant price RM 0.30 Potential gain/loss per Call warrant RM 0.30
{(RM14 – RM11)/5)} – RM0.30 = RM0.30RM0
{(RM12.50 – RM11)/5)} – RM0.30 = RM0RM negative
{(RM10 – RM11)/5)} – RM0.30 = -RM0.50
(in reality loss is capped at RM0.30, the initial cost of investment )Note: Transaction cost such as broker commission, clearing fee, stamp duty or financing fees are excluded in the example
Call Warrant Scenario A: In-the-money (Potential gain to Warrant Holder)
At expiry date, if the share price is RM14.00, then each call warrant purchased is worth RM0.60 (the difference between the share price and the exercise price (RM14.00- RM11.00 = RM3.00) divided by conversion ratio of 5 as 5 warrants are convertible to 1 share.
For every 1 warrant purchased, the investor stands to make RM0.30 (difference between final value of RM0.60 and the initial warrant price of RM0.30). This translates to a 100% profit. If the investor bought 1 unit of the share instead, the profit would have been RM2.00 (RM14.00 – RM12.00), or a 16.7% growth in his investment.
Call Warrant Scenario B: Breakeven
At expiry date, an investor would break-even if the underlying share price closes at RM12.50. This is when the investor is just able to recoup the cost of his capital outlay of RM0.30 or have a zero gain from his investment. The break-even price of a call warrant is computed from the purchase price of the warrant (RM0.30) multiplied by conversion ratio (5) plus the exercise price (RM11) which gives a value of RM12.50 or {(RM0.30 x 5) + RM11.00}. If the underlying closes at RM12.50, each call warrant would be worth RM0.30 {(RM12.50-RM11.00)/5} and since he purchased it at RM0.30, the investor does not make any gains from his investment.
Call Warrant Scenario C: Out-of- money (Potential Loss to Warrant Holder)
On expiry date, if the share price trades at any price below RM12.50, this would result in a negative value to the warrant. At say, RM10.00, the value warrant could be worth a negative number larger than his capital outlay of RM0.30, but the actual maximum loss to the investor will always be capped at his capital outlay of RM0.30.
Put Warrants Scenarios A, B, C
Put Warrant Scenario A
(In the money)Scenario B
(Break-Even)Scenario C
(Out of money)Share Price (At expiry) RM8.00 RM9.00 RM11 Share price (Current) RM9.00 Exercise price RM10.00 Conversion ratio 5:1 Put warrant price RM 0.20 Potential gain/loss per Put warrant RM0.20
{(RM10 – RM8)/5)} – RM0.20 = RM0.20RM0
{(RM10 – RM8)/5)} – RM0.20 = RM0RM negative
{(RM10 – RM11)/5)} – RM0.20 = -RM0.40 (in reality loss is capped at RM0.20, the initial cost of investment )Note: Transaction cost such as broker commission, clearing fee, stamp duty or financing fees are excluded in the example
Put Warrant Scenario A: In-the-money (Potential gain to Warrant Holder)
At expiry date, if the share price is RM8.00, then each put warrant purchased is worth RM0.40 (the difference between the share price and the exercise price (RM10.00- RM8.00 = RM2.00) divided by conversion ratio of 5 as 5 warrants are convertible to 1 share.
For every 1 warrant purchased, the investor stands to make RM0.20 (difference between final value of RM0.40 and the initial warrant price of RM0.20). This translates to a 100% profit. If the investor sold the share at RM9.00 and repurchased at RM8.00, the profit would have been RM1.00 (RM9.00 – RM8.00), or a 11% gain in his investment.
Put Warrant Scenario B: Breakeven
The breakeven price of a put warrant can be calculated by taking the exercise price less the purchase price of the warrant multiplied by conversion ratio. In this case, it is RM9.00 [RM10.00 – (RM0.20 x 5)].
At expiry date, an investor would break-even if the underlying share price closes at RM9.00. This is when the investor is just able to recoup the cost of his capital outlay of RM0.20 or have a zero gain from his investment. The break-even price of a call warrant is computed from the exercise price (RM10) less the purchase price of the warrant (RM0.20) multiplied by conversion ratio (5) which gives a value of RM9.00 or {RM10 – (RM0.20 x 5)}. If the underlying closes at RM9.00, each call warrant would be worth RM0.20 {(RM10-RM9)/5} and since he purchased it at RM0.20, the investor does not make any gains from his investment.
Put Warrant Scenario C: Out-of- money (Potential Loss to Warrant Holder)
If the share price trades at any price above RM9.00, then this would result in a negative value of the warrant. At say RM11.00, the value of the warrant could be worth a negative number larger than his capital outlay of RM0.30, but the actual maximum loss to the investor will always be capped at his capital outlay of RM0.30.
- Factors Influencing Structured Warrant Price
No. Influencing Factors Impact on Call Warrant Price Impact on Put Warrant Price Rationale 1 Underlying Price upUpDownCall Warrant: When the underlying price moves higher, the greater the profit opportunity for the warrant investor as the potential profit derived from the difference between the fixed exercise price and a higher underlying price continues to grow. The warrant becomes more valuable and hence, warrant price tends to rise.
Put Warrant: The lower the underlying price, the greater the profit opportunity as the warrant investor stands to gain from the difference between the exercise price and the underlying price. As the underlying price goes lower, the profit potential increases and hence, the warrant price tends to rise.2 Time to Maturity (remaining life of a warrant) UpUpUpThe longer the timeline to date of maturity, there is more time opportunity for movements in the underlying price and more time for an investor to exercise the warrant. Greater flexibility and longer time opportunity accorded by a longer duration to maturity increases the value of the warrant and hence, its price. For e.g., a warrant expiring in 3 months tends to be more valuable and is priced higher than the same warrant with 1 month to expiry. 3 Implied Volatility UpUpUpImplied volatility indicates market expectations for the volatility of the underlying within a future period of time. The higher the implied volatility, the higher the expected volatility of the underlying price in the future which creates a greater opportunity for profit and thus, the more valuable and higher the warrant price will be. Similarly, a lower implied volatility corresponds to a lower warrant price. 4 Interest Rate UpUpDownThe movements of interest rate represent the funding cost involved in investing in warrants compared to the underlying instruments. When the interest rate increases, a call warrant implies funding cost savings compared to buying the underlying directly and hence, the call warrant becomes more valuable and thus, its price tends to rise. Conversely, a higher interest rate implies a lower price for a put warrant. 5 Dividend UpDownUpIn determining the issue price of a warrant, an issuer normally takes into account the expected dividend from the underlying. If the dividend payout is in line with what was expected, the warrant price will be unaffected. However, if the dividend payout is more than expected, the underlying price will decline more than expected on ex-dividend date, and the warrant price may immediately follow suit to decline (for call warrant) or rise (for put warrant). - Getting Ready to Trade in Structured Warrants
How to prepare or improve your investment skills as a warrant investor?
Remember that warrants are leveraged instruments.
Investors must be aware that warrants can multiply their potential profits as well as amplify their losses should the underlying moves in their favour and disfavour respectively. If an investor purchases both the same number of warrants (e.g. 1000 warrants at RM0.20 for RM200) and the underlying (e.g. 1000 shares at RM8 for RM8,000), then the investor stands to benefit from a higher percentage of gains from the warrant investment (if warrant price rises to RM0.30, profit = RM0.10X 1000= RM100 or 50% profit) relative to the smaller capital outlay (RM200) required to invest in the warrants compared to the lower returns (share price rises to RM9.00, profit = RM1X1000= RM1000 or 12.5%) from the underlying instrument which requires larger capital outlay (RM8,000). Similarly, when the warrants price declines from RM0.30 to RM0.20 and the share price declines from RM8 to RM7, then the extent of percentage losses relative to the capital outlay arising from the purchase of an underlying is smaller than from purchasing a warrant.
Know both the Warrant and the Underlying Instrument
Each warrant will have their specific features which are customised to meet the needs of different types of investors. These features vary amongst warrant types. Some of the most common features offered are as follows which are provided in the disclosure document by a warrant issuer.
- Underlying instrument – behind every warrant is an underlying instrument. On Bursa Securities, the underlying can be a share, basket of shares, index or ETF.
- Expiry/Maturity date – the last date on which the warrant may be exercised and runs from the date of issuance of the warrant until its expiry/maturity date. This typically ranges from 6 months to 5 years. A warrant is worthless if an investor holds it beyond the maturity date.
- Exercise price – the agreed price to be paid, calculated based on the conversion ratio to exercise the warrant.
- Exercise Styles – typically, American or European styles. The American ones allow for the exercise flexibility anytime during the tenure of the structured warrants whilst the European style allows for exercise of the warrant only at the expiry/maturity date. Issuers tend to prefer European style warrants in Malaysia.
- Conversion Ratio – number of warrants required to be at hand in exchange for each unit of the underlying instrument if the warrant is exercised.
- Settlement methods - A warrant may be delivered in the form of the underlying or is cash settled. They are settled by transferring the underlying instrument to the investor's account whereas cash settled warrants are settled by a cash payment by the warrant issuer to the holder. Cash settlement is common in Malaysia.
For example, if a call warrant is cash settled on a Bursa call warrant with an exercise price of RM7.00, holders will receive RM0.70 for each warrant held if Bursa shares closes at RM7.70, the last price prior to the exercise date, assuming a 1:1 conversion ratio. An automatic payment will be made to the investor within 7 days of the expiry date.
Improve knowledge on warrants
Attend education/training seminars on warrants to have better understanding on what affects the warrant price. Get information and updates on the performance and valuation of warrants through the issuers' websites (refer to the section on Issuer for their website links). The issuers' websites usually contain information on the pricing of the warrant and valuation of the warrants. They usually also have a warrants calculator to allow investors to input the relevant parameters to derive the fair value of the warrant.
Have a view on market direction
A good warrant investor is very likely to analyse price movement of the underlying instrument because the warrant and its underlying instrument are closely linked and their prices move in tandem. Investors should research the outlook of the underlying instrument and determine the target underlying price within investment period. Generally, investors should only buy a call warrant if they are bullish on the underlying instrument.
Usually warrant investors take trading positions on the structured warrants and are unlikely to hold the warrants until maturity. As such, it is important for a warrant investor to ensure that his market directional views are also backed by adequate analysis on the factors affecting the warrant price.
Determine your investment and risk horizon
It is important for a warrant investor to adopt trading discipline. Usually, savvy warrant investors watch only a handful of shares, and pick a few warrants amongst the list to follow closely. It is important to set deadline for the underlying share to reach its target level as structured warrants are short term trading instrument with expiry date. Knowing one's tolerance level of risk is also crucial to be prepared for any loss.
- Risks in Trading Structured Warrant
- The underlying stock fails to perform as you have expected and therefore, affecting the market value of the warrant.
- When investing in trading warrants, the maximum amount at risk is your full investment (plus transaction costs) in the warrant.
- Trading warrants offer leveraged exposure, magnifying percentage profits and also, losses.
- Warrants have a fixed life span and they become worthless upon expiration.
To ensure that investors understand the risks of investing in structured warrants, Bursa Securities require that all investors sign a risk disclosure form with their brokers before commencing trading in structured warrants.
Callable Bull/Bear Certificates (CBBC)
- What is a Callable Bull Bear Certificate ("CBBC")?
CBBC is another type of structured product, much like a structured warrant and is also known as "knock out", "turbo" or "stop loss" warrants. CBBC is also likened to Certificates For Difference (CFD). They are issued either as Bull or Bear certificates with a fixed expiry date, allowing investors to take bullish or bearish positions on the underlying instrument. CBBCs track the performance of an underlying instrument without requiring investors to pay the full price required to own the actual underlying instrument. On Bursa, CBBC is allowed to be issued for a tenure of 3 months to 5 years.
During this tenure, a CBBC could be 'called' by the issuer when the price of the underlying instrument reaches a level known as the "Call Price" specified in the listing document. If the Call Price is reached before expiry, the CBBC will expire early and the trading of that CBBC will be suspended and terminated. The specified expiry date from the listing document will no longer be valid and the CBBC will be settled in cash only.
- CBBC Price Tends to Track Underlying Price Closely
The price of a CBBC tends to follow closely the price of the underlying stock (i.e. delta close to one, e.g. when the underlying is up 10 sen as in Scenario 1, then the Callable Bull Certificate will be up approximately 10 sen and the Callable Bear Certificate down approximately 10 sen). Thus, if the underlying stock increases in value, a Bull CBBC with entitlement ratio of 1 to 1 generally increases in value by approximately the same amount whereas a Bear CBBC with entitlement ratio of 1 to 1 generally decreases in value by approximately the same amount.
Price Change Price Change Underlying Instrument @ RM1.50 Scenario 1 Up RM0.10
Scenario 2 Down RM0.10RM1.60
RM1.40Callable bull certificate @ RM0.55 Scenario 1 Up RM0.10*
Scenario 2 Down RM0.10*RM0.65
RM0.45Callable bear certificate @ RM0.55 Scenario 1 Down RM0.10*
Scenario 2 Up RM0.10*RM0.45
RM0.65 - Funding costs
The issue price of a CBBC includes funding cost and issuers will specify the computation for funding costs in their listing documents. The funding cost of a CBBC includes the issuer's borrowing costs after adjustment for future dividends on the underlying share (if any) and the issuer's profit margin. These items fluctuate from time to time. The funding costs are not fixed throughout the tenure of the CBBC. In general, the longer the duration of the CBBC, the higher the funding costs will be paid up front. The funding costs decline over time as the CBBC moves towards expiry. Investors are advised to compare the funding costs of different issuers for CBBC with similar underlying stocks and terms.
- CBBCs have Call Price and Mandatory Call Feature
Bull Certificates: Call Price > = Exercise price
Bear Certificates: Call Price = < Exercise priceIf the underlying instrument's price reaches the Call Price at any time before the date of expiry of the CBBC, the issuer will call the CBBC. Such an event is referred to as a Mandatory Call Event (MCE). The trading of the CBBC will be suspended and then, terminates upon suspension.
Example 1:
On 2 August 2010, Issuer A issues 100 million of Callable Bull Certificates based on a Public Listed Company's shares listed on Bursa Securities (PLC XXX). The certificates have the following features:
Call Price: RM1.45
Exercise Price: RM1.35
Expiry Date: 30 Dec 2010On 30 August 2010, the transacted prices of PLC XXX's shares are as follows for the morning session, where the underlying share price fell below the call price of RM1.45 to RM1.40. In this case the MCE has been triggered at 9.30 am and as such, the CBBC will be suspended and thereafter terminates.
MCE of callable bull certificate occurs when transacted price of the underlying = Call Price (RM1.45). In this example, share price was traded at RM1.40 which fell below the call price of RM1.45, thus triggering MCE.
Example 2:
On 2 August 2010, Issuer A issues 100 million of Callable Bear Certificates based on a Public Listed Company's shares listed on Bursa Securities (PLC XXX). The certificates have the following features:
Call Price: RM1.60
Exercise Price: RM1.75
Expiry Date: 30 Dec 2010On 2 September 2010, the transacted prices of PLC XXX's shares are as follows for the morning session.
MCE of callable bear certificate occurs when transacted price of the underlying = Call Price (RM1.60). In this example, share price was traded at the same price as call price of RM1.60.
- Two types of CBBC
An issuer may offer either a Type I or Type II CBBC. Type I offers no cash amount to the investor upon a MCE whilst Type II offers a potential cash amount depending on the underlying price during settlement.
CBBC Types Settlement Outcome I. Call Price = Exercise price CBBC holder will not receive any cash payment after a MCE. II. Call Price = < OR > = Exercise price CBBC holder may receive a small amount of cash payment (called "Residual Value") after MCE but in the worst case, no residual value will be paid. - Cash Settlement
Cash Settlement upon MCE
The cash settlement amount upon Mandatory Call Event (MCE) is computed as follows:-
Callable Bull Certificate
where the Lowest Traded Price refers to the lowest traded price/level of the underlying instrument from the MCE to the end of the next main trading phase*
Callable Bear Certificate
where the Highest Traded Price refers to the highest traded price/level of the underlying instrument from the MCE to the end of the next main trading phase*
* Note: Main Trading Phase on Bursa Securities is from 9.00 am to 12.30 pm and 2.30 pm to 4.45 pm
MCE Cash Settlement : Type II (with residual value) Callable Bull Certificate
Cash Settlement - when a Type II Callable Bull Certificate is called, the residual value will be the amount of the settlement price as determined according to the terms in the listing document less the Exercise price. The settlement price of a Bull certificate must not be lower than the lowest traded price of the underlying stock in the Main Trading Phase after the MCE and up to the next trading session.
Call Price: RM1.50
Exercise Price: RM1.00
Expiry Date: 30 Dec 2010In this case, MCE occurs at 9.30 a.m. The lowest traded price transacted during the Main Trading Phase** of PLC X's shares from the MCE (9.30 a.m.) up to the end of the afternoon trading session is RM1.20. As this is higher than the exercise price of RM1.00, the cash settlement amount is RM1.20- RM1.00 = RM0.20 assuming this is a 1:1 conversion ratio.
** For the purpose of the lowest traded price during the Main Trading Phase, the opening and closing prices are not taken into account. As such, the opening and closing prices of RM0.90 which is lower than the exercise price of RM1.00 is not taken into account. Instead, RM1.20 which is the lowest traded price during the continuous trading phases is regarded as the lowest traded price for settlement purpose.
Type II (with residual value) Callable Bear Certificate
Cash Settlement - when a Type II Callable Bear Certificate is called, the residual value will be the amount of the Exercise price less the settlement price as determined according to the terms in the listing document. The settlement price of a Bear certificate must not be higher than the highest traded price of the underlying stock in the Main Trading Phase after the MCE and up to the next trading session. If the settlement price is at or goes beyond the Exercise price, there may not be any residual value.
MCE Cash Settlement: Type II (with residual value) Callable Bear Certificate
Call Price: RM1.40
Exercise Price: RM1.80
Expiry Date: 30 Nov 2010In this case, MCE occurs at 9.30 a.m. The highest traded price transacted during the Main Trading Phase** of PLC X's shares from the MCE (9.30 a.m.) up to the end of the afternoon trading session is RM1.65. As the exercise price of RM1.80 is higher than this price, the cash settlement amount is RM1.80- RM1.65 = RM0.15 assuming this is a 1:1 conversion ratio.
** For the purpose of the highest traded price during the Main Trading Phase, the opening and closing prices are not taken into account. As such, the opening and closing prices of RM1.70 and RM1.90 which are higher than the exercise price of RM1.80 are not taken into account. Instead, RM1.65 which is the highest traded price during the continuous trading phases is regarded as the highest traded price for settlement purpose.
Cash Settlement of CBBC at Expiry Date
Upon maturity, a CBBC investor is entitled to a cash settlement amount as follows:-
Callable Bull Certificate
In the case of a Bull certificate, the cash settlement amount at normal expiry will be the positive amount of the closing price of the underlying less the Exercise price.
Callable Bear Certificate
In the case of a Bear certificate, the cash settlement amount at normal expiry will be the positive amount of the Exercise price less the closing price of the underlying stock.
Where the Closing Price is either:
- The closing price of the underlying instrument on one (1) market day prior to the expiry date;
- Average closing price of 5 market days prior to the expiry date; or
- Average volume weighted average price for 5 market days prior to the expiry date.
- Eligible Underlying Instrument for CBBC Issuance
CBBCs on Malaysian securities are required to meet certain criteria namely, market capitalisation and public shareholding spread. For foreign underlying listed outside Malaysia, the criteria include market capitalisation and that the securities exchange is a member of the World Federation of Exchanges or is approved by Bursa Malaysia.
- CBBC Risk Factors
To ensure that investors understand the risks of investing in structured warrants, Bursa Securities require that all investors sign a risk disclosure form with their brokers before commencing trading in structured warrants. As CBBC falls within the structured warrant framework, this risk disclosure applies to CBBC.
Leveraged Effect
Similar to a structured warrant, a CBBC is a leveraged product where the percentage gain or loss opportunity compared to its capital outlay is greater than that of investing in the underlying shares. Although the potential profit is amplified when the underlying moves according to investor expectation, the investor also stands to sustain higher percentage losses when the underlying moves contrary to investor expectation.
Mandatory Call Event ("MCE")
CBBCs are not for everyone and investors should evaluate their risk tolerance levels prior to trading in CBBC. An investor in CBBC should be alert on the news update and development of the underlying instrument as a MCE could occur anytime in between the listing date and its expiry. The probability of a MCE is higher when the underlying trades nearer to the call price. An investor stands to lose the total amount invested in the event that the CBBC moves in opposite direction to investor expectation and a MCE is triggered where the CBBC is suspended and terminates. Once called, the CBBC will cease trading despite a rebound in the underlying price and there is no further opportunity for future profit on that CBBC .
CBBC expires early when a MCE is triggered. There is no payoff for Type I CBBC. When Type II CBBC expires early, the holder may or may not receive a Residual Value payment, depending on the performance of the underlying relative to the exercise price.
Limited life
Similar to a structured warrant, a CBBC has a fixed duration to expiry which ranges between 3 months to 5 years. However, for a CBBC, this may be shorter if a MCE is triggered and the CBBC terminates early. The CBBC becomes worthless upon expiry or when it is called early before the expiry date.
Movement with underlying stock
Although the price of a CBBC tends to follow closely the price of its underlying stock, but in some situations it may not (i.e. delta may not always be close to one). Prices of CBBC are affected by a number of factors, including its own demand and supply, funding costs and time to expiry. Moreover, the delta for a particular CBBC may not always be close to one, in particular when the price of the underlying stock is close to the Call Price.
Liquidity
Although there are market makers on CBBCs who are committed to provide liquidity, there will be circumstances where market makers are exempt from their obligations and these are stated in the issuer's prospectus.
Funding costs
The issue price of a CBBC includes funding costs and this is specified in the issuer's listing documents. Since the funding costs for each CBBC issue may be different as it includes the issuer's financing /stock borrowing costs after adjustment for expected ordinary dividend of the stock plus the issuer's profit margin, investors are advised to compare the funding costs of different issuers for CBBC with similar underlying instruments and their terms.
In general, the longer the duration of the CBBC, the higher the total funding costs will be since it is similar to investors borrowing for a longer tenure to trade in the underlying share. The funding costs will gradually decline over time as the lifespan of the CBBC moves towards expiry. The funding cost for the entire tenure of the CBBC has been taken into account in the pricing of CBBC at issuance and investors stands to forgo this entire amount in the event of a MCE where the CBBC terminates early despite investors only utilized this funding for a shorter period. Investors should take note that the funding costs of a CBBC after launch may vary during its life as and when interest rate fluctuates.
Trading of CBBC close to Call Price
When the underlying stock is trading close to the Call Price, the price of a CBBC may be more volatile with wider spreads and uncertain liquidity. In the event a MCE is triggered, the CBBC may be called and terminated.
Upon a MCE, the listed issuer is required to immediately notify the Exchange of the MCE, announce the MCE and suspension of the CBBC to the Exchange. The CBBC will terminate with effect from the suspension. In this circumstance, there could be some time lapse between the time when the MCE was triggered and the time when the trading of CBBC is suspended. Investors should be cautioned that orders would continue to be matched from the time of MCE up to the time of suspension. Any trades executed after the MCE but before the suspension of CBBC are valid and will not be cancelled unless in exceptional circumstances prescribed by the Exchange. Therefore, investors should be aware of the risk and are advised to apply special caution when the CBBC is trading close to the Call Price.
CBBC with overseas underlying stocks
Investors trading CBBC with overseas underlying stocks are exposed to an exchange rate risk as the price and cash settlement amount of the CBBC are converted from a foreign currency into Malaysian Ringgit. Exchange rates between currencies are determined by forces of supply and demand in the foreign exchange markets which are affected by various factors.
Besides, CBBC issued on overseas underlying stocks may be called outside the Exchange's trading hours. In such case, the CBBC will be terminated from trading on the Exchange in the next trading session or soon after the issuer has notified the Exchange about the occurrence of the MCE. For Type II CBBC, valuation of the residual value will be determined on the valuation day according to the terms in the listing documents.