Call warrants give the holder the right to purchase the underlying asset, such as a share of stock, at a predetermined price (the exercise or strike price) on or before the expiration date. They are issued by companies and trade on exchanges separately from the underlying asset. While call warrants offer unlimited upside if the underlying asset rises above the strike price, potential losses are limited to the amount invested. Key terms that define a call warrant include the issuer, underlying asset, exercise price, expiration date, and entitlement or conversion ratio.

1. CALL WARRANTS

2.  Call warrants is an alternative investment that
investor can invest in Bursa Malaysia. It can be
traded through remises or via online trading, which
is similar to trading shares.
 The advantage of call warrants – has unlimited
upside similar to buying the underlying asset, but the
loss is limited to the amount initially invested in the
call warrant.
INTRODUCTION

3. Call Warrants:
 A financial instrument that gives the holder the right to
buy the underlying share at a specific price, on or
before a specified date.
 included in a new equity or debt offering from a
company, in order to provide an added inducement to
potential investors.
 Usually detachable from the accompanying stock or
bond certificate and trade separately on major stock
exchanges.

4. EXPLAINS
• The price at which the warrant holder can buy the underlying stock is called
the exercise price or strike price. It is often set "out-of-the-money“. For
example it is fixed at a certain percentage above the current trading price of
the underlying stock.
– While a call warrant has a strike price and expiration date just like an
option, there are some fundamental differences between the two:
i. Warrants are issued by companies
ii. Exchange-traded options are listed by an exchange.
Warrants also have much longer expiration periods than options.
– Call warrant feature may enable the company to lower the cost of its
debt. The risk of potential equity dilution to the issuer, in the event of all
the warrants being exercised, is more than offset by the additional equity
capital available to the company at no additional cost, an especially
important consideration during periods of severe stress in financial
markets.

5. OVERVIEW ACCORDING
ISLAMIC JURISPUDENCE
• Securities Commision’s Shariah Committee
Commission (SAC)
-Call Warrant is approved as permissible
- Take the view that the structure and trading
mechanism of stock index future contract
fulfill Shariah principal (with condition
underlying asset is Shariah compliance)

6. WHAT ARE THE PRINCIPAL TERMS
IN A CALL WARRANT?
1. Issuer
2. Underlying Asset (e.g. share, a basket of shares, or an
index)
3. Warrant Type (i.e. Call or Put)
4. Warrant Style (e.g. European or American)
5. Exercise Price (or Strike Price)
6. Expiry Date
7. Entitlement or Conversion Ratio
8. Settlement Method
9. Warrant Price

7. TYPES OF WARRANTS
1. Call warrant
 A Call warrant gives the holder the right or choice to
buy a given quantity of the underlying asset at a
predetermined price (exercise or strike price), on or
before the expiry date, depending on the exercise style
of the warrant.
2. Put warrant
 A Put warrant gives the holder the right to sell given
quantity of the underlying asset at a predetermined price,
on or before the expiry date depending on the exercise
style of the warrant.

8.  Covered warrants (or structured warrants) are issued
by a company (usually a bank or securities firm) on shares
of another listed company, basket of shares or an index.
 In Malaysia, only covered call warrants (or "Call
Warrants" under the SC’s Guidelines for the issue of Call
Warrants) in the form of "fully-collateralized" or "non-
collateralized“. Call Warrants are currently permitted to
be issued by authorized banks or universal brokers
approved by the SC. Put warrants are not yet permitted
under the Guidelines.

9. "Fully-collateralized" versus "non-
collateralized" Call Warrants
CALL WARRANT ISSUE
Fully-collateralized Non-collateralized
If the issuer deposits the relevan
amount of underlying securities
with an independent trustee in
order to secure the obligations of
the issuer and adequately protect
the interests of the warrant
holders.
If the issuer provides for its
obligations in a form other than
by way of charge over the
underlying securities. The issuer
usually adopts dynamic hedging
strategies to provide for its
obligations under the warrants.

10. THE MAJOR DIFFERENCES BETWEEN CALL
WARRANTS AND COMPANY WARRANTS
COMPANY WARRANTS CALL WARRANTS
Issuer
Same listed company with
that of the underlying shares
Authorized bank or universal
broker
Underlying asset
Shares issued by the listed
company
Shares issued by another
company, basket of shares
or an index
On exercise
New shares of the company
are issued. Results in
dilution of shares
Involved existing, already-
issued shares. No dilution
effect on shares
Expiry date
Longer tenure; usually more
than 4 years
Shorter tenure; usually less
than 4 years
Settlement method Physical delivery of shares
Either physical delivery of
shares or cash settlement

11. How Do Corporate Exercises /
Actions Affect The Call Warrants?
 Call Warrants are subject to adjustments to take into
account any corporate actions arising from the underlying
stock, or component stocks in the basket. Corporate actions
such as rights issue, bonus issue, share splits or
consolidation may lead to a diluting or concentrative effect
on the theoretical value of the underlying stock or basket.
This may result in adjustments to the entitlement, the
exercise price or other variables of the Call Warrant.
 For index Call Warrants, adjustments are normally not
required on the warrant terms for corporate actions related
to the component stocks in the index. This is because the
underlying index will have already adjusted itself to take
into account such corporate actions.

12. I. Call warrants ≠ call options or stock purchase rights
o One important characteristic - are often detachable. That is,
if the investors holds a bond with attached warrants, they can
sell the warrants and keep the bond.
ii. Call warrants are traded on the major exchanges
o In case where it have been issued with preferred stock,
stockholders may not receive a dividend as long as they
hold the warrant. Thus it is sometimes advantageous to
detach and sell a warrant as soon as possible if the investor
expects to earn more from dividends.

13. iii. Call warrants tend trade above their minimum value
o For example, consider the warrant to purchase 100 shares of Company XYZ for
$20 per share anytime in the next five years. If Company XYZ shares rose to $100
during that time, the warrant holder could purchase the shares for $20 each, and
immediately sell them for $100 on the open market, pocketing a profit of ($100 -
$20) x 100 shares = $8,000. Thus, the minimum value of each warrant is $80.
iv. IMPORTANT!! if the warrants still had a long time to expiration, investors might
speculate that the price of Company XYZ stock could go even higher than $100
per share
o This speculation, accompanied by the extra time for the stock to rise further, is
why a warrant with a minimum value of $80 could easily trade above $80. But as
the warrant gets closer to expiring (and the chances of the stock price rising in
time to further increase profits get smaller), that premium would shrink until it
equaled the minimum value of the warrant (which could be $0 if the stock price
falls to below $20 rather than rising above $100).

14. What are the factors affecting
the price of the Call Warrant?
1) Underlying asset price
2) Exercise price
3) Volatility of the underlying asset price
4) Time to expiry of the warrants
5) Interim interest rates
6) Dividend yield of the underlying asset
7) Credit worthiness of the issuer
8) Supply-demand factor on the warrants

15. HOW TO REALIZE THE VALUE
ON CAL L WARRANTS?
If you hold a Call Warrant, the value of your warrant should appreciate if the
underlying share price has risen, assuming other factors remain constant. You can
realize the value of the warrant by selling the warrant in the market.
Alternatively, if the warrant is American-style, you can exercise the warrant to
buy the shares from the issuer at the exercise price instead of the current market
price. Your gain is the difference between the exercise price and the current
share price. You can realize this gain immediately by selling the shares in the
market (the result would be similar to the case when the warrant is cash settled).
Normally, you would realize more value by selling the warrant, instead of
exercising it, if there are still many days remaining before expiry and when there
is still "time value". You would only exercise the warrant if the warrant price is
below intrinsic value, or because you want to own the underlying shares for
some reasons, e.g. to be entitled for the dividend due.

16. BEWARE OF "TIME DECAY"!
Unlike shares, warrants have an expiry date and therefore a limited life.
As time passes, the time value of a warrant decreases and eventually
reaches zero when the warrant expires (except in the case of zero strike
call warrants). This is known as "time decay". Means, it costs money
each day to hold the warrant and do nothing with it. It is important that
you monitor the warrant’s expiry date and performance. Warrants are
intended more for trading purposes.
- A warrant may expire before your expectations are realized, making it
worthless. Therefore it is essential that you select a warrant that has
sufficient time to expiry to match your market expectations.

17. HOW IT WORKS + EXAMPLE
 Occasionally, companies offer call warrants (usually simply called
"warrants") for direct sale or give them to employees, but the vast majority
of call warrants are "attached" to newly issued bonds or preferred stock.
 For example, if Company XYZ issued $100 million of bonds with call warrants
attached, each bondholder might get a $1,000 face-value bond and the right to
purchase 100 shares of Company XYZ stock at $20 per share over the next five
years. Warrants usually permit the holder to purchase common stock of the
issuer, but sometimes they allow the purchaser to buy the stock or bonds of
another entity (such as a subsidiary or even a third party).
 The price at which a call warrant holder can purchase the underlying
securities is called the exercise price or strike price. The exercise price is
usually higher than the market price of the stock at the time of the call
warrant's issuance. In our example, the exercise price is $20, which is
probably 15% higher than what Company XYZ stock was trading at when
the bonds were issued. The call warrant's exercise price often rises
according to a schedule as the bond matures. This schedule is set forth in
the bond indenture.

18. 1. Gearing
= Underlying Price
Warrant Price x Exercise Ratio
2. Premium
= [(Warrant price x Exercise Ratio) + Exercise Price] – Underlying Price
Underlying Price
3 . Cash Settlement
= No. Of Call Warrants x 1 x (Closing Price – Exercise Price)
Exercise Ratio
Formula To Calculate Call Warrant
Gearing, Premium And Cash
Settlement.

19. NAME CODE MATURITY
DATE
DAYS TO
MATURITY
EXERCISE
PRICE ( RM )
EXERCISE
RATIO
AFFIN-CA 5185CA 28/02/2011 202 2.450 3.000
AFG-CB 2488CB 21/02/2011 195 2.400 3.000
AIRASIA-CF 5099CF 21/01/2011 164 1.160 2.000
AMMB-CD 1015CD 17/09/2010 38 2.400 6.000
ANNJOO-CA 6556CA 28/12/2010 140 2.600 4.000
ASTRO-CC 5076CC 24/09/2010 45 3.400 4.000
AXIATA-CB 6888CB 19/08/2010 9 2.247 2.000
BURSA-CO 1818CO 04/02/2011 178 7.700 10.000
DIGI-CE 6947CE 18/05/2011 281 23.000 15.000

20. NAME CODE MATURITY
DATE
DAYS TO
MATURITY
EXERCISE
PRICE
(RM)
EXERCISE
RATIO
CURRENCY
CODE
ANZ-C1 0545C1 12/1/2011 147 21.50 60 AUD
BHP-C1 0544C1 12/1/2011 147 42.00 125 AUD
BYD-C1 0548C1 12/1/2011 147 68.00 50 HKD
CHLIFE-
C6
0506C6 15/4/2011 240 39.50 20 HKD
HKEX-CC 0505CC 04/2/2011 170 143.90 125 HKD
BRKB-C1 0536C1 16/4/2014 1337 0.00 222.9658 MYR
CMA-C1 0542C1 31/3/2011 225 2.40 8 SGD
GENS-C1 0539C1 02/9/2010 15 0.94 2.8703 SGD
APPLE-C2 0528C2 02/2/2011 168 200.00 1000.00 USD
EXAMPLE OF FOREIGN CALL WARRANTS THAT CURRENTLY TRADED IN
BURSA MALAYSIA