Warrants, increasingly popular with listed firms, is receiving the urgent attention of share market regulators, who are gearing to bring in international best practices pertaining to this instrument, according to officials.
“Urgent attention has been drawn to the issuance of warrants by companies and it’s being studied (in a bid to regulate it),” Malik Cader Deputy Director General Securities and Exchange Commission (SEC) told the Business Times.
Some companies which issued warrants recently are Nation's Trust Bank, Reefcomber, Ceylon Leather Products and Environmental Resources and Investments.
Companies often include warrants as part of a new issue offering; for instance a rights issue in a bid to entice investors into buying this new security.
“What the recently issued warrants by certain firms have done is increase the shareholders confidence in those stocks,” an analyst noted.
He said that warrants are issued as a sweetener along with a right, making it attractive for investors as the warrants are free. “Warrants are one type of equity derivative and they’re issued as a strategy to get the rights subscribed,” he said. Warrants which give their owners the right to purchase shares in the company at a specific price at a future date and they’re are tradable in their own right, and their value will go up and down as the price of the shares to which they relate goes up and down.
The analyst said that warrants tend to be an attractive option for speculators and hedgers and offers significant gains to an investor during a bull market. “In such a market the management of the listed entity can take the share price up when warrants are issued,” he added.
“At present they’re not regulated and we’re studying the international best practices with regard to implementing the rules,” Mr. Cader said.
According to sources close to the SEC, they are looking at Indian laws to prepare rules pertaining to warrants to be implemented locally.