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Wednesday, 17th April 2024
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Warrant market launched on Irish Stock Exchange Back  
A new market in covered warrants was launched on the Irish Stock Exchange on October 22nd,
with Investec Bank the first to issue the new product.
Investec Bank, which was recently admitted to the Irish Stock Exchange (ISE), has been the first institution to issue covered warrants, related to five of the leading Irish shares - Allied Irish Bank, Bank of Ireland, CRH, Anglo Irish Bank and Ryanair.

Covered warrants are classified by the Exchange as securitised derivatives and are issued by independent financial institutions.
However, in the future the extension of the warrant offering to underlying securities which do not have an ISE listing, will be actively considered.

Dermot Maher, head of equity warrant sales at Investec Bank says that Investec is a dominant player in the already established warrants market in South Africa and it hopes to leverage on that experience in this new market. 'Investec's experience and success in the South African warrant market has prepared us well for entry into these as yet untapped markets', he says.

Significant liquid markets for covered warrants have also developed in countries such as the USA, and according to Brian Healy, director of trading and regulation at the Irish Stock Exchange, the trading volume attributable to the warrant segment of some of these markets can account for in excess of 15 per cent of total equity turnover. Healy says the introduction of a warrant market will facilitate investors in the Irish market in adopting a more diverse and extensive range of trading strategies than would otherwise be available if an investor's portfolio was purely equity based.

Moreover, Healy says that covered warrants also represent a new avenue of growth for the trading of securitised derivatives in the Irish market.

Investec, as the first issuer of covered warrants, will act as a designated sponsor, or market maker, and will continuously quote prices on warrants issued. This will benefit the investor in terms of the transparency and availability of prices in these instruments. An investor holding a warrant can either sell the warrant before its expiry, exercise the warrant at the strike price, or allow the warrant to lapse. In the case of equity warrants the performance of the underlying equity is one of the key elements in determining the price of the warrant. Other factors that affect the price include the relationship between the exercise price of the warrant and the market price of the underlying security as well as the amount of time remaining to maturity on the warrant as well as the gearing or leverage of the warrant.

Covered warrants have similar characteristics to an option and they give the investor the right but not the obligation to buy (in the case of a call warrant) or to sell (in the case of a put warrant) an underlying asset at a predetermined price (known as the strike or exercise price) on or before a predetermined date. Covered warrants have a downside, and in the case of those listed and traded on the ISE, this is limited to the amount paid for the warrant plus any commission and charges.

The warrants will be traded on the electronic trading platform of the ISE, ISE Xetra, and will be easily accessible through stockbrokers.

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