| Warrants make a comeback as CFDs suffer |
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| As investors shy away from contracts for difference (CFD) due to a turbulent summer of trading, covered warrants may be set to make a comeback. |
Investors can once more purchase covered warrants on Irish shares following the entry of a new player into the market. Having identified the opportunity, UK based investment bank Soci?t? G?n?rale (SG), has quickly moved into the Irish market to offer these derivative products.
Unlike CFDs, which have an unlimited downside, an investor can only lose so much with covered warrants. CFDs have soared in popularity over the past few years, and up until the credit crunch of this summer, accounted for almost 50 per cent of all trading in Irish shares. However, safer products such as warrants may now over-ride their popularity as investors look for the transparency an exchange traded product such as warrants can offer compare to the OTC traded CFDs.
Covered warrants were first introduced into the Irish market by Investec back in 2002, who offered the product on five Irish stocks - AIB, Bank of Ireland, Anglo Irish Bank, CRH plc and Ryanair. Investec was a dominant player in the established warrants market in South Africa and it had hoped to leverage on that experience in the new Irish market. The products were traded on the Irish Stock Exchange (ISE), and it was expected at the time that the warrant offering would be expanded to underlying securities, which did not have an ISE listing. However, soon after the bank stopped offering this service as some uncertainty surrounds the applicability of stamp duty to Irish issued warrants and at the time CFDs were just taking off.
This time round however, the warrants will be traded on the London Stock Exchange, and Soci?t? G?n?rale (SG) will act as a market maker and will continuously quote prices on warrants issued for the following stocks - AIB, Bank of Ireland, C&C Group, Anglo Irish Bank, CRH plc and Ryanair.
Like Investec, SG also has a strong global position in covered warrants, and Richard Miller, head of listed secured products for SG, believes that warrants could become very popular here.
‘The response from the stockbrokers here has been pretty enthusiastic,’ he says.
Miller said that if there is an appetite in Ireland for covered warrants, SG will not have a problem in expanding the number of stocks on offer to investors.
‘At the moment we are happy to offer these six Irish equities, but if there is demand from customers, it would be no problem for us to offer additional Irish equities,’ he said.
Moreover, the ISE remains committed to offering derivative type products on the exchange and may look to relaunch its covered warrant offering which has lain stagnant since Investec pulled out. |
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| Article appeared in the October 2007 issue.
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