ASX operating rules require each warrant series to have an adequate and reasonable spread of holders. This requirement is intended to ensure there is a liquid market for warrants.
In most cases the warrant issuer satisfies this requirement by providing an undertaking to ASX that it will maintain a bid on a continuous basis during the life of the warrant. At the time of writing only two warrant series have been quoted without the undertaking on the basis that they have demonstrated a sufficient spread of holders. This means that apart from circumstances outlined later, there generally should be a price quoted at which you as a warrant holder will be able to sell at during normal trading hours.
The only situation where a warrant issuer would not be required to provide an undertaking to maintain markets in their warrants would be if the issuer could demonstrate that the initial issue of warrants generated a sufficient spread of holders. A sufficient spread of holders demonstrates a level of interest that should ensure that there is a liquid market for buyers and sellers of the warrant series.
The market making undertaking is to display at least one bid order (i.e. a one-way market) throughout the trading day. ASX will use its best endeavours to ensure that warrant issuers provide such quotes. Market-making orders should be amended or replaced as they are "matched-out" by trades (a trade has occurred) in a reasonable timeframe. It should be noted that this is merely a minimum requirement to fulfill the market-making obligation. Warrant issuers will normally display both bid and offer orders for most warrant series during normal trading hours.
ASX does not prescribe a maximum or minimum spread (the difference between an issuer's bid and offer prices), nor what volumes an issuer must offer to buy or sell. These parameters are set by each warrant issuer and are largely determined by the volatility of the underlying instrument and the competitive environment in which the warrant issuer operates.
Market making applies to warrants during normal trading hours, starting after the opening phase at approximately 10:09 am Sydney time and ending at approximately 4:00 pm Sydney time.
There are limited circumstances in which issuers would not breach the market making undertaking if they have not displayed a bid order for a significant time during normal trading hours. These include when:
- the underlying financial instrument is suspended from trading or has been placed in a trading halt;
- the theoretical value of a warrant series is below the relevant minimum price step (i.e. $0.001);
- the warrant issuer would breach laws in either Australia or a relevant foreign jurisdiction by fulfilling its market-making requirements;
- the warrant issuer or its agent experiences technical difficulties, including but not limited to the malfunctioning of automated market making systems.