Warrants make up the first broad category of products that can be issued via ASX. Warrants are instruments issued by banks and other financial institutions where the value is linked to underlying shares, indices, currencies or commodities.
Warrants are issued under the Warrant Rules, so only certain issuers can provide them.
The Warrant Rules
Warrants are issued under Schedule 10 of the ASX Operating Rules, usually known as the ‘Warrant Rules’. The rules cover:
- approval of warrant issuers
- admission of warrant series to trading status
- specific requirements for a warrants series
- transfer and registration of warrants
- market-making requirements.
Only certain entities such as banks subject to the Bank Act (1959) and other large institutions with appropriate credentials can issue warrants.
In order to be eligible to issue warrants, institutions must be:
- prudentially regulated by the Australian Prudential Regulatory Authority
- a government
- hold an Australian Financial Services Licence (AFSL), an investment-grade credit rating and sufficient net tangible assets, or
- have a guarantor that meets any of the above.
Typically, these requirements limit the issuer pool to banks and other large, well-capitalised and regulated organisations. Product issuers should approach ASX if there is any uncertainty as to whether an issuer meets these requirements.
- Warrant products must be able to satisfy the definitions of a ‘warrant’ as set out by the Corporations Act (Cth) and the ASX Operating Rules.
- The financial product’s value must be linked to an underlying instrument which is a financial product, index, currency, commodity or other financial instrument which may be used to continuously value the warrant.