What will happen to my warrant on expiry date?
If an investor does not sell out of the warrant before expiry, the issuer will automatically exercise the warrant if there is any remaining value at expiry. This entitles the holder to be paid a cash settlement amount (all warrants in Singapore are currently ‘cash settled’ in this way). A call warrant will have value at expiry and be deemed ‘in the money’, if the underlying Share Price is above the Exercise Price of the warrant. Conversely for a put warrant, the share price must be below the Exercise Price.
The majority of single stock warrants in Singapore take the average closing price of the underlying share for the five business days prior to the Expiry Date to calculate the Cash Settlement Amount. The Exercise Price is then deducted from this amount, leaving an amount known as the settlement amount. A cheque will be sent to the investor for the settlement amount net of handling fees.
For example, assume ABC call warrant had an Exercise Price of $1.00 and was to expire on a Monday. If the average closing price of ABC shares on the previous 5 business days (Mon to Fri of the previous week) was $1.30, a Cash Settlement amount of $0.30 per warrant would be paid to the warrant holders.
It must also be noted that warrants often have different ‘conversion ratios’ or ‘entitlements’. The conversion ratio represents how many warrants you need to hold to exercise against one share. If a warrant has a conversion ratio of 3:1, that means you would require 3 warrants in order to exercise into 1 share. In this scenario, the Cash Settlement amount would be a third of the intrinsic value. For the example in ABC shares, this would be $0.15 ($0.30 / 3 = $0.10).
For a put warrant, the underlying share price would need to close below the Exercise Price in order to receive a Cash Settlement amount. For example, if XYZ put warrant had an Exercise Price of $2.00, and the average closing price of the previous 5 business days was $1.60, the Cash Settlement amount would be $0.40 ($2.00 - $1.60 = $0.40) on a 1:1 conversion ratio.
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