Structured Warrants

Structured Warrants

A Structured Warrant is a leveraged financial instrument which derives its value from the value of an underlying security. A Structured Warrant can provide exposure to the underlying security for a fraction of the underlying securities price.  Structured Warrants are listed and traded on stock exchanges.

Note: The right has a limited lifespan and it ends when the warrant reaches its Expiry Date. The premium/price for the warrant is actually the cost for having the right to buy/sell the asset as explained below.

Call Warrant

    Gives the warrant holder the right but not obligation to buy a given quantity of the underlying asset at the predetermined strike or exercise price on or before the expiry date.

Put warrant

    Gives the warrant holder the right but not obligation to sell a given quantity of the underlying asset at the predetermined strike or exercise price on or before the expiry date.

About Structured Warrants

Structured Warrants are usually issued by a bank / securities firm which allows the holder to have the right to buy/sell a given quantity of underlying asset at the strike/exercise price on or before the Expiry Date from the issuer.

  • Expiry Date
    A date at which the Structured Warrants holder ceases his right to buy or sell the underlying security at the pre-determined exercise price.
  • Physical-Settled or Cash-Settled
    Structured Warrants are either physical-settled or cash settled. When physical-settled Structured Warrants are exercised, its holder receives the underlying security, which is bought at the Exercise Price. When cash-settled Structured Warrants are exercised, its holder receives a cash profit which is the difference between the price of the underlying security and the exercise price.
  • European or American
    Structured Warrants are either European or American style. American Style Structured Warrants allow the holder to exercise his right at any time before or on Expiry Date whereas European Style Structured Warrants only allows its holder to exercise his right on Expiry Date.


What are the main differences between Company warrants and Structured Warrants?

  Company Warrants Structured Warrants
Issuer Own company 3rd party issuer, usually a bank
Underlying Own company shares Any underlying asset that meets legal/regulatory requirements
Expiry Period Usually 3 - 5 years Usually 6 months - 2 years
Liquidity No market maker Designated market maker
Settlement method Physical delivery of shares Usually cash settled


In Summary:

Factor Change of Factor Impact on Warrant Price
Underlying Price Increase Positive
Exercise Price Increase Negative
Expiry Period Increase Positive
Volatility Increase Positive
Dividend Expectations Increase more than expected Negative


Trading Structured Warrants

The main reason for trading Structured Warrants is gearing. Structured Warrants need small capital outlay but offer a higher percentage return (positive and negative) when compared with the underlying asset. However, be mindful that it is not uncommon for Structured Warrants to expire out of the money.

Benefits of trading Structured Warrants

Benefit 1: Unlimited upside and limited downside

  • Maximum loss = Price of Structured Warrants paid by the holder

Benefit 2: Highly Liquid and Tight Spread

  • Highly liquid – Structured Warrants with a designated market maker provide volume on the bid and offer for investors to easily enter or exit.
  • Tight spread – a good market maker provides tight spreads

Benefit 3: Lower Transaction Costs

  • Given the lower transaction value of the Structured Warrants, the brokerage for Structured Warrants trades are generally lower
     Benefit 4: Leverage Effect
  • Structured Warrants cost a small fraction of the share price but offer a higher percentage of return (positively or negatively) through the leverage effect

Risks of trading Structured Warrants

Risk 1: Gearing is a double edged sword

  • Gearing can amplify your gain and offer a higher percentage of return.  However, the increased exposure works both ways, it also exposes you to greater potential loss in percentage terms.  The losses however, is limited to the price of the Structured Warrants that you paid.

Risk 2: Market Risks

  • Investors need to be aware that Structured Warrants have the same market risks as stocks, whereby it is subject to market risks as well.

Risk 3: Limited Life Or “Time Decay”

  • As Structured Warrants have an expiry date, your view of the underlying could be correct, but the timing of the movement is critical too. The underlying could start moving in your favour only after the warrants expire and you would not benefit from the move.

Risk 4: Liquidity Risk

  • Although Structured Warrants have a designated market maker, it is always best to monitor its volume and bid/offer prices. This enables you to trade the Structured Warrants. It is always best to carefully select the Structured Warrants issued by a more active market maker.

Risk 5: Credit Risk

  • Even though Structured Warrants are listed on the exchange, the holder is exposed to the credit risk of the issuer. Therefore, it is always best to check the credit rating of the issuer before trading the Structured Warrants

Risk 6: Currency Risk

  • This applies to Structured Warrants that have an underlying not denominated in Malaysian Ringgit. In this scenario, the holder of the Structured Warrants is exposed to exchange rate fluctuations. This may affect the price of the Structured Warrants.  

Pricing & Calculations

Structured Warrants Price = Intrinsic Value + Time Value

Intrinsic Value

The intrinsic value of the Structured Warrant is the difference between the current underlying price and its exercise price.

When the underlying price is above the exercise price for a call warrant, the call warrant is In the Money (ITM) and has an intrinsic value.

In other words, only ITM Structured Warrants have an intrinsic value. For Out of the Money (OTM) Structured Warrants, it has no intrinsic value and only has time value.

Time Value

Structured Warrants have a limited lifespan. Hence, if there is no movement in underlying asset and implied volatilities, Structured Warrants diminish in value every day. Structured Warrants with some time remaining until expiry is worth some value since there is a possibility that the Structured Warrants will be ITM. At issuance, the time value is at a maximum of 100%. At expiry, the time value falls to 0%. Time decay (the rate of decrease in time value of the Structured Warrants) accelerates when the Structured Warrants is near to its expiry.

Settlement & Exercise

How to Calculate Cash Settlement Amount?

Settlement Calculations Formulas

Please refer to the latest base prospectus

Settlement Price

Where the underlying financial instrument are shares, the settlement price will be calculated using one of the following methods:

  1. the volume weighted average price; or
  2. the average closing price; or
  3. the closing price of the underlying share on the market day immediately before the exercise or expiry date; and

Where the underlying financial instrument is an index, the settlement price must be calculated using one of the following methods:

  1. the closing level of the underlying index on the market day immediately before the exercise or expiry date; or
  2. the final settlement price settling the corresponding index futures contract on the expiry date; or
  3. the average of the closing levels of the underlying index for the 5 market days prior to and including the market day immediately before the exercise or expiry date.

Please refer to the latest base prospectus



  1. How are Structured Warrants holders different from shareholders?
    Structured Warrants holders do not have the same rights as shareholders of the underlying share. As a Structured Warrants holder, you do not have voting rights, rights to receive dividends nor bonus distributions from the listed companies. Structured Warrants have a limited lifespan due to time decay. Whereas for actual shares, shareholders can hold the shares for as long as the company remains listed.
  2. Are longer expiry Structured Warrants better than shorter expiry Structured Warrants?
    Not necessarily. Structured Warrants with longer expiry will have a higher time value. Also, one needs to consider all other factors when comparing Structured Warrants, such as the underlying price, exercise price and volatility.
  3. Are American-style Structured Warrants better than European-style Structured Warrants?
    Not necessarily. American-style Structured Warrants allow the holder the right to exercise at any time during the life of the Structured Warrants. European-style Structured Warrants may only be exercised at expiry. 
  4. Does the Structured Warrants issuer take the opposite position to the Structured Warrants holder?
    As a third party issuer, the issuer provides an avenue for you to participate in the price movement of the underlying asset at a fraction of the share price. The issuer does not take any view on the direction of the price of the underlying asset. Structured Warrants issuers will from time to time buy and/or sell the underlying asset to hedge their position in order to achieve a market risk neutral position.
  5. Are lower priced Structured Warrants implies cheaper?
    Not necessarily. Lower priced Structured Warrants usually have high exercise ratios e.g. 50:1, 100:1; ie. More highly geared.
  6. What is a Market Maker?
    A Market Maker provides liquidity to Structured Warrants by posting quotes at both the bid and ask with adequate size and at minimal spread. Market makers are usually the Structured Warrants issuer or a party appointed by the issuer to provide liquidity to the market. This liquidity provider creates market depth.
  7. Does the Structured Warrants price move whenever the underlying shares price move?
    Not all the time. There are many reasons why the Structured Warrants prices do not always follow the movements of the underlying shares, some are as follows:
    a) The call warrants are deep Out-of-the-Money
    b) The call warrants have high conversion ratios (eg. 200 Structured Warrants: 1 share)
    c) The rise in intrinsic values is unable to cover time decays
    d) The trading of underlying asset or call warrants has been inactive

    (Note: a, b & c need significant move in underlying shares in order to theoretically move the Structured Warrants price)

  8. What will happen to the Structured Warrants on expiry?
    If the Structured Warrants expired OTM, there will be no settlement. However if the Structured Warrants are ITM, the Structured Warrants will be automatically exercised. Structured Warrants holder will be paid a cash settlement amount according to the value of the Structured Warrants at expiry. Structured Warrants holders are not required to send in exercise form and any positive settlement will be paid to Structured Warrants holders within 7 market days by way of cheque payment.
  9. When can I receive my payment if I exercise the Structured Warrants or hold the Structured Warrants until expiry?
    You can expect to receive the payment cheque posted via regular mail within 7 market days from the date the exercise notice is received or from the expiry date. Please refer to the base prospectus.
  10. How do corporate actions affect the price of Structured Warrants?
    Structured Warrants are subject to adjustments taking into account any corporate actions arising from the underlying stocks. If the corporate actions are deemed significant, adjustments to the entitlement, the exercise price or other variables are to be made.
  11. Where can we find out more information on Structured Warrants announcements?
    Please refer to for any Structured Warrants announcements

Base Prospectus

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