Warrant

The warrants are financial instruments who belong to the category of the securities (obligations, actions). Attention, they are not derivative products, although they behave like such . Indeed, they are attached to a " support" (main feature of the derivative products), still called " under-jacent" , which can be: an action, an obligation, raw materials, currencies…

The warrant is very close to the good of subscription but, if the scrip certificate is emitted by the company, the warrants are them emitted by the banks.

Definition of a Warrant

A warrant is a transferable contract which confers on its holder the right, and not the obligation, to buy or sell a given quantity of a specific credit, at a price determined in advance, the expiration date of the contract or in any time until this date. This definition is quite simply that of a option. There exist options to buy or warrant Call and options to sell or warrant Could. One thus finds same the characteristics as an option: maturity, price of exercise, parity, share, subjacent…

Differences with the options

  • the warrants are emitted directly by finance companies or companies of investment can emit warrants. On the French market, BNP Paribas and the General society hold the most important market shares.

  • the transmitter is committed making animation of market, i.e. it is committed proposing permanently a counterpart with the investors wishing to buy or sell the warrants. It is a source of remuneration for the transmitter and that also enables him to impose the level of valorization.
  • the number of warrants emitted by the transmitter is limited. Consequently, the animation of market, with dimensions salesman, can disappear when all the warrants were subscribed by the investors. In such situation, the warrant is known as " Bid Only ".
  • the deadline of resale is located 6 market-days before the maturity of the warrant.
  • Contrary to the options, it is not possible to sell with discovered a warrant. This limits the optional strategies.
  • the style of the warrants is very mainly European.

Pricing

The formula of reference selected depends on subjacent on the warrant and the duration before maturity on the warrant. For the warrants on actions, one has recourse to extentions of Modèle Black-Scholes, while for the warrants on foreign exchange rates, one uses the formula of Garman-Kohlhagen.

Taxation (in France)

The warrants are financial instruments, them Fiscalité is rising Plus-value S carried out to declare with the tax S and taxed starting from the euro 16% + Social samples, is 27% in 2007. The losses on the other hand deductible on are been worth movable. They are continuable over ten years.

The transfer of warrants is not included/understood in the Seuil of transfer (20 000 EURO as from 2007) of Transferable securities, but in the event of depreciations, they are ascribable on the appreciations of transfers of other transferable securities (action, obligation, monetarist) if the threshold of transfers of 20000 euros were crossed.

Precaution

The warrants are financial instruments reserved to the experts. The total loss of the investment is possible if anticipation is bad. Moreover the value of the warrant decreases with time. Thus even with an average competence on the subject the result will be a loss for the investor. It is thus necessary to be right more than the average to draw a benefit from it, without taking account of the expenses and the price ranges of purchase and sale of the transmitter.

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