Corporate Actions

When a listed company announces its financial results, it will also generally announce whether dividends will be paid.

Whether or not this affects the price of a related derivative warrant depends on whether or not dividends were expected and, if so, at what level and on what date. This is because the issuer considers past records of dividend distribution and the dividends expected by the market, when calculating the derivative warrant price.

If the dividend distribution and ex-dividend date are as expected and other factors remain constant, theoretically, the dividends should not affect the price of the derivative warrant.

Under normal circumstances, a derivative warrant linked to shares of a company will be adjusted if there is a capital adjustment of those underlying stocks (such as bonus issue, rights issue and restructuring event or spin-off / merger / consolidation). Specifically, an adjustment will be made to the entitlement ratio according to terms specified in the relevant listing documents.

In the case of a merger/consolidation, an adjustment will be made to the entitlement ratio of the derivative warrant of the company being merged or consolidated with. If the merger/consolidation results in an extinguishment of the current underlying, such underlying of the derivative warrant will change from the original underlying to a surviving/new underlying. Where there is a surviving company, no adjustment will be made to the derivative warrant of the surviving company.

Where the effective date of the adjustment occurs after the ex-entitlement date of the underlying stocks (such as in the case of spin-off), no adjustment will be made to those derivative warrants that expire in the interim period.

It is possible that trading of shares of the entities undergoing a merger may be suspended for a period of time. The Listing Rules require suspension of derivative warrants where the underlying stock is suspended. When this happens, the value of derivative warrants may be adversely affected due to time decay during the suspension period.

Under normal circumstances and for the purpose of calculating the value of the rights attached to the spin-off company, issuers will use volume-weighted average price (VWAP) of those auto-matched trades of that company on its first day of listing as the basis of adjustment. The adjustment will take effect from the day following the listing date. Investors should note that no adjustment will be made to those derivative warrants that expire before the effective date of the adjustment.