Warrant (finance)
In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.
Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities. Both are discretionary and have expiration dates. The word warrant simply means to "endow with the right", which is only slightly different from the meaning of option.
Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond, and make them more attractive to potential buyers. Warrants can also be used in private equity deals. Frequently, these warrants are detachable, and can be sold independently of the bond or stock.
In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach and sell a warrant as soon as possible so the investor can earn dividends.
Warrants are actively traded in some financial markets such as Deutsche Börse and Hong Kong. In Hong Kong Stock Exchange, warrants accounted for 11.7% of the turnover in the first quarter of 2009, just second to the callable bull/bear contract.
Read more about Warrant (finance): Structure and Features, Secondary Market, Comparison With Call Options, Traded Warrants, Uses, Risks, Types of Warrants
Famous quotes containing the word warrant:
“I’ll sing you a new ballad, and I’ll warrant it first-rate,
Of the days of that old gentleman who had that old estate;
When they spent the public money at a bountiful old rate
On ev’ry mistress, pimp, and scamp, at ev’ry noble gate,
In the fine old English Tory times;”
—Charles Dickens (1812–1890)