Now I know how bank/security films-issued call warrant works.
This example of DRBHCOM-CE settlement announced on 1st August says it all:
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We are pleased to announce that DRBHCOM-CE have expired at 9.01 a.m. on 1 August 2011 ("Expiry Date") and the Warrantholders shall be entitled to the Cash Settlement Amount (per DRBHCOM-CE), determined in accordance to the following formula:
Settlement Price – Exercise Price | − | Exercise Expenses |
Exercise Ratio |
The Settlement Price has been determined at RM 2.1840, being the arithmetic mean of the closing price of DRBHCOM Shares on Bursa Malaysia Securities Berhad for the five (5) scheduled market days prior to and including the market day before the Expiry Date.
| Cash Settlement Amount | |
| = | {(Settlement Price – Exercise Price) / Exercise Ratio} x Number of CW exercised – Exercise Expenses* |
| = | {(RM 2.1840 - RM 1.95) / 2 } x Number of CW exercised – Exercise Expenses* |
| = | RM 0.1170 x Number of CW exercised – Exercise Expenses* |
* Equivalent to 0.30% of the intrinsic value.
The Cash Settlement Amount shall be paid to the Warrantholders within seven (7) market days from the Expiry Date.
The Cash Settlement Amount shall be paid to the Warrantholders within seven (7) market days from the Expiry Date.
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The DRBHCOM share price for the past 7 trading days are like this:
| Date | Price RM |
| 21/7 | 2.26 |
| 22/7 | 2.28 |
| 25/7 | 1.95 |
| 26/7 | 2.24 |
| 27/7 | 2.25 |
| 28/7 | 2.24 |
| 29/7 | 2.24 |
As DRBHCOM-CE expires on 1 Aug, the last 5 trading days are from 25/7 til 29/7. On 25/7, DRBHCOM is trading above RM2.25 the whole day then suddenly in the last 10 minutes, there were 2 trades at RM1.95, dragging the price down almost 15% from RM2.28 in few seconds time.
Who is so stupid to sell DRBHCOM shares so cheap at RM1.95, while it can easily done at above RM2.20 level? “Strangely”, this date at 25/7 coincides with the first day of the last 5 settlement days of DRBHCOM-CE, and the RM1.95 coincides with DRBHCOM-CE’s exercise price as well.
Clearly there will be one obvious winner in this case, which is OSK, the issuer of DRBHCOM-CE. Because of the RM1.95, the settlement price finally is at RM2.184. If not, the settlement price will be at least well above RM2.24. It could be higher because after the shocking RM1.95 day, the price did not recover fully to its previous days’ RM2.26-2.28 level. Let’s say if the actual settlement price should be at RM2.25, OSK can “earn” about (2.25-2.184)/2 = 3.3sen a warrant. OSK issues 90million DRBHCOM-CE, thus it should "earn" or "save" extra RM2.97million, if my calculation is right!
Anyway, I don't mean and don't know whether OSK is involved in the drastic drop in DRBHCOM share price on 25/7/11. OSK is quick to come out to clarify thing.
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This article appeared in The Edge Financial Daily, July 28, 2011.
KUALA LUMPUR: OSK Investment Bank Bhd said it is not involved in the substantial decline in DRB-Hicom Bhd’s share price on Monday.
The investment bank’s clarification came amid market talk that the unusual sharp drop in DRB-Hicom’s share price in the final minutes of trading on the day was linked to the conglomerate’s call warrants. OSK Investment Bank is the issuer of the call warrants (DRBHCOM-CE CW).
“We, the bank, would like to clarify that we were not involved nor did we have any prior knowledge as to the purported ‘trade error’ reported in the article,” OSK Investment Bank said yesterday in a statement in response to a report by The Edge Financial Daily.
On Monday, DRB-Hicom shares fell 14% or 33 sen to close at RM1.95, making the counter the biggest loser on the local bourse.
The sharp decline in the stock’s price occurred within 10 minutes prior to the close of trading and involved about three million DRB-Hicom shares transacted at RM1.95. Prior to this, at 4.48pm, the stock had changed hands at RM2.28.
The call warrants were issued on Feb 2, 2011, at 17 sen each, and are due to expire next Monday. They have a strike price of RM1.95.
According to the investment bank, the first valuation date for the DRBHCOM-CE CW was on July 25. There are five valuation dates and the settlement price which is used to determine the maturity cash settlement amount is the average of the closing prices of DRB-Hicom shares for the five valuation dates.
As the closing price of the shares on Monday was RM1.95, OSK said there might “be a direct implication on the determination of the settlement price of the call warrant”.
Yesterday, the warrants ended unchanged at 12 sen while DRB-Hicom shares added one sen to close at RM2.25.Since the warrants’ listing on Feb 8, they have traded between a high of 29.5 sen on April 8 and a low of 11.5 sen on March 2.
During the last six months, DRB-Hicom shares had traded between a high of RM2.48 on April 6 and a low of RM1.73 on March 3.
The investment bank’s clarification came amid market talk that the unusual sharp drop in DRB-Hicom’s share price in the final minutes of trading on the day was linked to the conglomerate’s call warrants. OSK Investment Bank is the issuer of the call warrants (DRBHCOM-CE CW).
“We, the bank, would like to clarify that we were not involved nor did we have any prior knowledge as to the purported ‘trade error’ reported in the article,” OSK Investment Bank said yesterday in a statement in response to a report by The Edge Financial Daily.
On Monday, DRB-Hicom shares fell 14% or 33 sen to close at RM1.95, making the counter the biggest loser on the local bourse.
The sharp decline in the stock’s price occurred within 10 minutes prior to the close of trading and involved about three million DRB-Hicom shares transacted at RM1.95. Prior to this, at 4.48pm, the stock had changed hands at RM2.28.
The call warrants were issued on Feb 2, 2011, at 17 sen each, and are due to expire next Monday. They have a strike price of RM1.95.
According to the investment bank, the first valuation date for the DRBHCOM-CE CW was on July 25. There are five valuation dates and the settlement price which is used to determine the maturity cash settlement amount is the average of the closing prices of DRB-Hicom shares for the five valuation dates.
As the closing price of the shares on Monday was RM1.95, OSK said there might “be a direct implication on the determination of the settlement price of the call warrant”.
Yesterday, the warrants ended unchanged at 12 sen while DRB-Hicom shares added one sen to close at RM2.25.Since the warrants’ listing on Feb 8, they have traded between a high of 29.5 sen on April 8 and a low of 11.5 sen on March 2.
During the last six months, DRB-Hicom shares had traded between a high of RM2.48 on April 6 and a low of RM1.73 on March 3.
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Who actually did it? Judge by yourself.
already learn my lesson last crisi, will not touch call warrant anymore...
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