The issuance and listing of warrants on China's market accompanied the process of equity division reform. To solve the problems in their equity division reform, some listed companies paid warrants as reform consideration, which created a win-win situation among shareholders, listed companies and investors. All this has accelerated the reform and got China's derivatives market started. The warrant has a profound impact on the innovation and development of China's securities market.
To keep the warrant trading in order and ensure a healthy development of the warrant market, the SSE made a contingency plan on the warrant supervision when the first warrant or the "Baosteel warrant" was issued. Since June 2007, the warrant market, represented by the Merchants Bank put warrant in particular, has seen a dramatic price fluctuation. To timely detect, investigate and deter abnormal warrant trading, the SSE has taken a series of supervision actions. For example, some individual accounts at some business departments push up the warrant prices through frequent large-volume purchase and sell orders. To solve the problem, the SSE, upon an immediate investigation on theses business departments and accounts, warned related investors not to drive up prices deliberately or try to manipulate prices. As for business departments with frequent and intensive intra-day warrant trading, the SSE sent written warnings to them, and also requested the securities dealers to strengthen customer management as well as report and deter suspicious trading. Moreover, the SSE met with some officials of securities dealers, alerted and ordered them to vigorously educate investors. The over speculation of some big investors shall not be tolerated, and investors should be instructed to recognize risks and avoid blind investment in warrants. In half a month, the SSE has conducted investigations and sent warnings by telephone for over 100 times, issued 15 written warning letters to related business departments, and made appointments with relevant securities dealers. Furthermore, based on many analyses and researches, the SSE targeted some big warrant trading investors, who are suspected of illegal manipulation. Then, it requested, according to relevant procedures, the China Securities Regulatory Commission to put them on file for investigation. The SSE states that it will show zero tolerance of any big speculative investors' illegal behaviors like short-term manipulation, and shall continuously probe violations of laws and regulations in warrant trading in the accounts.
Recently, the SSE has issued letters to securities dealers that handled a large volume of warrant trading and their business departments, calling them to enhance management and secure the compliance of customers' warrant trading, and jointly curb warrant speculation by highlighting their obligations of self-regulatory supervision. So far, the supervision has paid off, with market speculation reduced to some extent.
The development of international warrant markets showed that the warrant, as a securities derivative, features the leverage function, low trading fee and complex factors affecting pricing and price fluctuation. With dramatic price fluctuation and high turnover rate, the warrant is prone to over speculation. However, we should notice that one of the warrant's main functions is to facilitate investors' risk management. Besides, the portfolio of warrants plus other financial tools can spark more effective investment strategies to meet the demand of investors with different risk appetites. Thanks to it, the warrant grew rapidly on some mature exchanges and has become a popular and mature investment instrument worldwide.
In China, warrant firstly served as consideration payment in equity division reform. Then, the warrant market emerged, which was proved to be successful. The first warrant was introduced two years ago, so the warrant market has a lot of blank fields to be tapped. To ensure further healthy development of the warrant market, the SSE will continue to adopt measures for reinforcing supervision. If any accounts take advantage of their ample capital to disturb the warrant prices by continuous and intensive large-volume trading, the SSE will impose trading restriction or suspension when warnings prove ineffective. If necessary, it will implement special trading suspension to prevent market risks and protect healthy and orderly warrant market development.
Source:Shanghai Securities News
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