The Securities and Exchange Commission (SEC) has issued the guidelines for the issuance of structured warrants as the government moves to expand the range of the Philippines’s investment products.
The SEC issued a memorandum circular for the regulation of structured warrants-a financial product issued by a third-party financial institution that gives the holder the right, but not the obligation, to either buy (call) or sell (put) an underlying financial instrument, or to receive a cash settlement amount.
The amount is calculated by reference to the price or level of the underlying financial instrument, at a predetermined price on or before a specified expiry date.
‘The issuance of these rules marks a major milestone in our ongoing efforts to deepen and modernize the Philippine capital market. By introducing structured warrants, we are providing investors with a sophisticated tool for risk management, hedging, and portfolio diversification, bringing our market architecture at par with our Asean peers,’ SEC Chairman Francis E. Lim said.
Under the rules, only licensed broker-dealers and licensed investment houses incorporated in the Philippines, or foreign corporations duly licensed to do business in the Philippines, may act as issuers of structured warrants.
An issuer or its guarantor must maintain a minimum unimpaired paid-up capital of P400 million at all times while any structured warrants remain outstanding.
Eligible underlying financial instruments include single equities listed on a Philippine or foreign stock exchange; securities indices; and exchange-traded funds.
They may also include debt securities listed on a Philippine or foreign exchange; baskets of listed equities or listed debt securities; or other assets or reference values as may be prescribed by the Commission.
All underlying financial instruments should be listed on an exchange in good standing and comply with liquidity, market capitalization, and trading volume requirements, and other criteria prescribed by the exchange.
For physically settled structured warrants linked to local securities listed or quoted on an exchange, the total issue size, together with all physically settled structured warrants already issued and outstanding, must not exceed 50 percent of the total number of issued shares of the underlying corporation, excluding treasury shares.
The minimum issue size for structured warrants is P20 million.
Structured warrants must be registered with the SEC before they can be sold or distributed.
Issuers should file a registration statement together with a prospectus containing all material disclosures related to the structured warrants, including their terms and conditions, to provide investors with the information necessary to make informed investment decisions.
Structured warrants carry a maximum tenor of three years from the date of issuance, unless a longer period is allowed by the SEC.