Press releases 2002

20 September 2002

London Stock Exchange to launchCovered Warrant market on 28 October

The London Stock Exchange today announced that its new covered warrant market will be launched on 28 October 2002. Six investment banks, Commerzbank Securities, Dresdner Kleinwort Wasserstein, Goldman Sachs International, JP Morgan, SG and TradingLab, intend to issue an innovative range of covered warrants.

Covered warrants give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price, during, or at the end of, a specified time period. They have proved very popular investment products in other European markets, where over 51,000 listed covered warrants last year attracted turnover of 52 billion with typical volumes of 85,000 trades per day.

Chris Broad, Head of Broker Services at the London Stock Exchange, said:
"The UK Listing Authority (UKLA) has been working closely with the Inland Revenue to gain the confirmation that issuers will not be liable for stamp duty on the issuance of certain covered warrants. Now that the UKLA has successfully gained this confirmation, we are looking forward to launching what we believe will become an important financial instrument for private investors".

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Notes to Editors:

About Covered Warrants

A covered warrant is a financial instrument, issued by financial institutions, that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price during, or at the end of, a specified time period.

Covered warrants may be either Calls or Puts, depending on whether the investor believes that the underlying asset will either rise or fall in value.

• A Call warrant rises in value when the underlying asset rises in value.
• A Put warrant rises in value when the underlying asset falls in value.

Two covered warrant contract styles will be available to private investors.

• A European covered warrant means that the warrant can only be exercised at expiration.
• An American covered warrant means that the warrant can be exercised at any time that the holder chooses.

The gearing inherent in covered warrants means that the purchase price (or premium) is typically less than the price of the underlying asset on which the warrant is based. As holders will always have a long position, be it with Calls or Puts, the maximum loss is confined to the premium paid, and the exercise is always against the issuer of the covered warrant.

Stamp duty will only apply to investors if they choose to settle their covered warrants in stock as opposed to cash.

About the London Stock Exchange

The London Stock Exchange is one of the world's leading equity exchanges and a leading provider of services that facilitate the raising of capital and the trading of shares.

The London Stock Exchange is the most international equities exchange by trading in the world and Europe's largest pool of liquidity. By the end of 2001, the market capitalisation of UK and international companies on its markets amounted to 4.1 trillion, with over 5.6 trillion of business transacted over the year.

The London Stock Exchange is a Recognised Investment Exchange (RIE) under the Financial Services and Markets Act 2000 and is supervised by the Financial Services Authority.