Covered warrants

Covered warrants explained

Covered warrants are listed securities issued by financial institutions that are then made available for trading on London Stock Exchange. A covered warrant gives the holder the right, but not the obligation, to buy or sell an underlying asset, at a specified price, on or before a predetermined date.

Covered warrants are similar to options but typically have a longer maturity and are issued over a wide range of assets. There are five types of covered warrants: stock warrants, commodity, basket, currency and index covered warrants:

  • Stock warrants are covered warrants on a single stock with the main focus being on popular UK blue-chip shares.
  • Commodity covered warrants allow investors to take positions on commodities in smaller size and in sterling.
  • Basket covered warrants, for a particular theme or sector, are a number of stocks grouped together. Investors can can then obtain exposure to this basket by buying one single security.
  • Currency covered warrants are available on a range of exchange rates.
  • Index covered warrants can be issued across indexes. In the UK the FTSE 100 index is the most consistently popular underlying index.

Covered warrants trade in an electronic, order-driven trading service where the market maker, who is also the issuer, is obliged to provide two-way prices at a minimum price and maximum spread throughout the trading day and for the lifetime of the instrument. Off-book instruments, which are available for trade reporting only, are also supported.

 

Why admit covered warrants to London Stock Exchange?

  • Admission to London Stock Exchange's Main Market, an EU-regulated market under MiFID, ensures high standards of disclosure
  • Transparency offered by continuous market maker quoting on electronic order-book
  • Added flexibility of off-book trading on-exchange
  • Price and trading data disseminated to more than 140,000 terminals worldwide in addition to end investors worldwide via Exchange data feeds, ensuring global reach
  • Allows product providers to leverage London Stock Exchange's extensive distribution

 

Disclaimer

Securitised derivatives are not suitable for all investors – they may be highly geared and therefore volatile. You should not deal in securitised derivatives unless you understand their nature and the extent of your exposure to risk. Since this disclaimer cannot cover all the risks and other significant aspects of these instruments, you should consult an appropriately qualified financial adviser if you are in any doubt. Information on this website does not constitute professional, financial or investment advice. It must not be used as a basis for making investment decisions and is in no way intended, directly or indirectly, as an attempt to market or sell any type of financial instrument.

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