What happens when warrants expire

1. Below are the different scenarios when warrants expire

When an investor holds a warrant until the expiration date, the issuer will calculate the settlement amount on the maturity date.

The settlement amount depends on the current price of the underlying asset, the warrant strike price, and the conversion ratio.

1.1 In-the-money

If the warrants are in-the-money on the expiration date, the settlement amount will usually be deposited into the warrant holders' account on the third settlement day after the expiration date without any instructions from the investor.

All warrants traded at HKEX are European Warrants. European Warrants are settled by cash and exercised automatically. They can only be settled upon maturity and do not involve the settlement of stocks.

1.2 Out-of-the-money

If the warrants are out-of-the-money on the expiration date, the settlement amount will be 0.

1.3 At-the-money

If the warrants are at-the-money on the expiration date, the settlement amount will be 0.

2. Expiration date and last trading date

A warrant has an expiration date, but investors should note that in the Hong Kong market there is a last trading day before the expiration date. The trading of a warrant ceases after the last trading day.

To ensure that transactions executed on the last trading day also have sufficient time for settlement, three trading days must be allowed between the last trading day and the expiration date.

If the trading of the underlying asset of a warrant is suspended, the trading of the warrant will also cease until the trading of the underlying asset resumes.

3. Settlement method 

Call Warrant: (settlement price - strike price) / conversion ratio

Put Warrant: (strike price - settlement price) / conversion ratio

3.1 Settlement price of an index warrant

For index warrants, the settlement price is based on the EAS price calculated by the Futures Exchanges. The EAS price is a five-minute average price of the last trading day of the related futures contract.

Take BP-HSI @EC2211A as an example, the strike price of the warrant is HK$21,000, the conversion ratio is 8,000, the last trading day (LTD) is 11/23/2022, and the expiration date is 11/29/2022.

When an investor holds the warrant until the expiration date 11/29, the EAS price of HSI on the expiration date will be the settlement price. Assuming the EAS price of HSI announced on 11/29 is HK$25000, if we use the formula for call warrants: (25000-21000)/8000=0.5, we can work out the settlement price of the warrant, which is HK$0.5 per share. 

*Images provided are not current and any securities are shown for illustrative purposes only.

3.2 Settlement price of a stock warrant

For stock warrants, the settlement price of the underlying stock is calculated based on the five-day average closing price prior to the expiration day.

Take GSTENCT @EP2208A as an example, the strike price is HK$337.68, the conversion ratio is 97.09, the last trading day is 8/16/2022, and the expiration date is 8/22/2022.

The average closing price of Tencent from 8/15 to 8/19 will be taken as the settlement price. Assuming Tencent's five-day average closing price is HK$298, if we use the formula for put warrants: (337.68-298) / 97.09 = 0.409, we can work out the settlement price, which is HK$0.409 per share.

In the event of any special circumstances such as corporate actions or market closure due to weather conditions, please refer to the warrant listing document or ask for more details from the issuer.

*Images provided are not current and any securities are shown for illustrative purposes only.

*Images provided are not current and any securities are shown for illustrative purposes only.