Page 55 - SC Annual Report 2018 (ENG)

Securities
Commission
Malaysia
ANNUAL
REPORT
2018

thematic review on Structured Warrants

BAckGRound SuPERVISoRy ouTcoME

Malaysia’s structured warrants market has grown over the Issue industry circulars on best practices for:
years on the back of greater retail interest.
Between 2014 and 2017, annual turnover of structured • liquidity assessment by issuers during
warrants increased by 177% from RM2.35 billion to product design; and
RM6.51 billion with annual structured warrants issued • market making and hedging activities of
increasing by 69.4% from 546 to 925 issues. issuers.

A thematic review was conducted in 2018 to assess the
adequacy and consistency of control measures put in
place across issuers to ensure market stability.

oBSERVATIonS

• Generally, there is sufficient volume in the underlying stocks chosen by issuers to allow for orderly hedging and
unwinding of hedges.

• Issuers are ensuring compliance with rules and requirements on market making which are intended to provide
liquidity for investors to sell their structured warrants in the market at a reasonable price.

• Some areas for improvement include the need for more conscious consideration and deliberation on potential
market impact of hedging and unwinding activities. Policies and procedures on liquidity assessment and design
process of structured warrants can also be strengthened to avoid large holdings of shares close to the expiry of
the structured warrants.

• The review of investors’ behaviour indicates that investors in structured warrants have a reasonable
understanding of the product. However, some investors exhibit loss aversion biases, resulting in them failing to
cut losses despite their warrants being deep out of the money and close to maturity.

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