Covered Warrants (CW)

Warrants with collateral (CW) are securities issued by brokerage firms, listed on the stock exchange, assigned their own trading codes and operate similarly to underlying securities. The duration of warrants is a minimum of 3 months and a maximum of 2 years, calculated from the offering date to the expiration date.

CW is consistently linked with a single underlying stock code and possesses a singular conversion rate used as a reference base for exercising rights. Typically, these underlying securities are part of the VN30 basket.

As an example, on February 14, 2021, Securities Company A issued a Covered Warrant (CW) for MBB for the first time in 2021, designated as CMBB2101, priced at 10,000 VND. With a conversion ratio of 4:1, this signifies that 4 units of CMBB2101 can be exchanged for 1 MBB share when the right is exercised.

Given that Vietnam currently exclusively utilizes European-style warrants, investors are only permitted to exercise their rights on the maturity date. Consequently, you have the option to:

1. Pre-Maturity Sale:
The trading method, fees, and taxes align with those of the underlying securities, but it’s important to note that margin loans are not permitted. Note:

• The last trading day: two (02) days before the CW’s maturity date. In the event of delisting (excluding due to marturity), the last trading day for warrants is the trading day immediately preceding the effective date of delisting.
• CW price increment: 10 VND
• CW Ceiling Price = CW Reference Price + (Underlying Stock Ceiling Price – Underlying Stock Reference Price)/Conversion Rate
• CW Floor Price = CW Reference Price – (Underlying Stock Ceiling Price – Underlying Stock Reference Price)/Conversion Rate
• Profit (before fees and tax) = (Matched price – Initial price) × Quantity
• Fees and taxes are charged on the Transaction Value = Matched price x Quantity

2. Exercising rights at maturity:

• Settlement Price: The average price of the underlying security over the 5 trading sessions prior to the CW’s maturity date
• Strike price: The price at which investors holding covered warrants (CW) have the right to buy/sell the underlying securities when CW matures. This price is predetermined by the issuing organization during the CW offering and remains fixed throughout the duration of the CW.

Investors holding covered warrants (CW) until maturity will receive a cash profit, if any, based on the difference between the settlement price on the maturity date and the strike price of the warrants. Therefore, on the maturity date

– Loss: Investors receive no returns.
– Break-even: Investors receive no returns.
– Profit:

• Investors will receive the cash profit on day T+5 = (Settlement Price – Strike Price) x (Quantity/Conversion rate)
• Tax payment = 0.1% x Settlement Price x (Quantity/Conversion rate)