What Are Warrants For?

A warrant, also known as a share warrant or a warrant, is a contract that gives the holder of the document the right to purchase shares from the issuer at an agreed price for a certain period of time, which is a certificate of entitlement. So what exactly does a warrant do?

Firstly, it is important to understand that warrants can be divided into two types according to the subject of issue, namely equity warrants and covered warrants, equity warrants are warrants in a narrow sense, which are issued by listed companies, and covered warrants, which are warrants in a broad sense, which are issued not by listed companies but by third parties such as securities companies and banks, and therefore, even if covered warrants are issued, they do not increase the share capital of the joint stock company. The issue of a warrant does not increase the share capital of a joint stock company.

From a legal point of view, a warrant is essentially a contract of rights which enables the investor to subscribe for a certain number of underlying assets, including stocks, stock indices, gold, foreign exchange, commodities, etc., at a certain date or at the expiry of the warrant, at the price agreed in the warrant. When an investor trades in warrants, they are in fact options, and the holder of the warrant has the right to exercise this right upon payment of a premium, and it is up to the holder to decide whether or not to exercise this right. The issuer of the warrant is responsible for providing the holder with performance obligations upon request.