Study On The Development Of Warrants Market In China

Warrants is issued by the underlying securities issuer or others, agree the holders have the rights to buy or sell underlying securities in agreed price in particular due date or within a specified period, or receiving a cash settlement of the securities spreads。Since the first warrant was issued by the American Light & Power in 1911, warrants are widely welcomed by the listed companies and investors because of its advantages: financing facilities, hedging risk and highly leveraged. In the early 1990s, China had a period of warrants trading. However, due to various reasons, the management canceled all transactions. For the success of the shareholder structure reform and diversified the programs, China stock market starts the warrants trading again. Warrants provided an effective financial tool for the shareholder structure reform, it also can be a independent financial derivatives security. Warrants, as a primary financial derivative product, has made very good progress in overseas markets in terms of its unique product design and "Small broad" economic impact. Through the market researching of overseas development, summing up the rich experiences of the overseas countries and regions is important for China's warrants market development.First, the paper reviews the research related to warrant. Warrant has a long history in foreign countries, there are many researches about warrants, through the review, we find most research focus on the warrant pricing and the affect about underlying. Our warrant market still in the early stages, most research focus on the warrant characteristics, the use in the shareholder structure reform and introduce the warrant pricing models. Although some studies think we should learn from the successful experience of foreign warrants market, but they didn't compare the actual things between China and other counties.Second, the paper reviewed the development of China warrants market. By the author's understanding of warrants, the paper thinks the development of China warrant market can be divided into the following phases:1990s shares warrant, convertible bonds warrants, shareholder structure reform warrant, covered warrants and separation transactions convertible bonds warrants. For the different phases, the paper explains the background and development of the warrants. The paper also analyses the significance to develop warrants market, and point out that warrants can flourish market exchange, provide investors with new financial instruments and hedging tool, help domestic investors to participate in international competition, help personal and institution investors to raise the level of risk management.Third, the paper analyses the conditions of deal and pricing of warrants. In theory, the price of warrants is equal to its intrinsic value. I use the Black-Scholes model to measure the intrinsic value and compare to the market price, and find the market trading is overpriced .The deviation may be caused by the model error ,but the most important factor is the strong demand of warrant which offered limit quantity, even with institutions create quantity , doesn't satisfy the speculative demand. Overpriced warrant, which cause by over demand and limit supply, should fasten its development.Fourth, the paper compares the regulatory in domestic warrants market with foreign ones. It is necessary to use suitable samples to draw lessons from successful experience of foreign warrants market development in order to develop our warrants market. I compare domestic warrants market with foreign ones in two aspects. I choose warrants markets in Hong Kong, Germany, Tai wan, and Singapore as samples to study the commonality of regulatory forward and afterward in warrants issue. Then, I give some advices which are based on the comparison between domestic warrants market and foreign ones. The regulatory forward in warrants issue forces on the condition of issuer, underlying product, and rules of market dealer. In aspect of decision of issuer's condition, we could select some security companies, which have strong ability of risk management and adequate net capital, to issue covered warrants from domestic innovation security companies, security companies which get investment from foreign security companies, and security companies which have cooperation business with foreign security companies. In aspect of underlying product, I think the regulation of underlying stocks in temporary rules of warrants management is fit for Chinese background. In aspect of rules of market dealer, I think it is not necessary in our country. After covered warrants'birth, the necessity to study is whether worth or not.Fifth, the author take out his thinking about how to develop China's warrants market. Through reviewing the history of China's warrants market, simple analysis of the status quo and comparative analysis of the international market, the author take out his thinking about how to develop China's warrants market, mainly concentrated in the product design, supervision and the covered warrants creation. In aspect of products, the author think reset covered warrants and spread covered warrants have their own characteristics, they can solve many problem that exist in domestic securities market, such as little market capacity, large price volatility and so on; In aspect of supervision, the author think we should improve the laws, regulations and enhance investors education; In aspect of covered warrants creation, create the covered warrants can enhance the stabilization of warrants price, when we start the covered warrants exchange, covered warrants creating can help us.This article has several innovations:First, the paper reviewed the development of China warrants market, go into particulars the background and development of the different phases warrants.Second, the paper compares the supervision of different foreign warrants market and finds their common characteristics, then the paper compares these commons with domestic supervision.Third, the paper develops some advises about how to develop china warrants market.This article also has several shortcomings:First, the warrants pricing model is simple, I can not guarantee the accuracy of warrants theoretical value.Second, China warrants market and foreign warrants have different background, the compare between them should be considered.