Risk warning for Covered Warrants

Warrants are not suitable for everyone. You should not deal in warrants unless you understand their nature and the extent of your exposure to risk. You should be satisfied that they are suitable for you in the light of your circumstances and financial position and you should have sufficient knowledge and experience to understand the risks of dealing in warrants. This disclaimer cannot disclose all the risks and other significant aspects of warrants. If you are in any doubt you should consult an appropriately qualified financial advisor.

A warrant’s price can vary relative to the underlying instrument due to factors unique to the warrant e.g. changes in volatility and time value. For example, call warrants on a single stock can decrease in value due to falls in volatility even if the single stock price increases.

Warrant risk factors

Leveraged returns are a significant characteristic of warrants but can also work against investors. Warrant investors should be aware that, if the underlying instrument to the warrant moves in the opposite direction to that anticipated by investors, the losses incurred by the warrant will be greater in percentage terms than those incurred by a direct investment in the underlying itself. The prices of warrants can therefore be volatile.

Warrants have a limited life, as denoted by the expiry date of each issue. After this date, warrants can no longer be traded or exercised, therefore, unlike direct investments; investors are not able to hold them beyond their stated expiration date in the expectation of a recovery in the price of the underlying. Investors should note that warrants experience time decay (erosion of their time value) throughout their life. The rate of this decay accelerates as warrants near expiry and warrants may expire worthless. You should not buy a warrant unless you are prepared to lose all of the money you have invested plus any commission or transaction charges.

It is important to note that while changes in the price of the underlying are generally the most significant factor influencing the price of a warrant, other variables - such as market volatility, interest rates, exchange rates and dividends - may lead to a change in the price of a warrant even if the underlying itself is unchanged.

It should also be noted that when the underlying price is unavailable - when the market on which the underlying is listed is closed, for example - a warrant price will move in line with an appropriate substitute, such as a future or option contract traded on a Related Exchange as specified in the relevant Pricing Supplement.