Expiry and Settlement

No, the expiry day of a derivative warrant is not the same as the last trading day. Investors can only trade a derivative warrant on or before the last trading day:

For a derivative warrant, there should be 3 settlement days between the last trading day and the expiry day. For example, if a warrant expires on Friday, 23 June, the last day of trading will be Monday, 19 June (assuming the 3 days between 19 and 23 June are settlement days).

All derivative warrants currently traded on the Exchange are European style and are cash settled at expiry.

For cash-settled derivative warrants that are in-the-money on the expiry date, the derivative warrant holders are then paid a positive cash settlement amount according to the terms and conditions as set out in the listing documents.

For derivative warrants issued on a single stock, the settlement price at expiry is calculated based on the 5-day average closing price of the underlying stock prior to and excluding the expiry day.

For derivative warrants issued on a local index, the settlement price at expiry is based on the final settlement price of the corresponding index futures contract of the same expiry month as the derivative warrants traded on the Hong Kong Futures Exchange on the second last business day of the contract month.

For more information about the settlement price at expiry for derivative warrants on other underlying assets, please refer to the relevant listing documents.

The issuer may elect to early terminate the derivative warrants. Holders of those derivative warrants may receive an early termination amount which is determined by the issuer:

(a)  in good faith and a commercially reasonable manner; and

(b)  where applicable, by reference to the determination made by the Exchange in relation to the relevant listed options or futures over the underlying stock. In a past case, such early termination amount has been calculated based on the difference between the exercise price and the offer price of cancelling the underlying stock under the proposed privatisation, adjusted by the entitlement ratio. However, such determination may be different on a case by-case basis.

(a)  Trading suspension or absence of closing price on:

i.  the 1st, 2nd, 3rd, or 4th valuation date only - in that case, the closing price on the next valuation date will be used as the closing price on such 1st, 2nd, 3rd, or 4th valuation date, so that there are 5 closing prices used to determine such 5-day average closing price.

ii. each of the 3rd and 4th valuation dates only - in that case, the closing price on the 5th valuation date will be used as the closing price on each of the 3rd and 4th valuation dates, so that there are 5 closing prices used to determine such 5-day average closing price.

(b)  Trading suspension or absence of closing price on the 5th valuation date only (but not the expiry date) - in that case, the closing price on the 5th valuation date is determined based on the issuer’s good faith estimate made in accordance with the terms and conditions. Such determination will be made on a case-by-case basis based on prevailing market conditions. The closing price on the expiry date was used in most of the past cases.

(c)  Trading suspension or absence of closing price on each of the 5 valuation dates and the expiry date - in that case, the closing prices on each of the 5 valuation dates are determined based on the issuer’s good faith estimate made in accordance with the terms and conditions. Such determination will be made on a case-by-case basis by reference to the prevailing market conditions. The last reported closing price was used in most of the past cases.

Trading suspension above means suspension of trading of the underlying stock during the last half hour before close of trading.

5-day average closing price: the average of the closing prices of the underlying stock quoted on each of the 5 business days falling immediately before the expiry date of a derivative warrant. This price is used to compare against the exercise price of a derivative warrant to determine the cash settlement amount at expiry.