M6 — CM-EIP: Securities, CIS (EIP) and Foreign Exchange
Warrants
Company warrants are rights issued by a company to subscribe for its own new shares at a fixed exercise price before expiry. The exam tests four things: what a company warrant is and how it differs from structured warrants, options and nil-paid rights; how warrants are classified under MAS Notice SFA 04-N12; the valuation measures (intrinsic value, time value, premium, break-even and gearing) with their working; and the SGX Mainboard Rules that govern adjustments, expiry notices and amendments. Expect calculation items with conversion-ratio and dilution traps, and rule items built on Rules 829 to 831.
9 sections·~6 min read
✓Checked against the IBF CM-EIP syllabus chapter 10 (checked 13 Sep 2026); SGX Mainboard Rules Definitions, Rules 507-508 and 824-832 (rulebook.sgx.com); MAS Notice SFA 04-N12 (last updated 4 Jan 2019) para 4, para 6 and Annex 1; Securities and Futures (Capital Markets Products) Regulations 2018 Schedule para 1(c), checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
★
Must-know for the exam
✓Company warrant: issued by the company over its OWN shares; a right, not an obligation, to subscribe at the exercise price within the exercise period. Exercise creates NEW shares and brings the company cash.
✓SGX Mainboard Rule 828: each company warrant gives the right to subscribe for or buy ONE share of the issuer and must not be expressed in dollar value.
✓No dividends and no votes until exercised. Unexercised warrants lapse worthless at expiry.
✓EIP test: Notice SFA 04-N12 para 4 defines EIP by Annex 1, which adopts the Schedule to the SF (Capital Markets Products) Regulations 2018. Para 1(c): rights, options or derivatives issued by a corporation over its own shares. Company warrants and nil-paid rights are EIPs; structured warrants are SIPs.
✓Intrinsic value per warrant = max(0, share price - exercise price) / warrants needed per share. Time value = warrant price - intrinsic value.
✓Premium % = (warrant price x warrants per share + exercise price - share price) / share price x 100. It equals the % rise needed by expiry to break even.
✓Break-even share price at expiry = exercise price + warrant price x warrants per share.
✓Gearing = share price / (warrant price x warrants per share). Deep out-of-the-money warrants: high gearing AND high premium.
✓Price drivers (call-type warrant): share price up, volatility up, longer time, interest rates up raise the price; higher exercise price and higher expected dividends lower it.
✓Rule 829: terms must provide (1) an adjustment formula for rights issues, bonus issues, subdivisions and consolidations; (2) notice of expiry at least 1 month before expiry; (3) shareholder approval for material amendments favouring holders, unless made under the terms.
✓Rule 830: announce every adjustment or amendment; an adjustment announcement states the formula, whether it was reviewed against the formula, and the reviewer and its relationship to the issuer.
✓Rule 831: no extending the exercise period, no replacement warrants; no changing the exercise price or exercise ratio except adjustments under the terms of issue.
✓Structured warrants (Mainboard Chapter 5): third-party issuer, calls or puts, over shares, indices or baskets; tenure up to 3 years unless SGX allows longer (Rule 508(6)); physical or cash settlement fixed at launch (Rule 508(7)).
What a company warrant is
•Warrants mix definitions, regulation and arithmetic. Most marks come from calculations where one slip, such as ignoring the conversion ratio, lands on a prepared distractor, and from telling company warrants apart from look-alikes.
•The SGX Mainboard Rules define company warrants as equity securities carrying rights to subscribe for or purchase shares from the issuer. The company itself grants the right, over its own shares.
•Right, not obligation: the holder may subscribe at the exercise price during the exercise period, or let the warrant lapse.
•One warrant, one share: Rule 828 requires each company warrant to carry the right to one share of the issuer, not a dollar amount.
•Exercise: the holder pays the exercise price in cash and the company allots new shares.
•No shareholder rights before exercise: no dividends, no votes. Rule 832(7) makes a circular disclose any rights holders have to distributions or further offers.
•Expiry: unexercised warrants lapse worthless.
•Listing and trading: listed on SGX and tradeable before expiry. Rule 826 gives a guide of at least 100 warrantholders for a class; Rule 827 requires the underlying shares to be listed on SGX or an approved stock market, or become so at the same time.
•How they reach investors: free with a rights issue as a sweetener, as a bonus issue of warrants to shareholders, or attached to bonds or shares as detachable warrants that trade separately from the host security.
•Trap: a detachable warrant is not a convertible bond. Selling the warrant leaves the bond in place. Exercising a warrant needs fresh cash; converting a bond exchanges the bond itself for shares.
→Candidates confuse company warrants, which create new shares, with structured warrants, where a third-party issuer deals in existing shares or pays cash.
→Treating a warrant like a forward contract that must be settled ignores that the holder can walk away.
→Candidates assume holding a warrant over a company's shares carries the rights of a shareholder.
→Assuming an out-of-the-money warrant is rolled over or converted at market price, when it simply expires with no value.
→Mixing up detachable warrants with convertible bonds, whose conversion right cannot be sold apart from the bond.
→Assuming free warrants cost the company nothing, when their exercise later dilutes existing shareholders.
→Assuming every conversion into shares brings the company new money, when only warrant exercise does.
→Expecting a company warrant to settle in cash like many structured warrants, or expecting the issuer to amend the terms.
Ready to test yourself?
Drill exam questions on Warrants and lock it in, or sit the free CMFAS mock exam with no sign-up.
•Takeaway: company warrant = company's right over its own new shares, paid for in cash on exercise, no dividends or votes until then.
EIP or SIP: how warrants are classified
•MAS Notice SFA 04-N12 (Notice on the Sale of Investment Products, last updated 4 January 2019) paragraph 4 defines an Excluded Investment Product as any product in Annex 1. Annex 1 covers capital markets products in a class listed in the Schedule to the Securities and Futures (Capital Markets Products) Regulations 2018. A Specified Investment Product is any capital markets product other than an EIP.
•Schedule paragraph 1(c) lists rights, options or derivatives issued or proposed to be issued by a corporation or body unincorporate in respect of its own stocks or shares.
•Company warrants over the company's own shares: within para 1(c), so EIP.
•Nil-paid rights over the company's own shares: within para 1(c), so EIP, even if the company is a bank.
•Structured warrants issued by a bank or securities house over another company's shares or an index: outside para 1(c), so SIP.
•Options written by investors on an exchange: not issued by the company over its own shares, so outside para 1(c).
•Why it matters: paragraph 6 of the Notice requires a Customer Account Review before a retail Customer opens an account to transact in Listed SIPs. Trading company warrants does not trigger it; trading structured warrants does.
•Trap: a derivative does not inherit the EIP status of its underlying share. Classify by who issues the instrument and over whose shares.
•Takeaway: issuer's own shares = para 1(c) = EIP. Third-party issuer = SIP.
CMFASPrep