The Securities and Exchange Commission (SEC) is pushing to introduce a new derivative market in the Philippines by proposing a regulatory framework for structured warrants. The draft rules, released for public comment, aim to expand investment options, deepen market liquidity, and align local practices with global standards.
Structured warrants are financial instruments issued by third-party institutions, giving holders the right—but not the obligation—to buy or sell an underlying asset at a set price within a specific period. Under the proposed rules, only licensed broker-dealers and investment houses can issue these warrants, subject to strict capitalization, risk management, and disclosure requirements.
Issuers must maintain a minimum unimpaired paid-up capital of P400 million and implement comprehensive risk management systems, including continuous monitoring and regular reporting. The framework distinguishes between fully collateralized and non-collateralized warrants, with additional safeguards like an investment-grade credit rating or guarantee for the latter.
To protect investors, issuers must provide clear disclosures through a prospectus, including key terms, pricing, risks, and settlement methods. Prominent warnings about significant risks, including total loss, are required. Eligible underlying assets include listed equities, indices, exchange-traded funds, and debt securities, subject to liquidity and listing standards.
The SEC also proposes limits on issuance size—capped at 50% of a listed company's outstanding shares—and a minimum issue size of P20 million (or P10 million with a market maker). A market maker must be appointed to ensure liquidity, and investor education programs and suitability assessments are mandatory before trading. Structured warrants will have a maximum tenor of three years, extendable by the SEC.
The regulator emphasizes balancing market development with investor protection, ensuring adequate safeguards for new products.