SEC eyes new derivative market with structured warrant rules
MANILA, Philippines — The Securities and Exchange Commission (SEC) is proposing a regulatory framework to govern the registration and trading of structured warrants, a new derivative product in the Philippine capital market.
In a draft memorandum circular released for public comment, the regulator said the move aims to broaden investment options, deepen market liquidity and align local practices with global standards.
Structured warrants are financial instruments issued by third-party institutions that give holders the right—but not the obligation—to buy or sell an underlying asset at a predetermined price within a specified period.
Under the draft rules, only licensed broker-dealers and investment houses may issue structured warrants, subject to strict requirements on capitalization, risk management and disclosures.
Issuers must maintain a minimum unimpaired paid-up capital of P400 million and adopt comprehensive risk management systems, including continuous monitoring, internal controls and regular reporting to management.
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The framework also distinguishes between fully collateralized and non-collateralized structured warrants, with additional safeguards required for the latter, such as an investment-grade credit rating or a guarantee arrangement.
Investor protection
To protect investors, issuers must provide clear and complete disclosures through a prospectus, including key terms, pricing, risks and settlement methods.
The rules require prominent warnings that structured warrants carry significant risks, including the possibility of total loss, and that investors should fully understand the product before participating.
Eligible underlying assets include listed equities, indices, exchange-traded funds, debt securities and baskets of securities, whether local or foreign, provided these meet liquidity and listing standards.
The SEC also proposed limits on issuance size, with total structured warrants tied to a listed company capped at 50 percent of its outstanding shares, excluding treasury stock.
Minimum issue size is set at P20 million, or P10 million if a market maker is appointed.
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Market maker
The draft rules further mandate the appointment of a market maker to ensure liquidity, as well as the implementation of investor education programs and suitability assessments before clients can trade the product.
Structured warrants may have a maximum tenor of three years, unless extended by the SEC, and will be subject to disclosure, reporting and compliance requirements throughout their lifecycle.
The regulator said the proposed framework seeks to balance market development with investor protection, ensuring that new products are introduced with adequate safeguards in place.
The SEC is inviting stakeholders to submit comments and suggestions on the proposed rules until May 13. /dda
