Warrant 2.

(1) A warrant is a form of option, the main distinction being that the warrant has a longer original term, generally a few years rather than a few months. Also, the holder usually exercises the warrant by way of a cash settlement of the difference between the agreed exercise price and the spot price of the underlying at the exercise date, as opposed to the physical settlement of the underlying. (2) Unlike warrant 1., warrant 2. does not relate to the creation of new shares or bonds. The securities or other underlying assets are necessarily those already on the market. Warrants 2. are usually issued by an entity independent from the issuer of the underlying asset, most often a financial institution. Finally, warrant 2. gives the buyer the right to purchase the underlying (in the case of a call warrant) or to sell the underlying (in the case of a put warrant), while warrant 1. only gives the holder the right to subscribe for the underlying securities. (3) Warrants include commodity warrants, stock warrants, index warrants, bond warrants and currency warrants. (4) The European warrant market is very active and specifically regulated. The term covered warrant is used in Great Britain to designate this security because the issuer usually initiates a hedge by way of derivatives or by holding at least part of the underlying assets, or is sufficiently creditworthy.