One-month delay for UK warrants market

The UK covered warrants market will not launch until October 28, more than a month later than the initially proposed date of today, according to the London Stock Exchange (LSE).

Goldman Sachs, Société Générale, JP Morgan Chase, Dresdner Kleinwort Wasserstein, Commerzbank and UniCredito are all looking to profit from the new UK warrants market once trading finally commences. Covered warrants are securities issued by a party other than the issuer or originator of the underlying asset that give the holder the right to buy the underlying at a specific price and date.

Citigroup and Macquarie Bank had initially planned to provide liquidity to the market too, but subsequently pulled out. Other dealers claimed this exit was due to concerns over the robustness of the LSE’s warrants trading platform and the tax status of the securities.

But last Friday, Chris Broad, head of broker services at the LSE, said the UK Inland Revenue had confirmed that dealers will not be liable for payment of stamp duty on warrant issuance. Stamp duty will only apply to investors if they choose to settle their covered warrants in stock as opposed to cash. Stamp duty is a tax payable on UK stock and share purchases. The minimum rate is £5 for transactions up to £1,000.

Goldman Sachs’ London-based director of UK warrants, Mark Valentine, told RiskNews that the delay was related to clarification of the securities’ tax status, rather than any technological hitches. “The launch is only four weeks behind schedule – this wasn’t exactly unexpected given the uncertainty over stamp duty,” said one London-based equity derivatives trader at another major house.