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WarrantsUnderstanding trading and investment warrants

Disclaimer

Information contained in this brochure is general and summary information of the research commissioned by ASX Operations Pty Limited ABN 42 004 523 782 ('ASX'). While the information is provided in good faith and is derived from sources believed to be accurate and reliable at the time of publication, ASX makes no warranty as to the accuracy or reliability of the information. The information does not constitute financial product advice. To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) from anyone acting or refraining from acting as a result of this information is accepted by ASX.

© Copyright September 2006. All rights reserved. This publication should not be reproduced, stored in a retrieval system or transmitted in any form, whether in whole or in part, without the prior written consent of ASX. Edition 11, printed September 2006.

Updates Warrants Explanatory Booklet

This insert includes relevant updates for consideration by those investing in warrants.

Thefollowingareupdatesduetotheamendmentstosection10oftheASXMarketRulesandMarketRuleProceduresintroducedon20October2005.

Assessed value Payment UPDATETOPAGE30

Holdersofdeliverablewarrantsthatdonotexercisebeforeexpirymaybeentitledtoacashpayment.Thispayment

isreferredtoasan“assessedvaluepayment”(orAVP).PreviouslytheAVPrulewouldrequiretheissuertopaya

warrantholderaminimumof90%ofthewarrant’sintrinsicvalueatexpiry.UndertheamendmentoftheAVPrule

introducedon20October2005,warrantissuersmaydraftwithintheTermsofIssueofwarrantsanAVPpayment

basedonthewarrant’sintrinsicvalue(ifany)lessreasonablecosts(whichmayincludesuchthingsastaxesand

expenses).ThedisclosuredocumentforawarrantwillexplainthecalculationoftheAVPforthatwarrantandwhen

itwillbepaid.

Expiry notification UPDATETOPAGE30

Previously,warrantissuerswererequiredtosendeachwarrantholderanoticeofimpendingexpiryofthewarrant

between20and30daysbeforetheexpirydate.This requirementhasnowbeenremovedfromtheASXMarket

Rules. Although warrant issuers are no longer mandated to provide expiry notifications to holders, they may

continuetodosoaspartoftheiroperations.

Deferred Purchase Agreement ADDITIONTOWARRANTFEATURESONPAGE8

Warrantsmaybestructuredasdeferredpurchaseagreements(“DPA”).ThevalueofDPAwarrantsmaybelinkedto

theperformanceofanassetorindex(“referenceasset”)thatmayormaynotbethedeliveryasset.Forexample,a

referenceassetmaybeaportfolioofdebtandshares,whereatmaturitythedeliveryassetisBHPshares.Reference

assetsincludeabroadrangeofassetsandindicessuchascommodities,futurescontractsandtheperformanceof

investmentstrategies.

Thefollowingareupdatesduetotheamendmentstosection10oftheASXMarketRulesandMarketRuleProceduresintroducedon4September2006.

market making and liquidity UPDATETOPAGES28-29

TheASXMarketRulesareintendedtopromotealiquidmarketinwhichwarrantholderscanselltheirwarrants.

Therulesseektodothisbyrequiringtheissuerofeachwarrantseriesto:

• ensurethatthewarrantserieshasaninitialspreadofholdersthat,intheopinionofASX,isadequateand

reasonable;or

• “makeamarket”inthewarrantseriesonanongoingbasis,byensuringthatareasonablebidandvolumeis

maintainedinthemarketforaprescribedperiod(currently90%ofthetimebetween10:15amandtheclose

ofNormalTrading(normally16:00pm)onanyTradingDay),exceptincertain“PermittedCircumstances”

(outlinedbelow).

IfawarrantissuersatisfiesASXthattheinitialissueofwarrantsgeneratesasufficientspreadofholders,itis

notrequiredtomakeamarketinthatseries.Asufficientspreadofholdersdemonstratesalevelofinterestthat

shouldensurethatthereisaliquidmarketforbuyersandsellersofthewarrantseries.

Inmostcircumstancesthewarrantissuerelectsthelatteralternative,thatis,tomakeamarketinthewarrant

series.ThismeansthatapartfromPermittedCircumstances(outlinedbelow),thereshouldbeapricequoted

ontheIntegratedTradingSystem(ITS)atwhichwarrantholderswillbeabletosellduringmostofthenormal

tradingday.

Thewarrantissuer’smarketmakingobligationundertheASXMarketRulesistoensurethatareasonablebidand

volumeismaintainedinthemarketfortherelevantwarrantseriesfortheprescribedperiod.Itisimportantto

notethatwarrantissuerswillnormallydisplaybothbidandofferordersformostwarrantseriesduringnormal

tradinghours.

AbidisconsideredreasonableforthepurposesoftheASXMarketRulesifiteither:

• satisfiesanobjective“price-volumespread”test,underwhich:

• thewarrantpricespreadmustnotexceedaprescribedamount(orproportionofthebidprice);and

• thebidvaluemustnotbelessthanaprescribedamount;or

• isotherwiseconsideredbyASXtobereasonablehavingregardtoanumberofqualitativefactorsincluding

(amongotherfactors)themarketconditionsintheunderlyinginstrument(ortheunderlyinghedge

instrument),consistencyofwarrantpricing,thenatureandmakeupoftheunderlyinginstrumentandany

corporateactionsoradjustmentsthatmaybeoccurringinrespectofthatunderlyinginstrument.

Awarrantissuerisnotrequiredtomaintainareasonablebidinrespectofawarrantseriesincertain

circumstances,knownas“PermittedCircumstances”.Theseinclude(amongothercircumstances)when:

• Theunderlyinginstrument(ortheunderlyinghedgeinstrument)issuspendedfromtrading,hasbeenplacedin

atradinghaltorisotherwiseunavailablefortrading;

• ThewarrantseriesisplacedinanyoftheITSsessionstateswherebidsandoffersforthatproductarenot

automaticallymatchedonthetradingplatformorisotherwiseunavailablefortrading;

• ThetheoreticalvalueofthewarrantseriesisbelowtherelevantminimumpricestepofITS;

• ThewarrantissuerwouldbreachlawseitherinAustraliaorarelevantforeignjurisdictionbyfulfillingits

market-makingobligations,andhasadvisedASXaccordingly;or

• Thewarrantissueroritsmarketmakingagentexperiencesacontinuedinterruptiontoitsnormaloperating

environmentthatpreventsitfromenteringmarketmakingordersinITSinatimelyandaccuratemanner(for

example,themalfunctioningofautomatedmarketmakingsystems).

Stock Exchange Automated Trading System (SEATS) UPDATESTOPAGES5,28,29,38

Asof4thSeptember2006,warrantswillcommencetradingontheIntegratedTradingSystem(ITS).Where

referenceismadetotheSEATStradingsystem,ITSwillnowapply.

Updates Warrants Explanatory Booklet

1

Further sources of information

Explanatory booklets and other information is available on the ASX website – asx.com.au/warrants:• freeonlineclass

• tradinginformationandtools

• ASXtradingcodesandpricesforwarrants

• linkstowarrantissuers’websites(disclosuredocuments,pricingcalculators)

• arangeoffreebooklets:variouswarrantfactsheetstaxationtreatmentonwarrants(byErnstandYoung)

Online Warrants ClassOntheASXwebsitethereisacomprehensiveonlineclass,‘GettingstartedinWarrants’.Thisallows you to proceed through the class inyourowntimeandatapacethatsuitsyou.The class includes interactive exercises toaidyour learning,andaquizat theendofeachsectiontoshowyourprogress. Attheconclusionoftheclassafinalquiztestsyourwarrantsknowledgeandidentifiesadditionalreading that is tailored to complete yourknowledgeofthewarrantsmarket.

Contact details

Warrants toll free information line 131ASX

Email [email protected]

ASX Warrants 20BridgeStreet,SydneyNSW2000

Internet www.asx.com.au/warrants

Recommended Reading

Investing in Warrants – the ASX Way The fourth addition to the series of theASX Way books is Investing in Warrants. Thisbookcoverswarrantbasicsthroughtostrategies, suchasbuildingan investmentportfolio, earning income and protectingthe value of underlying interests. Now,investors can access a wide range ofwarrant structures which suit differenttypesofinvestorsandriskprofiles.

From warrant basics to developingstrategies,thisbookcovers:

•Thedifferentinstalmentstrategies

•Using instalments within self-managedsuperannuationfunds

•Howwarrantsarepriced

•Index,currencyandknock-outwarrants

•Therisksinvolved

•Thetaxconsiderationswheninvestinginwarrants.

WrittenbytheexpertStructuredProductsteamfromtheAustralianStockExchange,Investing in Warrants is the idealguide for the warrant novice or for theexperienced investor looking to brush uponthefundamentalsofwarrantinvesting.Straightforward and concise, this bookwill help provide investors with all theknowledgetheyneedto invest in warrants – The ASX Way.

Investing in Warrants – the ASX WayisavailableatDymocksandallqualitybookstores.

Pleasesendmethefollowingfactsheets: Investmentstrategiesusinginstalments Tradingstrategiesusinginstalments

Name

Address

Postcode

2

ContentsIntroduction 3

Before you begin 4Whatarewarrants? 4Aboutthisbooklet 4WarrantsandETOs 5

The ASX warrant market 6

Warrant features 8Underlyinginstrument 8Callorputwarrants 8Exerciseprice(orstrikeprice) 8Expirydate 9Exercisestyle 9Deliverableorcashsettled 9Issuesize 9Conversionratio 9Coveredwarrants 9Indexmultiplier 10Barrierlevels 10Caplevels 10

Types of warrants 11Instalments 12

Rollinginstalments 13Selffundinginstalments 13

Endowments 16StructuredInvestmentProducts 14

ALPS 15YIELDS 15CapitalPlus 15

Equitywarrants 16 Internationalequitywarrants 16 Equityknock-out(barrier)warrants 16Indexwarrants 17 Knock-out(Barrier)indexwarrants 17 Internationalindexwarrants 17Cappedwarrants 18PremiumIncome(PIE)warrants 19Currencywarrants 19Commoditywarrants 20Digitalandbinarywarrants 20

Benefits of warrants 21Leverage 22Speculation 22Investment 22

Income 22Unlockwealth-cashextraction 22

Portfolioprotection-hedging 22Limitationofloss 22Marketexposure 22Tailoredtomeetspecificrequirements 2 2Taxeffectiveness 22

Risk with warrants 24Issuerrisk–ASXisnotaguarantor 24Generalmarketrisks 24Limitedlife 24Liquidityrisk 24Currencyrisk 25Leveragerisk 25Suspensionfromtrading 25Earlyterminationorexpiry– 25NationalGuaranteeFundnotaguarantorinallcases 25

Warrant issuers and the Disclosure Document 27Whoissueswarrants? 27DisclosureDocuments 27

Trading and settlement 28Secondarytradingofwarrants 28Marketmakingandliquidity 28Pricingmatrices 29Tradinginformation 29Shortselling 29Suspensionfromtrading 29Warrantsettlement–secondarytrading 29Warrantsettlement–exerciseorexpiry30

Whennoexercisehasoccurred 30Issuerfailstomeetitsobligations 30

Adjustments 30

Warrant pricing 31Priceorleveloftheunderlyinginstrument 31

Delta 31Exercisepriceandexpirydate 32Volatilityoftheunderlyinginstrument 32Interestrates 33Dividends 33Exchangerates 33Otherinfluencesonprice 33Timevalueandintrinsicvalue 35

Where to start 36Accreditedderivativesadvisers 36Warrantclientagreementform 36Incentivepayments 36Subscribingforwarrants 36

Glossary of terms 38

3

Introduction

Warrants – A new investing alternativeThe1990ssawadynamicfinancialmarketbecome established in Australia offeringconcepts that were innovative for privateinvestors.Inthepastdecadecharacterisedby its innovation, the rapidly growingwarrantsmarket was at the cutting edge.This was achieved by an increased varietyof investing choices and opportunitiesfor active traders and medium and longterm investors. The growth in the use ofwarrantsandthedevelopmentofwarrantconceptscontinuetocreateanewinvestingalternativeforpersonalinvestorsalongsidetraditional choices like shares, interestpayingsecuritiesandinvestmenttrusts.

Warrants:•arefinancialproductstradedonASX;•includea right tobuyor sella shareor

someotherasset;•haveasetlifeduringwhichtheyexist–a

timeperiod;•serve a particular purpose that depends

on the typeofwarrant: forexample, topursueashorttermtradingopportunity;or to maximise the income potential ortomaximisethecapitalgainthatcanbeearnedoveralongerperiod.

Becausedifferentwarrants servedifferentpurposes, this makes it important todistinguish between them and appreciateexactlywhattheyofferandhowtheycanbe used. Before you consider becominginvolvedinwarrantsyouneedtoknowthedifferencesbetweencallandputwarrants,between different warrant types such asinstalments and endowments, what indexwarrantsdoandhowcurrency,commodity,portfolioandotherwarrantswork.

Youalsoneedtounderstandthebenefitsandrisksoftradingorinvestinginwarrantsandthemarketgenerally, andwhatmakeswarrantsdifferent from the related investments onwhichtheyarebased.Allformsofinvestinghaverisksandwithininvestmentcategories,likethewarrantfamily,thedifferentrisksofparticipationshouldbeappreciated inordertoinvestinaninformedmanner.

Thisbookletwill provide youwithabasicintroductiontowarrantsthatyoucanthenworkfrom.

JohnWasiliev

4

Before you begin

What are warrants?Warrantsarefinancialinstrumentsissuedbybanks,governmentsandother institutionsand are traded on the Australian StockExchange (ASX) equities market. They arevery broadly split into investment-styleproductsandtrading-styleproducts.

Warrantsareaformofderivative-thatis,theyderivetheirvaluefromanother‘thing’(underlyinginstrument).Somegiveholdersthe right tobuy,or to sell theunderlyinginstrument (eg. a share) to the warrantissuer for a particular price according tothe terms of issue. Alternatively, othersentitle holders to receive a cash paymentrelating to the value of the underlyinginstrument at a particular time (eg. indexwarrants).

Warrants may be issued over securities(such as shares or debentures), a basketofdifferentsecurities,ashareprice index,debt,currencies,orcommodities.

The range of financial instruments tradedaswarrantshasevolvedover timesothatit is now difficult to define particularcharacteristics of all warrants. Warrantscover a wide spectrum of risk profiles,investmentobjectivesandlikelyreturns.

Some warrants have higher risk/returnprofiles than others that offer lower riskfeaturessuchascapitalguarantees.

About this bookletThisbookletcontainsanoutlineofcommonfeaturesandageneraldescriptionofmosttypesofwarrants.Itisnotanexhaustiveorcompleteanalysisofallwarranttypesandfeatures.

Themainobjective is toprovideyouwithgeneral information about warrants andabout some of the risks of trading orinvestinginwarrants.

Before buying warrants, you shouldunderstand the termsand risks associatedwith the particular warrant series. Youshouldreadthedisclosuredocument(calledeitheraproductdisclosurestatementorinsomecasesanofferingcircular)preparedbytheissuerofthewarrantsandseekspecificadvice from your accredited derivativesadviser.

5

Thebookletalsocontainsvariouscommentsby John Wasiliev, a financial reporter.Johnhasmanyyearsexperience reportingon financial markets. In particular, Johncurrentlyhasaweeklywarrant column in“The Australian Financial Review” whichreports on the latest trends and productswhicharebroughttothemarketplace.

ImportantItisimportantthatyouunderstand:

•ASX grants permission for warrantsto be traded on its market (called‘admission to trading status’) on theapplication of warrant issuers. ASXdoes not guarantee the performanceof warrant issuers nor does it vouchfor the accuracy of the disclosuredocument.

•You must make your own creditassessmentofthewarrant issuerofaparticularwarrantseries.

•Warrants have a limited life andcannot be traded after the relevantexpiry date. The terms of a warrantseries may be subject to adjustmentsor the warrants may expire early inparticular circumstances. Dependingupon the circumstances the price ofmostwarrantswillfallrapidlyastheyapproachexpiry.

•Warrants do not have standardisedterms.Thetermsmayvaryconsiderablybetweendifferentseries(evenbetweenwarrants of the same type) anddifferent warrant issuers. You shouldseekinformationregardingthespecifictermsofissueforaseriesofwarrantsbeforeyoutradeinaseries.

•There are different risk and returnprofiles for different warrant series.Some warrants have features thatmake them more risky than others.Youshouldseekspecificadviceaboutthe risks and features of a warrantseriesfromyouraccreditedderivativesadviser.

•Some advisers may be paidcommissions or other benefitsby warrant issuers in relationto the sale of particular warrants.Your adviser is obliged to discloseto you any commissions or otherbenefits which may influence his/herrecommendation.

Warrants and ETOsASXalsooperatesaderivativesmarketforexchangetradedoptions(ETOs).Tovaryingdegrees(dependingonthetype),warrantshave similarities to ETOs. Warrants andoptions are primarily financial productsthat allow you to gain exposure to theunderlying instrumentwithoutnecessarilyowningthatinstrument.

Warrants and ETOs do not give directcontrol over the underlying instrumentuntilexerciseandunlikeshares,willexpireafter a certain period of time. There arehowever some key differences betweenwarrantsandETOssuchas:

•The terms of ETOs are standardised andare set by ASX, whereas the terms ofdifferent warrant series are set by theissuer and can be quite diverse. Thisallows you to find a particular type ofproductthatsuitsyourinvestmentneeds,for example, an investor seeking capitalgrowthanddividend incomemay selectaninstalment.

•Warrants are tailored to meet specificneeds,thereforetherearedifferenttypesof warrants. Some of these types ofwarrants have little in common withETOs,wherethereareonlythreetypes.

•Unlike ETOs, you cannot write warrantsand there are no margin paymentsassociatedwithwarrantstocovertheriskof financial loss due to adverse marketmovements.

•WarrantsaretradedontheASXequitiestradingsystem–SEATS–whereasETOsaretradedontheASXoptionstradingsystem–DTF(DerivativesTradingFacility).

•Settlement of warrant trades occursthrough CHESS in the same manner asshare transactions are processed. TheAustalian Clearing House Pty Ltd (ACH),whichcontrolstheclearingofETOshasnoinvolvementinsettlingwarranttrades.

6

The ASX warrants market

Warrantsaretradedinmanykeyfinancialmarketsof theworld.ASXhasoperatedawarrantmarketsince1991.

Warrants have become an increasinglypopular investment alternative in recentyears. The first chart shows the increasein the number of warrants available. Thesecond chart shows trading volume andvalue in recent years. The recent drop intrading activity has been associated withageneralfallinequitymarketactivityandashifttowardswarrantproductsthattendtobelessactivelytraded(e.g.instalments).

The market began by trading equity callwarrants only. Others types have beenintroduced over time. There are now anumberofdifferentwarrantsavailablefortradingorinvestmentincludinginstalments,structured investment products, tradingwarrants, knock-out warrants, commoditywarrants and endowments. These (andothers)arediscussedlaterinthisbooklet.

As at 30 April 2005 there were 6 activewarrant issuers and 2,200 warrant seriesavailablefortradingorinvestment.

Warrants - New listings and Month-end Totals

Monthly Period

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Appreciate the relationshipsWarrants are offered on a range oftraditionalandnontraditional investmentassets. Examples of traditional assets aresharesincompaniesandunitsininvestmenttrusts. There are also warrants on somefascinating non-traditional investmentassets. They include specially constructedportfoliosofshares,warrantsoncurrenciesand on local and international marketindices,liketheS&P™/ASX200SharePriceIndex,theU.S.Standard&Poors(S&P500)IndexandtheJapaneseNikkei225Index.

Because you’re not buying or selling theactual investments, but rather buyingwarrants that give you the choice ofwhether to buy or sell – which you maynottakeadvantageof–warrantscanallowan investing position to be establishedforafractionofthecostofatransactioninvolvingtheactualassets.

In some instances, warrants prices canrepresent a small proportion of the valueof the related investment: as little as 1-to-2 per cent or less for ‘highly geared’or ‘leveraged’ warrants. In other cases,theremaybeonlyasmallpricedifferentialbetween the warrant and the investment.Yetinbothcircumstancesandallsituationsinbetween,warrantscanofferadifferentinvestment result than a commitment totherelatedinvestments.

JohnWasiliev

Warrants Market Activity

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8

Warrant features

Somefeaturesorcharacteristicsformpartof many warrants. Some of these aredescribed below – some appear in allwarrant types and some do not. As westate many times, warrants do not havestandardisedterms.ThetermsarespecifiedbythewarrantissuerwithintheconstraintsoftheASXMarketRulesandthelaw.Thismeans the terms may vary significantlybetweendifferentwarrant types, betweendifferentseriesofthesametypeofwarrantandbetweendifferentwarrantissuers.

The terms and conditions of a particularwarrant series are set out in a documentprepared by the warrant issuer called adisclosure document (either a productdisclosure statement (PDS) or an offeringcircular). To obtain a copy of a disclosuredocument,youshouldspeaktoyouradviserorthewarrantissuer.Somewarrantissuersput their disclosure documents on theirown web sites. All disclosure documents,issuedpost1999,areavailableontheASXwebsite.

When reading the disclosure document,youshouldbeawarethatsomeissuersusedifferentterminologyfordifferenttypesofwarrants.Wherethisoccurs,thedisclosuredocument will generally contain a tableto cross-reference the terms to knownconcepts.

Underlying instrumentA warrant derives its value from someother ‘thing’ or instrument. It is generallythe instrument which you have the rightto buy or sell or against which a cashpaymentismade.Theunderlyinginstrumentmay be a security (such as a share in acompany),asharepriceindex,acommodityor a currency. Some warrants are overa ‘portfolio’ or ’basket’ of securities. Thebasketmayconsistof securities inentitieswith similar activities, for example miningormanufacturing.Warrantsoverabasketofsecuritiesgiveexposuretotheperformanceof a group of securities or a particularindustry. If there is a corporate action, orsimilar event, the underlying instrumentmaybeadjusted. Thedisclosuredocumentwillexplainwhenthismayoccur.

A warrant derives its value from some other instrument.Call or put warrantsWarrantscanbeeithercallwarrantsorputwarrants. Call warrants benefit from anupwardspricemovementintheunderlyinginstrument whereas put warrants benefitfromadownwardtrend.

A deliverable call warrant generally givesyou the right to buy the underlyinginstrument (eg a share) from the warrantissuerataparticularpriceon,orbefore,aparticular date. A deliverable put warrantgenerally gives you the right to sell theunderlying instrument to the warrantissuerataparticularpriceon,orbefore,aparticular date. For cash settled calls andputs, the value of the warrant is paid toyouincash.

Exercise price (or strike price)Thisistheamountofmoneywhichmustbepaidbyyou(inthecaseofacallwarrant)orbythewarrantissuertoyou(inthecaseofaputwarrant)forthetransferofeachoftheunderlyinginstrument(s)(notincludinganybrokerageorothertransfercosts).

In the case of cash settled warrants, thedifference between the exercise price(sometimesreferredtoastheexerciselevel)andthevalueoftheunderlyinginstrumentatexpiryispaidonsettlement.

Theexercisepriceisgenerallyfixedwhenthewarrantsare issued.However, theexerciseprice could be variable. For example, theexercise price of endowments and someinstalmentsisnotfixed.Theexercisepriceofsomewarrantsmayalsobeinaforeigncurrency – eg. currency warrants andinternationalequitywarrants.

Some issuers charge for costs associatedwiththedeliveryoftheunderlyingproduct,sotheamountpayableonexercisemaybemorethanthestatedexerciseprice.

9

Theexercisepriceorthebasisforcalculatingthe exercise price will be specified inthe disclosure document prepared by thewarrantissuer.

Like the underlying instrument, theexercise price may be adjusted in certaincircumstances. Again, the disclosuredocument should explain when this mayoccur.

Pleasenotethatinthecaseofinstalmentstheexercisepriceisreferredtoastheloanamount,fortaxpurposes.

Expiry dateThe expiry date is the last date on whichthe warrant can be exercised. Tradingin a warrant ceases on the expiry date.Under some circumstances warrants maybe expired early if the warrant has beenvalidly exercised and the issuer will beobliged to deliver or take delivery of theunderlying instrument or make a cashpayment according to the terms of thewarrantseries.

Exercise styleWarrants can be either American style orEuropean style exercise. American stylemeansyoucanexercisethewarrantatanytimeonorbeforetheexpirydate.Europeanstyle means you can only exercise thewarrantontheexpirydateofthewarrant.Occasionally warrants are a mixture ofAmerican and European, eg. they maybe European up to a certain date andthen American thereafter. The terms ofthe warrant series will set out how youmay exercise the warrant. You should befamiliarwiththetermsrelatingtoexercise.Afailuretofollowthetermsmaymeantheexerciseofthewarrantisnoteffective.

Deliverable or cash settledDeliverablewarrantsaresettledinthefirstinstance by a transfer of the underlyinginstrument, eg. equity warrants. Cashsettled warrants are settled by a cashpaymentbythewarrant issuertoyou,eg.indexwarrants.Somedeliverablewarrantsmay also provide for cash settlement incertaincircumstances.

Insomecasesa largenumberofwarrantsmayneedtobeexercisedtogiverisetoadeliveryobligation,eg.internationalequitywarrants. The terms of issue will identifyanyexerciseconditions.

Issue sizeThis is the number of warrants that maybe issued in a particular warrant series.The warrant issuer may reserve the rightto apply to ASX to have more warrantsissuedinthesameserieswithoutnoticetoholders.

Conversion ratioThe conversion ratio is the number ofwarrantsthatmustbeexercisedtorequirethetransferoftheunderlying instrument.Thetermsofissuemayrequireonewarrantto be exercised to trigger delivery of oneunderlying instrument. Alternatively,a number of warrants may need to beexercisedforthedeliveryofoneunderlyinginstrument.

ExampleIfyouwanttoexerciseacallwarrantoverBHP ordinary shares with a conversionratioof4,youarerequiredtoexercise4warrantstobuy1underlyinginstrument,whichinthiscaseis1BHPshare.

Don’t forget that the conversion ratio isnot the only term that must be satisfiedto trigger a settlement obligation – referto the disclosure document for otherconditionsrelatingtoavalidexercise.

Theconversionratiowillaffectthepriceofthewarrantonaper sharebasis (butnottheleverage).

A higher conversion ratio means a lowerwarrant price. While trading prices arequotedonaperwarrantbasis,theexerciseprice is quoted on a per underlyinginstrument (or share) basis. It is thereforeimportanttoknowtheconversionratioofawarrantseriesbeforeinvesting.

The conversion ratioof awarrantmaybeaffected following a corporate action bytheunderlyingcompany,eg.asaresultofabonusissueoracapitalreconstruction.

Covered warrantsA warrant is said to be covered if thewarrant issuer places the underlyinginstrument in a trust or similar custodialarrangement on behalf of the holder. Tobecalled‘fully-covered’,thewarrantseriesmustalsomeetparticularcriteriasetoutintheASXMarketRules.

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Index multiplierThisisonlyrelevanttoindexwarrants.Itisthe figure used to determine the amountpayabletoyouonexerciseorexpiry.

Asaformula,

The intrinsic value of a call index warrant on exercise or expiry

= the index multiplier

x (closing level of the index – the exercise level of the warrant).

ExampleIftheclosingleveloftheindexis4,200points and the exercise level of a callindex warrant is 4,000 points then thewarrant has an intrinsic value of 200points. If the index multiplier is 1 centthenyouareentitledtoreceive$2.00perwarrant(being$0.01x(4,200–4,000)).

Barrier levelsSome warrants have barrier features. Abarrier level is adefined level that causessome event to occur. Some barriers causethewarranttoterminatebeforetheoriginalexpirydate.Othersmaycauseanadjustmenttotheexercisepriceandbarrierlevel(andthe warrant continues until expiry) butmay require you to make an additionalpaymenttotheissuer.Otherbarrierssimplycause the exercise price (or level) andbarrier to be reset. The consequences oftriggering a barrier level will be specifiedinthedisclosuredocumentforthewarrantseries. Barrier levels are nominated bythe issuer before warrants are issued. Thebarriercanbeaboveorbelowtheexerciseprice (or level) of the warrant. Warrantsmay expire worthless if they are out-of-the-money when the barrier is triggered.Ifhowever,thewarrantsarein-the-money,then the issuer may be obliged to pay acashamounttoholders.ThedescriptionsofindexwarrantsandequitywarrantsintheTypes of warrants sectionof thisbookletincludeexamplesofwarrantswithbarrierlevels.

Cap levelsSomewarrantshavetheirupsidepotentialcappedatacertainlevel.Thisissometimescalledthecaplevel.

Cap levels are different to barriers. Caplevels generally do not cause the warranttoterminatebutwilllimittheupsideprofitpotential of the warrant. A cap level isfixed by the issuer when the warrant isissued.If,onexerciseorexpiry,thevalueoftheunderlyinginstrumentisabovethecaplevel, settlement of the warrant is basedonareturnequaltothecaplevel(andnotthe value of the underlying instrument).You could be entitled to a cash paymentortransferoftheunderlyinginstrumentata value equal to the cap level. Cap levelsareusedinanumberofdifferentwarranttypes.Insomewarrantsthecaplevelisanessential feature. In these warrants, thepositionofthecaprelativetothecurrentshare price has a significant economicimpact on how the warrant works. Thedescription of capped warrants in theTypes of warrants sectionof thisbooklethasexamplesofthesewarrants.

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Types of warrants

Inbroadterms,warrantscanbeviewedasbeing either trading-style or investment-style products. Some may fall into bothcategories. Trading-style warrants arefrequently traded and relatively shortdated.Theyhaveahigherrisk/returnprofilecomparedtotheinvestment-stylewarrants.Index warrants, currency warrants andequity warrants usually fall within thiscategory. Investment-style warrants haveother features to attract investors. Thesewarrants tend to be longer dated andare less frequently traded. They have alower risk/returnprofile andoftenhave ahigher initialoutlaycomparedtotrading-stylewarrants.Endowmentsandstructuredinvestment porducts are investment-styleproducts. Instalments bridge the gapbetween trading and investment-styleproductsassomeinvestorsholdinstalmentsfor tradingpurposes and somehold themforlongerterminvestmentpurposes.

Before buying warrants, you shouldunderstandthefeatures,benefitsandrisksofthewarrantseriesyouareconsidering.Itisencouragedthatyoureadthedisclosuredocument prepared by the warrant issuerand seek advice from an accreditedderivatives adviser. Disclosure documentsare available from the warrant issuer andcan also be downloaded from the ASXwebsite(www.asx.com.au).

Set out below is a general overview ofsome different types of warrants. It doesnot describe all warrants on the market.Somewarrantsmayhavedifferentfeaturesoracombinationofthefeaturesdescribed.Therefore,youshouldnotassumethatthesedescriptionswillreflectparticularwarrantsyou may consider buying. From time totime we may add further informationaboutnewwarranttypesorfeaturestotheASXwebsiteatwww.asx.com.au/warrants.

Types of warrants on ASX by percentage

InSTAlmEnTSInstalments allows holders to gain directexposure to underlying shares by makingan initial payment (first instalment)and delaying the final payment (finalinstalment)toalaterdate(expirydate).Insimpleterms,instalmentsarealoantobuyshares,withouttheobligationtorepaytheloannortheriskofreceivingmargincalls.The unique feature that sets instalmentsapart from other types of warrants isthat you are entitled to dividends ordistributions and franking credits paidby the underlying instrument during thelife of the instalment. It is important tonote that in some circumstances holders,although entitled to a dividend, may notactually receive thatdividend in cash. Forexample, specialdividendsmay, subjecttothe terms of issue, be used to reduce theloanamountratherthanpaidascashtotheholder. Likewise, holders of ‘Self FundingInstalments’ are entitled to a dividendalthough they will not receive it as cashastheywillinsteadbedirectingitbeusedto reduce the loan amount (see belowfor details). Some instalments also passon voting entitlements of the underlyinginstrument.

Instalments canhave a varietyof gearinglevels. When considered from a gearingperspective, instalments can generally bedividedintotwocategories;‘regulargeared’and‘highgeared’ instalments.Atthetimeof issue, a ‘regulargeared’ instalmentwillbe geared at between 40% and 65%,i.e., for a 50% geared instalment theloan amount would be 50% of the shareprice. The instalmentpricewill reflect thedifference between the share price andloan amount plus funding cost (interestandborrowingfees).Atthetimeofissue,a‘highgeared’instalmentwillhaveagearinglevelbetween65%and110%.Asaresultofthegearing level the instalmentpricewillreflect a significantly higher funding costcomparedtoregulargearedinstalments.

Bytheirnature,instalmentsareconsideredto have some characteristics of callwarrants, giving holders the right toexercise the instalment to receive theunderlying instrument. InstalmentscanbeeitherEuropeanorAmericanexercisestyleand they usually have a life of between12 months and 15 years. Instalments aredeemedtobeacoveredwarrantmeaningthat the underlying instrument is held inatrustarrangementforyourbenefitbyatrustee(generallytheissuer).Ifyoudecideto exercise the instalment and repay theloan amount the underlying instrumentwill be transferred from the trust to you.

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If youdecideyoudonotwish toexercisetheinstalment,someinstalmentsgiveyouanoptiontoputtheunderlyinginstrumentback to the issuer and receive a cashpayment. Because an instalment is inessence a loan to buy the underlyinginstrument,theinterestcomponentofthepayments may allow you to claim theinterestasataxdeduction.Manywarrantissuers obtain ATO product tax rulingswhich detail the tax benefits of theirinstalmentseries.

ExampleWarrant code CBAIMM

Underlying CommonwealthBankinstrument ordinaryshares

Warrant type Instalment

Expiry date 28September2006

Exercise price $21.00

Exercise style American

Conversion ratio 1

Settlement Physicaldelivery

IfCBA’ssharepricewasaround$35.00atthe time of issue of the instalment thenyouwouldhavepaidabout$16.60fortheinstalment (about half the share price atthe timeplus fundingcostwhichconsistsof prepaid interest and fees). If you wantto hold the CBA share outright, you canexercisetheinstalmentbypaying$21.00atanytimeonorbefore28September2006toreceiveoneCBAshareperinstalment.

Therelativelyconservativegearinglevelofinstalments means that there tends to bea close relationship between movementsininstalmentpricesandmovementsintheunderlyingshareorotherinstrument.

As investors have different needs andfinancial objectives, innovation has ledto the development of different typesof instalments. A particular type ofinstalmentmayappealtoone’sinvestmentobjectivescomparedtoanother.Thereforeitisimportanttofindthemostappropriateinstalment structure for your needs andobjectives.Belowisadescriptionofsomeofthesevariationsonan‘ordinaryinstalment’structureandanexplanationoftheuniquefeaturesassociatedwitheach.

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Rolling instalmentsRolling instalments are a variationon theordinary instalment structure. They haveamuchlonger life(upto15years). Onaperiodic basis (12, 18 or 24 months) theinstalment will undergo a reset of theloanamount.TheresetperiodisidentifiedupontheissuedateandisoutlinedinthedisclosuredocumentandtheASXwebsite.The instalment is structured so that theinterest and borrowing fees are prepaidonly up to the next reset date. During areset period the issuerwill ask theholderto prepay the next period’s interest andfees up to the next period, if they wishto continue to maintain exposure. At thistimetheissuermayalsoadjusttheexerciseprice (often called the “loan amount”of the instalment) with the objective ofmaintainingadesiredgearinglevelduringthe life of the instalment (for example,theexercisepricemaybeadjustedtokeepit between 40% and 60% of the currentmarketpriceoftheunderlyinginstrument).Theissuermayeither;

1. Reducetheexerciseprice(loanamount).In this case, holders will be asked tomake an additional cash payment inorder to reduce their loan and prepaytheir funding costs up until the nextresetperiod(12,18or24months)iftheywishtomaintainexposure.

2. Increasetheexerciseprice(loanamount).In this case the issuer may make apaymenttoholdersequaltotheamountof the increase less funding costs untilthenextresetperiod(thismayeitherbeincashorintheformofareinvestmentinadditionalinstalments).

3. Retain theexerciseprice (loanamount)unchanged.Inthiscasetheholderwillbe asked to make a payment to theissuer for the prepayment of fundingcosts up until the next reset period, iftheywishtomaintainexposure.

Ontheannual resetdateyoumaychooseto exercise someor all of the instalmentsand take delivery of the underlyingsecurities, cash out the instalment, rollinto the following year (by agreeing topay any additional amounts necessary)or do nothing. If you do nothing you aredeemedtohaveacceptedthenewexerciseprice and will automatically roll into thefollowingyear. Ifthere isanamountdueon a series on the ‘reset date’, and youdon’t pay this amount, the issuer mayterminatesome(orall)ofyourinstalmentsandusetheproceedstomeettheamountdue. Conceptually, these instalments can

be explained as a series of consecutiveordinaryinstalmentsthatrunbacktobackwith the exercise price being reset on aperiodicbasis.

During theperiod surroundingeach ‘resetdate’,investorsshouldtakecaretoconsidertheeffectofachangeintheexercisepriceon the value of the rolling instalment.Informationonanupcoming resetcanbeobtainedfromthewarrantissuerorfromASX.

There tends to be a close relationship between movements in instalment warrant prices and movements in the underlying share or other instrument.

Self Funding InstalmentsSelfFundingInstalments(“SFI”)areanothervariation on the (ordinary) instalmentstructure.Likeotherinstalments,youmakea partial upfront payment and the issuerloansyoutheremainingamount.Onceyouhavemadeyourinitialpayment,generally,therearenoadditionalpaymentsrequiredduring the investment term (unless youdonotprovideyourTFN(taxfilenumber)or ABN). SFI’s are regular geared, withan investment term between five andtenyears.

Holdersareentitledtodividends(includingfranking credits), however the cashcomponent of a dividend will be used toreducetheloanamountratherthanbeingpaidincashtotheholder.TheloanamountforaSFIwillgenerallyincreaseonceevery12months,as fundingcostsareadded tothetotalloanamount.Hence,overthelifeoftheSFI,theloanamountwillperiodicallydecreaseduetothepaymentofdividendsfrom the underlying instrument, andincrease by the amount of funding costs.Ideally the loan amount will progressivelyreduceoverthelifeoftheSFIiftheregulardividend payments exceed interest andborrowingcharges.

Asa resultof thedividendsbeing treateddifferentlyascomparedtootherinstalments,ASXdifferentiatesSFI’sbyusingtheletter‘S’insteadof‘I’asthefourthletterinthewarrantcode.

There may be some tax considerations asholdersareentitledtodividends(includingfranking credits) and make interestpayments.Asnotallinstalmentshavethesamestructureorfeatures,youshouldtalktoyourtaxadviserandcontactthewarrantissuerforanATOproductruling.

Example Warrant code ANZSWA

Underlying ANZBankLimitedinstrument ordinaryshares

Warrant type Selffundinginstalment

Expiry date 30June2009

Exercise price $9.50(loan amount) (16February2004)

Exercise price $9.154(loan amount) (31March2005)

Exercise style European

Conversion ratio 1

Current price $12.10

In this example, ANZSWA was issued inFebruary2004withaloanamountof$9.50.Overtimedividendshavebeenpaidwhichhavebeenusedtoreducetheloanamount.Inadditionprepaidinteresthasbeenaddedtothe loanamountperiodically (generallyon30June)toreflecttheongoingfundingcost of the loan. Taking into accountthe dividend payments and funding cost,the loan amount has decreased over a12 month basis from $9.50 to $9.154,reflecting a positively geared investment.Thefrankingcreditscontinuetobepassedtotheholderoftheinstalment.

EnDOWmEnTSEndowments are long term call warrantstypically with a 10 year life. They areover an ASX quoted security or basketof securities. Endowments are promotedas investment products to be bought byinvestorsandhelduntilexpiry.

Theissuepriceofanendowmentisbetween30 and 65 percent of the market valueof the underlying security at the timeof issue. The exercise price (called the“outstandingamount”oftheendowment)isinitiallytheremainingsumplusothercosts.

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Theoutstandingamountvariesoverthelifeofthewarrant.Inthisrespectendowmentwarrantsdifferfrommostwarrantsastheydonothaveafixedexerciseprice.

Theoutstandingamountisreducedbyanydividends that are paid in relation to theunderlyingsecurity.Insomeinstancesotherpaymentsmayalsoreducetheoutstandingamount. However, an interest rate is alsoapplied and the outstanding amount isincreasedbytheseinterestamounts.

At expiry, if you exercise the warrantand pay the balance of the outstandingamount(ifany)theissuerwilltransfertheunderlying securities to you. Ideally thereductionsappliedagainsttheoutstandingamount exceed the interest incurred overthelifeofthewarrant,andtheoutstandingamountwillhavedecreased.Itcouldreducetozeropriortooratexpiry. Ifthisoccursyou may only have to pay a nominalexercisepricesuchasonecent.

Aninvestorinendowmentsistakingalongterm view on the underlying company’sdividend policy versus interest rates withthehopethatthedividendswilloutweightheinterestpaymentsandtheoutstandingamountwillreduceovertime.

Theissuersofendowmentscanprovideyouwithdetailsoftheoutstandingamountandthe expiry dates of particular endowmentwarrantseries.

ExampleWarrant code CBAECE

Underlying Commonwealthinstrument BankofAustralia ordinaryshares

Warrant type Endowment

Expiry date 18August2006

Outstanding $9.95 amount when first issued – 14 February 1996

Outstanding $2.617 amount as at 31 march 2005

Conversion ratio 1

Exercise style American

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STRUCTURED InvESTmEnT PRODUCTSStructuredinvestmentproductsaretailored,or packaged, to meet certain financialgoalsofinvestors.Typically,theseproductsprovide investors with capital protection,incomegenerationand/ortheopportunitytogeneratecapitalgrowth.

Theproductslistedbelowfocusoncapitalprotectionatmaturityandaredesignedforlong-term investors, who are also lookingtogenerateasteadystreamofincome(viayield)and/orachievecapitalgrowth.

Alternative listed Protection Securities (AlPS)ALPSstandforAlternativeListedProtectionSecurities.Theycombineincomegenerationandcapitalprotectioninoneproduct.ALPSare issued for a term of between 6 and7 years, providing a capital guarantee of100%ontheissueprice(ifheldtomaturity)plusamaximumstartingyield(forexample12% p.a.) paid semi-annually. The yieldis directly linked to the performance of a‘ReferenceBasket’ofASXlistedshares.Theyieldremainsatthestartinglevelunlessaknock-outeventoccurs.

On the issue date, the initial prices of abasket of ASX listed companies selectedfromthetop200ASXlistedcompaniesbymarket capitalisation are determined. Aknock-out event occurs if any one of thecompanies within the basket falls belowa predetermined amount over the term.Inthiscase,theyieldwillbereducedbyapre-determinedamount(forexampleone-seventhofyield)fortheremainderoftheinvestmentterm.

ExampleWarrant code APSSM2

Underlying Basketof64Australianinstrument companies

Warrant type StructuredInvestment Product

Issue price $10.00

Expiry date 29September2011

Starting yield 12.00%pa

Capital Yes,100%ifheldto protection maturity


Yield Income Enhanced listed Deferred Securities (YIElDS)YIELDS stands for Yield Income EnhancedListed Deferred Securities. YIELDS areissued by Citigroup and give you a 100%capital guaranteed on the issue price (ifheld to maturity). They provide exposureto global equities with the potential fora quarterly income payment and capitalgrowth.YIELDS2,themostrecentissuehasatargetedincomepaymentof12%*p.a.Thepotential return isachievedbygeneratingadividendyieldwhilewritingcalloptionsovertheunderlyinginstrument.

Example Warrant code YLDSO2

Underlying Shareswithintheinstrument Globaltitans50index

Warrant type StructuredInvestmentProduct

Issue price $10.00

Expiry date 6December2010

Target yield 12.00%pa

Capital Yes,100%ifheldto protection maturity


Capital PlusCapital Plus are issued over a basket ofsecurities quoted on ASX. Capital Plusalso offer a 100% capital guarantee onthe issue price (if held to maturity). Theissue price of each Capital Plus series hasvaried, either being issued at $1,000 or$1 per warrant. Generally the investmentexposurehasbeenupto5yearsfromtheissue date. While the Capital Plus doesnot offer an income stream, the holderwill receive an investment bonus if heldto maturity. Any performance above theissuepriceatmaturitywillbegearedatapre-determined level. For example if theissuepriceofaCapitalPlusseriesis$1,000withagearing level bonusof10%and itmaturesat$1,500.Theholderwill receivetheoriginal $1,000backplus$550 ($500times110%).

EqUITY WARRAnTSEquitycallandputwarrantsareissuedoversecurities (in somecases securitiesquotedon an Exchange other than ASX). Theexercisepriceisusuallysetreasonablyclosetothevalueofthesecurityatthetimeofissue. The expiry date is usually anythingfrom about three to twelve months fromthe date of issue (average nine months).Equity warrants can be American orEuropean exercise style and, if exercised,aresettledinthefirstinstancebydeliveryoftheunderlyingsecurity.Equitywarrantsare highly traded, particularly when theyareshortdated.

ExampleWarrant code AMPWMH

Underlying AMPLtdordinaryInstrument shares

Warrant type Equitycallwarrant

Expiry date 28July2005



Conversion ratio 3


ThisisacallwarrantoverAMPLtdordinaryshares. It isaEuropeanstylewarrantwithan expiry date of 28 July 2005 and anexercisepriceof$7.50.TheholderofthreeAMPWMH warrants has the right to buyoneAMPsharefor$7.50on28July2005.

International equity warrantsInternational equity warrants are offeredover securities quoted on an overseasexchange. Hence, although similar toan equity warrant, the structure raisesadditionalissuesthatyoushouldconsider.Youshouldspeaktoyouraccreditedadviserabouttheadditionalcomplexitiesofthesewarrants.Forexample:

•Time zone differences between ASX’smarket and the overseas market – i.e.the home market for the underlyingsecuritiesmaynotbeopenfortradingatthesametimeasASX’smarketisopenfortrading in the warrants. Note howeverthe securities may be quoted on morethan one exchange and there could betradinghoursoverlappingwithASX.

•Delivery of the underlying securities –the settlement, ownershipand custodialarrangementsintheoverseasjurisdiction

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willdifferfromarrangementsinrelationtoASXquotedsecurities.Youmayneedtomakearrangementstoholdthesecuritiesoverseas.

•ASXsupervision–ASXdoesnotsuperviseor regulate trading in relation to theunderlyingsecurities.Thisisprimarilytheresponsibilityofregulatorybodieswithinthejurisdictionoftheunderlyingsecurities.As a result company announcementsand historical trading data will not beavailable from ASX, although disclosuredocuments will identify other placeswherethisinformationcanbeaccessed.

•Restrictions on exercise – additionalconditions may be placed on exercise,forexample,requiringaminimum(large)number of securities to be deliveredbefore the warrants can be validlyexercised.

Equity knock-out (barrier) warrantsEquity knock-out (barrier) warrants areequitywarrantswithabarrierfeaturethatcauses the warrant to terminate beforetheoriginalexpirydate.ASXdifferentiatesknock-out warrants from other trading-style warrants through the ASX six letterwarrant code. ASX prescribe all knock-out warrants with the fourth letter as ‘X’compared to ‘W’ for other trading-stylewarrants.

ExampleWarrant code NWSXSE

Underlying NewsCorpLimitedInstrument ordinaryshares

Warrant type Equitybarriercall warrant

Expiry date 28July2005


Barrier level $20.47


Conversion ratio 1


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Thisisaknock-outcallwarrantoverNewsCorp Ltd shares. It is a European stylewarrant that will expire on 28 July 2005andanexercisepriceof$20.47.Theholderof one NWSXSF warrant has the right tobuyoneNWSsharefor$20.47attheexpirydate.Thewarrantwillterminatebeforetheoriginalexpirydateifthemarketprice(asdefined inthetermsof issue)tradesatorbelow$20.47priortoexpiry. Intheeventthat the barrier is hit the warrant willexpireprematurelywiththewarrantvalueaszero.

Index warrants are based on a share price index and may be settled in cash.

InDEX WARRAnTSIndex warrants are linked to theperformance of a share price index suchastheS&P™/ASX200SharePriceIndexora foreign index. The exercise level (ratherthan exercise price) is expressed in indexpoints. Thesewarrantsarecash settledonexerciseorexpiry.Generallyspeaking,indexwarrantsarehighlytradedandshortdated(average3months).

Example Warrant code XJOWSE

Underlying S&P/ASX™200instrument SharePriceIndex

Warrant type Indexcallwarrant


Exercise level 4,100points

Index multiplier$0.005(1indexpoint=halfacent)


Settlement CashPayment

If the closing level of the S&P/ASX 200SharePriceIndexisat4,200pointsontheexpiry date, then you will be entitled toreceiveacashpaymentequalto$0.50perwarrant. This is calculated as the (closingleveloftheindex–exerciselevel)xindexmultiplier i.e. (4,200 – 4,100) x $0.005 =$0.50perwarrant.

Knock-out (Barrier) index warrantsSomeindexwarrantsareissuedasknock-outwarrants which contain a barrier feature.Similartoequityknock-outwarrants,iftheindexlevelhitsorpassthroughthebarrierlevel, the warrant will expire prematurelywiththewarrantvalueaszero.See Equity knock-out warrants example for moreinformation.

International index warrantsIndex warrants may also be issuedover foreign indices, which representmovements on overseas exchanges. Thesewarrants can have index multipliers ineither Australian dollars or the foreigncurrency (with the foreign amountconvertedbacktoAustraliandollarsatthetime of settlement). You should speak toyour accredited derivatives adviser abouttheuniquefeaturesof international indexwarrants.

InnovationIndex warrants were successful newinnovations for the warrants market in1998. In late 1998 and early 1999 thisconcept was extended to warrants ontheUSS&P500CompositeStockPriceIndexandtheJapaneseNikkei225Indexand to barrier and dual barrier indexwarrants. NASDAQ 100 Index warrantswereofferedforthefirst time in2003.Currencywarrantsandcappedwarrantscontinuedthetrendtowardsinnovativeproducts.

JohnWasiliev

Capped warrants limit the upside profit potential for warrant holders and give some other benefit in return.

CAPPED WARRAnTSCappedwarrantsaremarketedundermanynames even though their structures maybe quite similar. Capped calls, blocs, COS,DYNO,Discoaresomeofthesenames.

These warrants limit the upside profitpotential for warrant holders and givesome other benefit in return. They alsohave a low exercise price relative to thepriceoftheunderlyinginstrumentandareusuallyEuropeaninexercisestyle.

Wherethevalueoftheunderlyinginstrumentis less than the cap level on expiry, youmay exercise and call for delivery of theunderlying instrument. If however, themarketvalueoftheunderlyinginstrumentisequaltoorgreaterthanthecaplevelonexpirythenyoumaybeentitledtoreceiveareturnequaltothecaplevel.

Example 1 – Cap level above the current market priceWarrant code ABCXPB

Underlying ABCLimitedordinaryinstrument shares

Warrant type Cappedcallwarrant

Expiry date 26October2006

Cap level $1.40

market price $1.20at time of issue


Conversion ratio 1


Settlement Physicaldelivery orcash

In this example the cap level was abovetheABCsharepriceatthetimeofissue.IfABCwasgreaterthanorequalto$1.40ontheexpirydate, youwould receivea cashpayment of $1.40. If ABC was less than$1.40 on the expiry date you could take

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ExampleWarrant code XSPWOK

Underlying S&P500Indexinstrument

Warrant type IndexCallwarrant


Exercise level 1,250points

Index multiplierUS$0.005


Settlement Cashpayment

IftheclosingleveloftheS&P500Indexis1,400pointsontheexpirydate, thenyouwillbeentitledtoreceiveacashpaymentequal to US$0.75 per warrant. This iscalculatedasthe(closingleveloftheindex– exercise level) x index multiplier i.e.(1,400 -1,250) x US$0.005 = US$0.75 perwarrant.

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delivery of ABC shares by exercising thewarrant.ThiswouldgiveyouadiscountedsharepurchaserelativetothesharepriceofABCatthetimethewarrantispurchased.Theexpectationofaholderofthistypeofcapped warrant is to make a discountedacquisitionoftheunderlyinginstrument.

Example 2 – Cap level below the current market priceWarrant code ABCXPA

Underlying ABCLimitedordinaryinstrument shares

Warrant type Cappedcallwarrant

Expiry date 26October2006

Cap level $1.00

market price $1.20at time of issue


Conversion ratio1


Settlement Physicaldelivery orcash

InthisexamplethecaplevelwasbelowtheABCsharepriceatthetimeofissue.IfABCwas greater thanor equal to$1.00on theexpiry date, you would receive a paymentof$1.00.IfABCwaslessthan$1.00ontheexpiry date you could exercise the warrantand take delivery of ABC shares for aneffectivepurchasepriceof less than$1.00.In the event that you are paid the cappedamount of $1.00, the return received canexceedthereturnobtainedoncashdeposits(suchasbankaccountsorcashmanagementtrusts). The expectation of a holder of thistype of capped warrant is to receive thecapped payment in cash (i.e. an incomegeneratingstrategy).

PREmIUm InCOmE (PIE) WARRAnTSAnother type of capped warrant offers“premium income” as the benefit in returnfor giving up some profit potential. Thesewarrants contain some of the cappedwarrant features mentioned above as wellas some features of instalment warrants.Theyareissuedoveraparcelofsharessothewarrants have a high face value. Warrantholderspaymostofthevalueoftheparcelup-front and have a right to purchase theparcel for a low exercise price relative tothe face value. Theparcel of shares is heldon trust for the warrant holders and they

receive any dividends and franking creditsassociated with the underlying securities.In addition, holders will receive a furtherdistributioncalledpremiumincomewhichispayablebytheissuertwiceayearandrangesfrom2%toover6%.

Likeothercappedwarrants,theupsideprofitpotentialiscapped.Ifonexercise,theshareprice is equal toor less than thecap level,you are entitled to receive the parcel ofshares.However,ifthesharepriceisgreaterthan the cap level then, on exercise, youare entitled to receive a reduced numberof sharesequal to thecappedvalueof thebasket. Youmay also exercise a put optionandrequiretheissuertopurchasetheparcelandpayyoucash.

At the time of writing there were no PIEwarrantsonissue.

Currency warrants give holders exposure to movements in the exchange rate between two different currencies.

CURREnCY WARRAnTSHoldersofcurrencywarrantsmayexchangeanamountofforeigncurrencyforAustraliandollars on or before the expiry date. Thevalueof thewarrant risesand falls in linewithmovements intheexchangerate.Forexample,holdersofAUD/USDcallwarrantsbenefit from an increase in the AUD/USDexchangerateandholdersofAUD/USDputwarrants benefit from a decrease in theAUD/USDexchangerate.

ExampleWarrant code AXUWMI

Underlying $A10 instrument

Warrant type Callwarrant


Exercise level $US8.00


Settlement Physicaldeliveryor cash

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In this example, you pay $US8.00 andreceive$A10.00atexpiry.

COmmODITY WARRAnTSCommodity warrants may be call or putwarrantswheretheunderlyinginstrumentisacommoditysuchasgold,silverorplatinum.Althoughtheyhavemanysimilaritieswithequitycallandputwarrants,thedifferentnature of the underlying gives rise toa number of additional issues that youshouldconsider.Forexample:

•If exercised for delivery, holders shouldconsider the different forms of deliverythat may be available. This may includethelocationatwhichdeliverymayoccur.Delivery of a commodity may also giverise to additional costs such as thoseassociated with transportation andstorage.

•Various commodities are tradedcontinuouslyaroundtheworld,hence itisimportanttorecognisethebenchmarkmeasure of that commodity being usedfor the purposes of valuing that index.For example, if cash settled, it may beimportant to understand the methodfor pricing the specified grade of thedesignatedcommodity,thecurrencyitispriced in,andthetimeatwhich it is tobevalued.

ExampleWarrant code ZAUWBA

Underlying OnetroyounceoffineInstrument gold(99.99%purity)

Warrant type Lowexercisepricecallwarrant

Expiry date 31December2013

Exercise price $0.50per100PMGs

Exercise style American-style

Conversion ratio 100

Settlement Physicaldeliveryor method cashsettlement (feesmayapply)

The Perth Mint Gold Quoted Product(“PMG”) was the first commodity warrantquoted on ASX. The PMG gold warrantwas issued by Gold Corporation (a whollyownedsubsidiaryoftheWesternAustralianState Government) and provides investorswith a facility to trade physical gold onthe ASX. It is structured as a long-dated,non-leveraged call warrant. The minimumexercise parcel is 100 warrants, which

entitlestheholdertotakedeliveryof1troyounceoffinegold(99.99%purity).Astheexercisepriceis50centsper100warrants,themarketpriceofthePMGgoldwarranthas been structured so that it tracks theinternational over-the-counter spot priceof gold and will be based on the marketvalueofthegoldbackingofeachwarrant(1/100thofatroyounce).

Additional exercise and delivery fees mayalso be payable at the time of exercise,dependingontheformofsettlementthatisspecified(i.e.investorsmaytakephysicaldelivery in a number of different formsincluding some of the Perth Mint's baror coin products, or alternatively theycannominatecashsettlement).Anannualmanagement fee is payable to the issueron31Decembereachyear.Atthistimetheissuerwilldeduct theappropriatenumberof warrants from your total holding.Throughouttheyear,thetimevalueoftheannual management fee will be includedinthewarrantprice (refer totherelevantsection of the disclosure document formoredetails).

Thistypeofwarrantissometimesreferredto as an ‘all or nothing’ warrant. In thisparticular type of warrant, if a triggerevent occurs prior to expiry you receivea fixed cash payment. If a trigger eventdoesn’t occur the pay out is zero. Thetriggerlevelmaybeaspecifiedindexlevelorsharepriceandisnormallyset ‘out-of-the-money’. At the time of writing therewerenowarrantsofthistypeonissue.

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Understanding leverage Leverage is a major issue in warrantstrading. The leverage calculation is fairlystraightforwardandcanbedoneusingeasilyavailableinformation.Itindicatesthesortofresultyoumightexpectfromwarrants.

To obtain a leverage figure, you divide thecurrentwarrantprice into thecurrentpriceof the shares and then multiply this bythewarrantdelta,obtainedeither fromthewarrantissueroryourbroker.Saysharesonwhichaparticular callwarrant isbasedaretradingat$10,thewarrant ispricedat75candthedeltais45percent.Usingtheabovemethod gives you an effective leverage of6 times. If the reciprocal of this is thenconvertedintoapercentage–16.7percent–thenprovidedthemarketgoesup,16.7percentofyourmoneyinvestedintheparticularwarrant should give you roughly the sameresultas100percentinvestedinshares.

Compare this to another warrant priced at$1wherethedeltais50percent.Thesamecalculationgivesyouagearingof5times,or20percent.

Of course the risk with warrants is theothersideoftheequation:anadversepricemovement will cause the warrant price tomoveby the same leverage in theoppositedirection,causingamuchlargerlossrelativetothemoneyyouhaveinvestedinwarrants.Anotherimportantfactortoconsideristhatthe warrant price may not always behaveexactlyasexpected.Marketfactorscancomeintoplay.

Whileitisnotperfect,leverageisonewayofassessingvaluebetweendifferentwarrantsaswellashowwarrantsshapeupagainstotherinvestments.

JohnWasiliev

21

Intheexampleshownhere,on16June2005the sharesofXYZLimitedwere tradingat$13.68andtheXYZwarrantwere$0.47.

By30June2005,thewarrantsinthetableweretradingat$0.68andthesharesweretrading at $14.44 giving you a 44.7%return fromthewarrant (notannualised)compared with a 5.6% return on theshares.

It is importanttorecognisethat leverageis a ‘double edged sword.’ In addition tomagnifying your gains, a warrant canalso magnify the percentage of yourlosses where the value of the underlyinginstrument moves against the warrantposition. This is because an adversemovement in the underlying instrumentwill also result in a greater percentagedecrease in the value of your warrant,i.e.leverageworksinbothways.

lEvERAGEMostwarrantsoffersomedegreeofleverage.This can range from negligible leverageto a high level of leverage, dependingon the type of warrant. Some warrants,such as structured investment productseffectivelyhaveno leverageandgenerallyspeaking, investment-style warrants offerless leverage than trading-style warrants.Leverage means that small percentagechanges in one variable are levered upinto larger percentage changes in anothervariable.Forexample,givena5%changeintheunderlyingshareprice,themarketvalueofawarrantmightincreaseby20%.

Example XYZShares XYZWarrants

16/06/2005 $13.68 $0.47

30/06/2005 $14.44 $0.68

Absoluteprofit $0.76 $0.21

Percentreturn 5.6% 44.7%

Benefits of warrants

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SPECUlATIOnAspeculator isatraderwhoispreparedtobear more risk in return for an expectedhigher return. If a speculator believes thatthevalueofaparticularassetwillriseinthefuture they could purchase the asset nowinanticipation.Analternativewouldbe tobuyadeliverablecallwarrantoverthesameasset. The difference between these andotheralternativesisthecostofinvestment.

Purchasing a leveraged warrant costs lessthan purchasing the underlying asset. Thereis however the risk that the warrant will beworthlessattheexpirydate.Thismaybemorecommonwhenusingtrading-stylewarrants.

InvESTmEnTSomewarrantsarestructuredaslongerterminvestment-style products, for exampleinstalments. The benefits of investing inthese types of products might be capitalgrowth, income, capital protection or acombination depending on the nature oftheproduct.Forexample:

IncomeHolders of instalments are entitled to thefull dividends and franking credits. Thisincomestreamisacceleratedastheholderonly pays a fraction of the share priceupfront.Ifthesharepriceis$10andpaysa50cdividend,thiswouldgiveholdersa5%yield,whileaninstalmentworth$5wouldentitle the instalment holder to the same50cdividendgeneratinga10%yield.

Unlock wealth – cash extractionHolders of an existing share portfolio canconvertthesharesintoinstalmentsallowingthem to unlock the wealth to investelsewhere,whiledeferringCapitalGainsTax(CGT). This allows you to further leverageyourexposuretotheshareorspreadtheriskandbuildabroaderassetbase.Iftheshareprice is $10, a holder could convert themintoan instalmentworth$5,unlocking$5incash.Thiscashcanthenbereinvestedtobuymoreofthesameshares,instalmentsorotherinvestments.

PORTFOlIO PROTECTIOn – hEDGInGEquity and index put warrants allow youto protect the value of your portfolioagainstfallsinthemarketorinparticularshares.Putwarrantsallowyoutolockinasellingpricefortheunderlyinginstrument.Protecting your position in this way iscalled hedging. A hedge is a transactionwhich reduces or offsets the risk of acurrentholding.

lImITATIOn OF lOSSIf the value of the underlying instrumentis less than the exercise price of thewarrant at expiry thena callwarrantwillexpireworthless.Yourmaximumloss*istheamountpaidforthewarrant.Whileyoucanloseyourentireinvestmentinthewarrants,youhavetocomparethatlosstothesizeoftheexposurethewarrantholdinggaveyou,and what an equivalent exposure in theunderlyinginstrumentwouldhavecost.

ExampleIfyoubuy1,000ANZcallwarrantswhichhaveacurrentmarketpriceof$0.50perwarrant,thenthemaximumamountyoucanloseis$500(i.e.$0.50x1000)*.

However, these warrants may give youexposureto$10,000(say)ofANZshares,soasimilarexposureintheshareswouldcost you $10,000. If the share pricedroppedsignificantlyyoucouldlosefarmorethanthe$500youinvestedinthewarrants.

(*excluding transaction costs when youpurchasethewarrant)

mARKET EXPOSURESome warrants, such as index and basketwarrants,offeryoutheopportunitytoprofitfrommovementsinthemarketorinasectorwithoutnecessarilyowningalargeportfolio,whicheffectivelytracksthemarketorsector.International index warrants, internationalequity warrants and currency warrantsallowyoutogainexposuretooverseasandothermarkets.Somestructuredinvestmentproducts may also give you exposure tooverseas underlying assets, such as shares,indicesanddebt.

TAIlORED TO mEET SPECIFIC REqUIREmEnTSWarrantissuershaveflexibilityinstructuringwarrantswhichallowsawarrant series tobe tailored to the investment needs of aparticular kind of investor. For example,index warrants may appeal to investorslookingtoprofitfrommovesinaparticularindex over a short period of time, whileendowment warrants may appeal toinvestorslookingforlongtermexposure.

TAX EFFECTIvEnESSSome products, such as instalments andendowments, offer tax effective benefitsto investors. The disclosure document willcontaininformationontaxconsiderations.

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Warrants Division

1800 028 585

An opportunity to pursue a viewWhenyoubuyinvestmentslikeshares,youdosowiththeover-ridingexpectationthepricewillgoup.Thereareinvestment-stylewarrants – instalment, endowment, andstructured investment products – wherethe same strong positive price-relatedexpectationisthemainreasonforbuying.

Ontheotherhand,yourexpectationwhenyoubuyawarrantfortradingpurposescanbethesameoryoumaythinkthepriceismore likely to retreat. And depending onhowstronglyyouthinkthepricemovementmightbe–inwhateverdirectionandoverwhattimeperiodyouexpectyourviewtobe proved correct – a particular warrantcanbechosenfromtherangeonofferthatwillbestsuityouropinion.

This is one of the most importantcharacteristics of warrants: their specificpurposeofallowingapersonalviewaboutcertain investments over a specified timetobepursued.Thetimemaybeveryshort,a day, a few days, weeks or months inthe case of warrants that serve a tradingpurpose. Or there are warrants that aredesigned as investments as they can bebought with a time horizon measured inyears. Yetbecausewarrants are tradedonthemarket,itispossibletochangeavieweitherafterithasdeliveredadesiredresult;orifforsomereason,astrategynolongerseemsappropriate.

JohnWasiliev

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Risk with warrants

Therearecertainrisksinvolvedininvestingandtradingwarrants.Thissectionoutlinessome of the general risks associated withmostwarrants,butitdoesnotdealwithallaspects of risks associated with warrants.Different warrant series will have specificrisksanddifferentriskprofiles.Youshouldonly invest in warrants if you understandthe nature of the products (specificallyyour rights and obligations) and theextent of your exposure to risk. Beforeyouinvestyoushouldcarefullyassessyourexperience,investmentobjectives,financialresourcesandotherrelevantconsiderationsand discuss these with your accreditedderivativesadviser.Youshouldnotrelyonthe booklet as a complete explanation oftherisksofinvestinginwarrants.

Issuer risk – ASX is not a guarantorWhile ASX provides the platform forwarrants to be traded, neither ASX norits subsidiaries in any way guarantee theperformance of the warrant issuer or thewarrantsissued.

Each warrant is a contract between thewarrant issuer and you. Youare thereforeexposed to the risk that the issuer (or itsguarantor,whererelevant)willnotperformits obligations under the warrant. Youmust make your own assessment of thecreditriskassociatedwithdealingwiththewarrantissuer.

WarrantissuersarenotcoveredbymarginsorotherformsofsecuritylodgedwithASX,ACH,oranyotherparty.Therisksassociatedwithissuingwarrantsaremanagedentirelyby the warrant issuer. Covered warrantsallow the issuer to reduce this risk byplacing the underlying instrument in acoverarrangementtomeet itsobligationsunderthewarrant.

To help you evaluate the ability of anissuertomeetitsobligations,thedisclosuredocument contains information on thefinancial situation of the issuer andguarantor (if applicable). Some issuers arelisted on ASX and therefore provide thisinformation to the market on a regularbasis.

General market risksThemarketpriceofwarrantsisaffectedbythesamerisksthataffectallstockmarketinvestmentssuchasmovementsindomesticand international markets, the presentand anticipated economic environment,investorsentiment,interestrates,exchangeratesandvolatility(seethelaterdiscussionfor the impact of volatility on warrantprices). Principally if thedirectionof theunderlyinginstrumentdoesnotfulfilyourexpectations,thewarrantwillnotperformand lead to limited losses compared toholdingtheunderlyinginstrument.

limited lifeWarrantshaveanexpirydateandthereforea limited life. On expiry warrants ceasetradingandcannolongerbeexercised.Itispossibleawarrantwillexpirewithoutyourexpectations being realised. You shouldmakeanassessmentwhetherthewarrantsyou have selected have sufficient time toexpiryforyourmarketviewstoberealised.The different types of warrants offer youthe choice to select the most appropriatewarrantforyourinvestmenttimehorizon.Suchas,atrading-stylewarrantmaysuitashorttermviewwhileaninvestment-stylewarrantmaysuittomediumtolongtermview.

Also, the value associated to the life ofthewarrant (suchasfundingcostortimevalue) will decay. Upon expiry, the valueremainingwillbetheintrinsicvalue.Ifthewarrant is not sold or exercised prior toexpiryandhasintrinsicvalue,theissuerisrequiredtoprovidetheholderanAVP(seetheTradingandsettlementsection).

leverage riskAswellasbeingabenefit,leverageisalsoariskofwarrants.Thisconceptisdiscussedinthe'Benefits of warrants'section.

Currency riskInternational equity warrants and indexwarrantsmaygiverisetoforeigncurrencyrisk. In the case of index warrants this

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currency exposure may arise where theindexmultiplier isdenominatedinforeigncurrency. Likewise, international equitywarrantsmaygiverisetocurrencyrisk.

liquidity riskThisistheriskthatyoumaynotbeabletosellyourwarrantsforareasonablepriceinthemarket.Thiscouldbebecausethereareinsufficient orders to buy your warrants,or the price atwhich others are preparedto buy them is very low. In some cases alackofliquidityinawarrantseriesmaybeduetoalackofliquidityintheunderlyinginstrument. Refer to discussion in thesection Trading and settlement – Marketmakingandliquidity.

Suspension from tradingASX may suspend or remove a warrantseries from trading, for example, if thewarrant issuer isunwilling,unableor failstocomplywiththeASXMarketRules.ASXmay also suspend trading in warrants inthe interests of maintaining a fair andorderly market and to protect investors.In almost all circumstances, a warrantwill automatically be suspended if theunderlyingshareissuspended.

Early termination or expiryIn certain circumstances a warrant mayterminateorlapsebeforetheexpirydate.Anexamplewouldbewhereanextraordinaryevent occurs or some barrier levels aretriggered.BarrierlevelsarediscussedintheWarrant features sectionofthisbooklet.

Issuers reserve the right to nominateextraordinary events which may result intheearlyexpiryofthewarrantserieswiththeconsentoftheASX.Theseeventsmayvary depending on the type of warrant.Examples of the possible extraordinaryeventsinclude:

•thesuspensionoftradinginthewarrant(exceptifitiscausedbytheissuer);

•thesuspensionoftradingintheunderlyingsecurities;

•thede-listingoftheunderlyingcompany;

•compulsoryacquisitionoftheunderlyingsecurities following a successful take-overbid.

What actually happens when anextraordinaryeventoccursdependsonthetypeofwarrantinquestionandthetermsofissueforthatseries.Theexpirydatemaybe brought forward or the warrants maysimply lapse with a payment in certaincircumstances.

Extraordinary events shouldbe taken intoconsiderationwhenassessingthemeritsofawarrant.

national Guarantee Fund not a guarantor in all casesThe National Guarantee Fund (NGF) is apoolofassetsthatisavailabletomeetvalidclaims arising from dealings with brokersin certain circumstances. Under certaincircumstances you may be able to claimagainst the NGF in relation to secondarytrading in warrants on the stock marketconducted by ASX. Claims can in no wayrelatetotheprimaryissueofthewarrantsorthesettlementobligationsoftheissuerarising from the exercise or lapse of thewarrant.

24Disciplines and strategiesThe trading nature of many warrantsmakes it essential to develop disciplinesand strategies in order to capitalise onopportunities and manage the risks ofinvesting. Given the most importantfundamental iswhathappenstothepriceof the investment on which the warrantis based, a logical strategy is trying topredict which direction this will go andhowpowerfullythepricemoveislikelytobeoveraperiodoftime.

Establishing a system to predict relatedinvestmentpricemovementmustbepartof any serious medium term warrantstrategy. A system may be fundamentallydriven or based on technical analysis, oracombinationofboth.Thebottomlineisthatitwillhelpdeterminewhichwarrantsto buy. In warrant-speak, this tradingapproach is described as a directionalstrategy. It is a straightforward strategyfornewentrantsandtheaimistryingfora maximum profit based on a directionalview. But the directional view must alsoinclude a view on time. You will buy adifferentwarrantifyouexpectinvestmentactiontotakeplacenextweekasdistinctfrom some time over the next three tosix months. You might be prepared totake more premium decay risk in a moreimmediate transaction. Decay is alwaysgreaterthecloserawarrantmovestowardsexpiry. Warrant premiums decay slowerthemoretimethereisbeforethewarrant

expires.

Analternativestrategyistotradeonviewsofwhetherwarrantsarecheaporexpensive.Thisisashortterm“quickprofits”strategyfor the dedicated, informed and wellresourcedmarketparticipant.

The strategy is generally described asvolatilitytradingasitfocusesnotsomuchon broad directional trends but on thevolatile price vibrations that warrantscan display. When the price of a relatedinvestment (like shares) becomes volatile,risingsharplyorfallingdramatically,agapcandevelopintherelationshipbetweentheinvestmentandthewarrant. Thewarrantscantradeinamorevolatileoralessvolatilefashion than the shares, by displayingextremeorunexpectedpricebehaviour.

If a warrant price becomes more volatile,say a call warrant rises more sharply ona relative basis when a share price ralliesorremainsstrongandindependentofanyprice retreat, it becomes more expensive.Warrantsbecomecheapifthepricedoesn’tmoveinlinewiththerelatedinvestmentorevenmovesintheoppositedirectionthanexpected.

JohnWasiliev

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Warrant issuers and the Disclosure Document

Who issues warrants?Warrantsmayonlybeissuedbyinstitutionsthatmeettheeligibilitycriteriasetout inthe ASX Market Rules. In general terms,institutions eligible to issue warrantsmust:•besubjecttotheBankingAct;or•beagovernment;or•have an Australian Financial Services

Licence (AFSL) (or overseas equivalent),an investment grade credit rating, andsufficientnettangibleassets;or

•haveaguarantor thatmeetsanyof theabovecategories;or

•issuefullycoveredwarrants.

In addition, other institutions which arenotobjectedtobyASXandtheAustralianSecurities and Investments Commission(ASIC)mayalsoissuewarrants.

A list of all warrants and warrant issuersisavailableontheASXinternetsite.Gotowww.asx.com.au/warrants and look undertheheading‘NewsandStatistics’.

Disclosure DocumentsWarrant issuers are required to produce adisclosure document for warrant series. Adisclosure document sets out informationforinvestorstoassesstherisks,rightsandobligations associated with the warrantand the warrant issuer’s capacity to fulfilitsobligations.Adisclosuredocumentmustbegiventoallpersonsofferedorinvitedtosubscribeforthewarrants.

A list of all warrants and warrant issuers is available on the ASX internet site. Go to www.asx.com.au/warrants

The disclosure document will contain thetermsofissueofawarrantseries.Thetermsof issue are the contractual rights andobligationsofboththeissuerandwarrantholder.Inadditiontotheterms,theissuermay have other obligations, for example,undertheASXMarketRules.

You are encouraged to read the relevantdisclosure document and terms of issuedocument before investing in a particularwarrant series. Disclosure documents areavailable on the ASX web site (asx.com.au/warrants)whenyou lookupawarrantprice.

ImportantWhileASXconsidersaproposedwarrantseries as part of an application foradmission to trading status, ASX doesnotwarranttheaccuracyortruthofthecontents of the disclosure document.Admission to trading status should notbetakeninanywayasanindicationofthemeritsoftheparticularwarrantsorissuer.

Neither ASX, its subsidiaries, and theNational Guarantee Fund in no wayguarantee the performance of thewarrant issuer.Youmust independentlyassess the credit worthiness of thewarrantissuer.

Trading and settlement

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SECOnDARY TRADInG OF WARRAnTSWarrants are traded on the ASX equitiestrading system, SEATS, and are subject toitsdealingrules.

Warrant codesAll warrants have a six-letter code. Forexample,warrantswiththecodeBHPWMAareissuedbyMacquarieBankLtdovertheordinarysharesofBHPBillitonLtd.

• The first three letters BHP indicate theunderlyinginstrument

• ThefourthletteriseitherW,I,E,SorX depending on the type of warrant.W=equity,indexandcurrencywarrants,I = instalments, E = endowments,S = structured investment productsand self funding instalments andX=allothertypes,suchasknock-outwarrants.Sometimes the fourth letterwillbe temporarily replacedwithD ifthe warrant is trading on a deferredsettlementbasis

• ThefifthletterMindicatesthewarrantissuer(MacquarieBankLtd).Eachissuerhas a unique letter which refers tothem

• ThelastletterAisthemarketcodeforthewarrantseries(thesearesequentiallyallocated letters – generally, equity,index or currency call warrants aresequentially allocated letters A-O andequity, indexor currencyputwarrantsare allocated letters P-Z). ASX mayalso use numbers between 1 and 9 toindicateawarrantseries.

market making and liquidityASX Market Rules require each warrantseriestohaveanadequateandreasonablespread of holders. This requirement isintendedtoensurethereisaliquidmarketforwarrants.

Inmostcasesthewarrantissuersatisfiesthisrequirement by providing an undertakingto ASX that it will maintain a bid on acontinuous basis during the life of the

warrant. At the time of writing only twowarrant series have been quoted withouttheundertakingonthebasisthattheyhavedemonstratedasufficientspreadofholders.Thismeans thatapart fromcircumstancesoutlined later, there generally should beapricequotedatwhichyouasawarrantholderwillbeabletosellatduringnormaltradinghours.

The only situation where a warrant issuerwould not be required to provide anundertaking to maintain markets in theirwarrants would be if the issuer coulddemonstrate that the initial issue ofwarrants generated a sufficient spread ofholders. A sufficient spread of holdersdemonstratesalevelofinterestthatshouldensure that there is a liquid market forbuyersandsellersofthewarrantseries.

The market making undertaking is todisplay at least one bid order (i.e. a one-way market) throughout the trading day.ASXwilluseitsbestendeavourstoensurethat warrant issuers provide such quotes.Market-makingordersshouldbeamendedor replaced as they are “matched-out”by trades (a trade has occurred) in areasonable timeframe. It should be notedthatthisismerelyaminimumrequirementto fulfill the market-making obligation.Warrant issuerswillnormallydisplaybothbidandofferordersformostwarrantseriesduringnormaltradinghours.

ASX does not prescribe a maximum orminimum spread (the difference betweenan issuer’sbidandofferprices),norwhatvolumesanissuermustoffertobuyorsell.These parameters are set by eachwarrantissuer and are largely determined by thevolatilityoftheunderlyinginstrumentandthecompetitiveenvironmentinwhichthewarrantissueroperates.

Marketmakingappliestowarrantsduringnormal trading hours, starting after theopeningphaseatapproximately10.09amSydney timeandendingat approximately4.00pmSydneytime.

There are limited circumstances in whichissuerswouldnotbreachthemarketmaking

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undertakingiftheyhavenotdisplayedabidorderforasignificanttimeduringnormaltradinghours.Theseincludewhen:

• the underlying financial instrument issuspended from trading or has beenplacedinatradinghalt;

• thetheoreticalvalueofawarrantseriesis below the relevant minimum pricestep(i.e.$0.001);

• the warrant issuer would breach lawsineitherAustraliaorarelevantforeignjurisdiction by fulfilling its market-makingrequirements;

• thewarrantissueroritsagentexperiencestechnical difficulties, including butnot limited to the malfunctioning ofautomatedmarketmakingsystems

Pricing matricesSome warrant issuers publish pricingmatrices. These are tables that showwhat a warrant price might be for arange of given share prices. These mustbetreatedasonly indicativeandrelevanton the day they are published and whenthere has been no change in the issuer’svolatility expectations for the underlyinginstrument.

Trading informationTwenty minute delayed trading detailsare available on the ASX internet site. Toaccess this go to ww.asx.com.au/warrantsand click on the link to Warrant Prices.Real time prices are also available from

yourbrokeroronsomeinternetsites.Thetrading prices of warrants are publisheddailyinanumberofmajornewspapers.Theinformation in the newspapers does notnecessarily contain details of all relevantfactors to enable you to make a decisionaboutawarrantseries.

Short sellingShort selling occurs where a person sellssecuritieswhichheorshedoesnotownatthe time of the transaction. As a generalrule, warrants are not permitted to beshort sold in themarket. Thismeans thatyoumustgenerallyownawarrantbeforeyoumaysellit.

Suspension from tradingRefer to discussion in the section Risks with warrants.

Warrant settlement – secondary tradingForsecondarytradingwarrantsaresettledin the same manner as other securitiestraded on SEATS. This is through theequities settlement system, CHESS. ACH,which clears ETO transactions, is notinvolvedinwarranttransactions.

DetailsofwarranttradesaresenttoCHESStoeffectsettlement.Forthistooccur,youmustbeeitherissuer-sponsoredorbroker-sponsored.Yourbrokercanhelpyouwithsponsorshiparrangements.

Underlying instrument

ASX warrant code

Exercise price per share

Conversion ratio

Expiry date Bid price Ask price

last sale volume (100s)

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You are required to settle your warranttransaction within the normal settlementperiod for a share transaction and youwill receive regular statements of yourwarrant holdings in the same manneras share holdings. You will receive aHolderIdentificationNumber(HIN)ifyouare broker-sponsored or a ShareholderReferenceNumber(SRN)ifyouareissuer-sponsored.

If the warrant has an intrinsic valueon expiry, warrant issuers are generallyrequired to pay you a cash payment ofat least90%of the intrinsic value if youdon’texercise.

Warrant settlement – exercise or expiryAwarrantdisclosuredocumentwillexplainthe requirements for a valid or effectiveexerciseofthewarrant.Generally,youwillberequiredtolodgeanexercisenoticeonorbeforeacertaintime.Youmustensurethe requirements for exercise are met toensurethewarrantsarevalidlyexercised.Afailuretovalidlyexercise(oranineffectiveexercise)maymeanthatyouarenotableto insist on transfer of the underlyinginstrument. It should be noted that inthecaseof internationalequitywarrants,transfer of the underlying instrument islikely tooccur inanoverseas jurisdiction.For further information, see theTypes of warrants section of the booklet aboutinternationalequitywarrants.

When no exercise has occurredIfyouholddeliverablewarrantsbutdonotexercise them before expiry you may beentitledtoacashpayment,oftencalledan“assessed value payment” (or AVP). If thewarrant has an intrinsic value on expiry,warrant issuers are generally required topay you a cash payment of at least 90%oftheintrinsicvalue.Againthedisclosuredocument will explain the circumstancesin which this payment will be made andhowthepaymentwillbecalculated.

Issuer fails to meet its obligations When a deliverable warrant is exercisedthetermsofissuewillprovidefordeliveryoftheunderlyinginstrumentandpaymentof the exercise price. If a warrant issuerdoes not meet its settlement obligationswithin 20 business days following valid(or effective) exercise, you may ask for aliquidateddamagespayment.Alternatively,you could pursue other legal remediesagainsttheissuer.

AdjustmentsThedisclosuredocumentmaycontaintermsproviding for adjustment to the exerciserightsofwarrantswherethereisachangeto the underlying instrument. Where theunderlyinginstrumentisanequitysecurity,adjustments generally occur where thereis a corporate action such as a reductionin capital, a rights issueor reconstructionin the underlying security. In the case ofindex warrants, adjustments often relateto the modification or discontinuance oftheindex.Whenanadjustmentoccurs,theunderlying parcel, the exercise price andothervariablescouldbechanged.

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Warrant pricing

Itisimportanttohavesomeunderstandingof how themarket prices ofwarrants aredetermined. There is no simple answer tothisquestionandacompleteexplanationisfarbeyondthescopeofthisbooklet.

Warrantpricingisasubsetofgeneraloptionor derivative pricing and involves the useof complex mathematical techniques tobuildpricingmodels.Thesepricingmodelshave been developed over the past 30years. TheNobelprizewinningpioneeringwork was published by Fischer Black, amathematician, and Myron Scholes, aneconomist,in1973.

Warrantspricesareinfluencedby:•thepriceorleveloftheunderlying

instrument•theexercisepriceofthewarrant•theexpirydateorthetimelefttoexpiry•thevolatilityoftheunderlying

instrument•interestrates•dividends

The table below shows how the variablefactorsaffectwarrantprices.

Price or level of the underlying instrumentThis is perhaps the most obvious of thepricing determinants and it is also themost important. However, a commonmisunderstandingistoassumethatthepriceof theunderlying is theonlydeterminantof warrant value. It is quite possible insomesituationsforasharepricetogoupandyetthepriceofacorrespondingequitycallwarranttoremainsteady(orevenfallinvalue).Thiscouldoccurifoneormoreoftheother five factors abovehad changedandoutweighedtheeffectoftheincreasingshareprice.Inpractice,itisoftenchangesin volatility or an impending dividendpaymentwhichcausesthiseffect.

DeltaTherateofchangeofawarrantpricewithrespect to a change in the price of theunderlying instrument is called the deltaof a warrant. Theoretical values for callwarrantdeltas rangefrom0to1andputwarrantdeltasfrom0to-1.

Factors in pricing Change in Change in call Change in put variable warrant price warrant price

ExercisePrice Increase

UnderlyingSharePrice Increase

TimetoExpiry Decrease

Volatility Increase

InterestRates Increase

DividendExpectations Increase

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A delta of 1 means that for every 1 centchange inashareprice, thewarrantpricealsochangesby1cent.Thiswouldbethecaseiftheunderlyingsharepricewas$10andtheexercisepriceofacallwarrantwas$5,i.e.,thewarrantissofar‘in-the-money’itshouldapproximatelymove1for1withtheshareprice.

A delta of 0 means that for every 1 centchange inashareprice, thewarrantpricedoes not change. This would be the caseif the underlying share price was $5 andthe exercise price of a call warrant was$10, i.e., the warrant is so far ‘out-of-the-money’ that thewarrant price shouldtheoreticallynotmoveifthere isa1centriseintheshareprice.Mostequitycallandputwarrantsandindexwarrantsareissuedwith an exercise price (exercise level) inclose proximity to the current share price(or index level) which gives them a deltaof around 0.5, i.e., the warrant is ‘at-the-money’ and the warrant price shouldtheoreticallyhavemoved0.5centsfora1centsharepricemovement.

The delta of a warrant is affected by theconversion ratio, for example, a warrantwith a conversion ratio of 2 will have atheoretical delta range 0 to 0.5 for a calland0to-0.5foraput.

However,youshouldnotthinkoffractionalwarrants as providing more leveragedreturnsorbeingmorehighlygeared.Theyare not. When you are comparing theleverage benefits of one warrant withthoseofanother,youshouldcomparelikewith like and take into account the factthat one warrant may have a conversionratiogreaterthantheother.

Tomakethingsmorecomplicated,thedeltaof a warrant is not a constant but alsochanges with the changing share price.ThisiscalledawarrantsGammabutthisisbeyondthescopeofthisbooklet.

It is common for equity warrants to be issued with an exercise price close to the price of the underlying instrument at the time of issue.

Exercise price and expiry date Thehighertheexerciseprice is relativetothe price of the underlying instrument atthe time of issue, the lower the price ofan equity call warrant will be. Also, thefurther away the expiry date is, themoreopportunity there is for the price of theunderlying instrument to rise above theexercisepriceandso,allotherthingsbeingequal, longer dated warrants are moreexpensive.

It is common for equity warrants to beissued with an exercise price close to theprice of the underlying instrument at thetime of issue. You should always considerthetimetoexpiryofallwarrantsassomewarrants have expiry dates of 3 months(orless)whileothersarelongtermsuchas15years.

volatility of the underlying instrumentVolatility is a measure of the amount ofmovementobservedinthepriceorleveloftheunderlyinginstrument.Historicvolatilityis a statistical measurement that can beappliedtoahistoricalsequenceofpricesorlevels.An instrumentwhosepriceor levelhas varied dramatically in the last coupleof months would have a higher historicalvolatilitymeasurethanonewhosepriceorlevel has remained relatively constant inthattime.Optionandwarrantpricinghastotakeintoaccountatrader’sexpectationof volatility from the time they enter thetrade until the expiry of the option orwarrant.Historicalvolatilitymayprovideaguidetofuturevolatility,butthemarket’sexpectationsoffuturevolatilitymaydifferconsiderably from what has transpired inthe past. The volatility at which a trader(or the market) is prepared to buy or selloptionsorwarrantsatanypointintime,isoftenreferredtoastheimpliedvolatilityofthoseoptionsorwarrants.

All other things being equal, the morevolatile the underlying instrument, thehigherthetheoreticalpriceofthewarrant.This isbecause theunderlyingpricehasagreater probability of moving above (fora call) the exercise price of the warrantwhichmakesthewarrantmorevaluable.

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Interest ratesInterest rates also affect warrant pricing.For example, if you buy a call warrantyouareable todefer thepaymentof theexercise price until expiry. This saves youthe funding costs compared to buyingthe underlying instrument directly. Wheninterest rates are high, there is a biggersaving, and therefore you will have topaymoreforthecallwarrantandlessforputs.

Also, the issuerhas tofund itsunderlyinginstrument hedge position. When interestrates arehigh, this ismore expensive andso the issuerhas to sell thewarrantsatahigherprice.

DividendsThis price determinant is particularlyrelevant when looking at warrants whoseunderlying instruments pay dividends totheholdersofthoseinstruments.

The effect of dividend payments variesdepending on the type of warrant, andany entitlement of the warrant holder to

receive dividends paid on the underlyinginstrument. Even in the case of warrantswhere holders are not entitled to receivedividendspaidontheunderlyinginstrument,thewarrantpricemaystillbeinfluencedbychangesindividendexpectations.

Call warrant prices fall and put warrantpricesrisewhenadividendisabovemarketexpectation. It isalso relevant toconsiderwhether the warrant is American orEuropean. You should ask your accreditedderivatives adviser about the impact ofdividends.

Exchange ratesExchange rate movements can affect thepricingofcertainwarranttypes(evenwhentheunderlyinginstrumentisnotacurrencywarrant).Theseincludeinternationalequitywarrants,internationalindexwarrantsandcurrencywarrants.

Other influences on priceFor some warrant types, the theoreticaloptionvalueislessimportantindeterminingprice than other specific factors. Forinstance,thepriceofaninstalmentwarrantiscloselyrelatedtothepresentvalueoftheloancomponentoftheinstalment.

Other non quantifiable factors such assupply and demand, investor sentiment,and general market expectations can alsoinfluencethemarketvalueofallwarrants(justliketheydoinanymarket).Awarrantissuermaybeabletoinfluencethewarrantprice(becauseforexample,itholdsalargepercentage of the warrants on issue, andmakesamarketinthewarrantseries).

The volatility conceptOne of the most important warrantconcepts is volatility. However, it isa concept that can bewilder becausethe term can mean different things.When volatility is a measure of thehistoric price fluctuations of relatedinvestments, like shares or an index,it is described as historic volatility. Itcanhelpillustratepricebehaviouroverdifferent time periods, which may bemonthsoryears.

In models used to price warrant fairvalues, historic volatility helps todetermine prices. Once warrants aretrading,anothermeasurecalledimpliedvolatility is calculated working backfrom the actual warrant price. Impliedvolatilityisimportantfortradersseekingto assess whether certain warrants arecheaporexpensiveandthentradingonthisinformation.

JohnWasiliev

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The importance of supply and demandLike shares or any other investments, animportant influence on warrant pricevolatility is the supply and demand ofwarrants. If a warrant issuer has plentyofwarrantsforsaletomeetanytraderorinvestor demand based on expectationsof a change in the price of the relatedinvestment, thepricechangesofwarrantscanbesmoothandcontrolled.

Someissuerswillreducepricesofwarrants– thereby lowering implied volatility – inordertogetthemmoving.Warrantissuerswilloftenexpandtheissuesizeofpopularwarrants if there is strong demand. Itcan be useful to follow new supply andsituations of limited supply to see howthese influences are shaping the market.Ifwarrantsarehoweverinshortsupplyordemand is such that tradersare selling toeachotheratincreasingprices–liftingthevolatility – it can become a different ballgame.

Warrant issuers have an obligation toensuretherearemarketsintheirwarrants.These prices are usually determined bywarrant pricing models. When trading inthemarketyoumaytradewiththeissuer,orperhapsjustanotherinvestortakingtheother side of your trade. Issuers typicallyprovide indicative prices to stock brokersat which they will trade in their ownwarrants (relative to a range of pricesin the underlying share). This is called apricingmatrix.Youshouldaskyourbrokerif they think they can get the issuer toimprovethebestpriceshowninthescreenbeforetrading.

Howeverifmarketactivityhastakenpricesbeyond what issuers are willing to pay,the risk for traders who become involvedin progressively volatile trading, is beingcaughtwithonlyonewaytogowhenthebuyingmerry-go-roundstops.

Before buying any warrant it is a smartidea to ask yourbroker tohave a look atthe warrant issuer’s matrix and comparethistothecurrentpriceactivity.Whatthebrokerwillprobablylookforiswhetherthematrixprojectionsarebeingborneoutbymarketactivity.Matrixpricesarebasedontheoreticalvaluationsofwarrantsbuttheyarealso(orshouldbe)aguidetowhattheissuerthinksitswarrantsareworthaswellasthepricesitsappointedmarketmakerislikelytopayshouldyouwishtosell.

But there are other things that can bederivedfromthematrix.Forexample, ifawarrantpricechangeforagivensharepricechangeinamatrixisoutofwhackwithwhatisactuallyhappeninginthemarketandthewarrant seems overvalued it could signala warning for some traders. The warrantmay be potentially overvalued becausethe issuer is somehownot involved inthemarket.Perhaps theyhavestoppedsellingwarrantsandarelettingthecurrentholderstradeamongthemselves.Ortheissuermayhave sold all its available warrants andthesamescenario isoccurring:all tradingis happening among current holders. Thehazardfornewandlessexperiencedtradersisthatthepricebeingaskedforthewarrantmaybeunpredictablyvolatile.

JohnWasiliev

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Warrants Division

1800 028 585

Time value and intrinsic valueThe price determinants discussed abovegiveatheoreticalvalueforawarrant.Thismaybethebasisforthemarketvaluethatanadviserquotesyou.Itmayalsotakeintoaccount other non quantifiable factors.The market value of a warrant price canbedividedintotwocomponents–intrinsicvalueandtimevalue.

The intrinsic value of a warrant is thedifference between the exercise price ofthe warrant and the market price of theunderlyinginstrumentatanygiventime.Ifthisnumberislessthanzero,thewarrantissaidtohavenointrinsicvalue.

As a rule of thumb, a warrant will lose 1/3 of its time value during the first half of any given time period and 2/3 during the second half.Thetimevalueistheremainingvaluethathasbeenattributedtothewarrantbythemarket, ie. the market price minus theintrinsic value of the warrant. Time valuetakesintoaccountallthefactorsdiscussedabove and represents the possibility thatthemarketmaymovesothatthewarrantisin-the-money.Obviously,thecloseryougettotheexpirydate,thelesslikelyitbecomesthat themarketwillmove in your favourandsotimevaluedrops.Thisiscalledtimedecay, and it doesnothappen at a linearorevenrate.Asaruleofthumb,awarrantwill lose 1/3 of its time value during thefirsthalfofanygiventimeperiodand2/3duringthesecondhalf.Forsomewarrants,eg, instalments, the (funding cost) timevaluemakesupamuchsmallercomponentoftotalvaluethanforotherwarrantssuchasequitywarrants.

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Where to start

Accredited derivatives advisersASX requires that an adviser must beaccreditedbeforemakingrecommendationsor giving advice in relation to options,warrants or any other derivativesproductstradedonASX.Theaccreditationrequirementisdesignedtoenableadvisersto give quality advice and service onASX derivatives products. In the case ofproductsthatarenotclassedasderivativesand provide no leverage to investors,such as structured investment products,accreditationisnotrequired.

Therearetwolevelsofaccreditation:

LevelOneAccreditationisrequiredinordertoadviseon:

• warrants

• buyingoptionstoopenaposition

• sellingoptionstocloseaposition

• coveredcallstrategy

LevelTwoAccreditationisrequiredinordertoadviseon:

• writingoptions

• multileggedoptionstrategies

• LowExercisePriceOptions(LEPOs)

In order to be accredited at either LevelOne or Level Two, an adviser must meetcertain criteria. This includes passing therelevantASXexam,withaminimummarkof 80%. Accreditation is only availableto employees of Participant Organisations(brokers).

If you require assistance in finding anaccreditedadviser,apartiallistcanbefoundatwww.asx.com.au.Itcontainsnamesandcontactinformationforindividualadvisers,aswellasthetypeofserviceprovidedandresearchoffered.

Thecriteriayouuseinselectinganadviserwillvaryaccordingtoyourneedsandlevelof trading experience. Note that optionsand warrants can be traded through fullservice, or ‘advisory’ brokers, as well asdiscount,or‘noadvice’,brokers.Ifabrokeroffers an execution-only service, withoutprovidingadvice,accreditationmaynotberequiredfortheirrepresentatives.

You canplace anorder forwarrantswithanybroker,howeveryoushouldonlyreceiveadvice from an accredited derivativesadviser.

You shouldunderstand thedetails for theparticularwarrantseriesyouwishtoinvestin. We strongly recommend you read thedisclosuredocumentandthetermsofissueof the warrant series to find out aboutyour rights and obligations in relation tothe warrant series. Your broker should beable to provide you with a summary ofspecifications for all warrants currentlyavailable for trading. Alternatively, youcandownloadalistofwarrantseriesfromwww.asx.com.au/warrants.

Warrant client agreement formBefore you trade your first warrant via aparticular broker you will be required tosign a Warrant Client Agreement Formsayingyouhavereceivedandreadacopyofthisbooklet.

You can place an order for warrants with any broker, however you should only receive advice from an accredited derivatives adviser.

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Incentive paymentsWarrant issuersmayhavearrangements inplacewherebyfinancialorotherincentivesare provided to brokers in relation to thesale of that issuer’s warrants. Brokers arerequiredtodisclosetoyouanycommission,fee or other benefit which may influencetheir investment recommendation. Youshouldbeawareofthisandfeelfreetoaskyour broker whether incentive paymentsare being made by the warrant issuer tothebroker.

Subscribing for warrantsYoumayalsobeabletoapplyforwarrantsto be issued to you by the issuer bycompletinganapplicationformattachedtothedisclosuredocument(theprimaryissue).It is common for investors to subscribefor investment-style warrants in this way,whereastrading-stylewarrantswillgenerallybeboughtonthesecondarymarket.

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Glossary of terms

ACh This stands for Australian ClearingHousePtyLtdABN48001314503whichis the clearing and settlement facility forASX’sOptionsmarket.

American styleTypeofexercisestylewhichallowstheholdertoexercisethewarrantatanytime up to and including the expirydate.

ChESS This stands for Clearing HouseElectronic Sub register System and meansthe system established and operated byASTC for the clearing and settlement ofCHESSapprovedsecurities, thetransferofsecuritiesandtheregistrationoftransfers.

DeltaTherateofchangeofawarrantpricewithrespecttoachangeinthepriceoftheunderlyinginstrument.

Derivative An instrument which derivesits value from the value of an underlyinginstrument (such as shares, share priceindices,fixedinterestsecurities,commodi-ties,currencies,etc.).Warrantsandoptionsaretypesofderivatives.

Disclosure document The documentprepared by the warrant issuer which isdispatched toprospective subscribersof awarrant series. Disclosure documents arealso known as either a product disclosurestatement(PDS)oranofferingcircular.

European styleTypeofexercisestylewhichallows the holder to exercise the warrantonlyonexpiryday.

Exchange traded options (or ETOs)Optionswhichareboughtandsold intheoptionsmarketoperatedbyASX.

hedge A transaction which reduces oroffsets the risk of a current holding. Forexample,aputwarrantmayactasahedgefor a current holding in the underlyinginstrument.

In-the-money When the exercise price isbelow(call)orabove(put)thepriceoftheunderlyinginstrument.

Issue Price The amount a person pays tosubscribeforawarrant.Mayalsobecalled‘premium’.

Out-of-the-money When the exerciseprice is above (call) or below (put) themarketpriceoftheunderlyinginstrument.

Primary issue The issue of the warrantsbythewarrantissuertosubscribersintheprimarymarket.

Secondary marketThetradingofwarrantsonSEATSaftertheprimaryissue.

Terms of issue The rights, conditionsandobligations of the warrant issuer and thewarrantholder.Thesetermsarecontainedinthedisclosuredocument.

volatility A measure of the amount ofmovement observed in the level of theunderlying instrument over a period oftime.

Warrant codeAsixlettercodeassignedtoawarrantbyASXtoidentifyitonSEATS.

Warrant issuerThe institutionthat issuesthewarrant.

Warrant seriesAllwarrantswiththesameterms of issue and underlying instrumentandhavingthesamewarrantissuer,exerciseprice,expirydateandsettlementprocedure.Eachwarrantserieshasaseparatewarrantcode.

Warrants toll free information line: 131 ASX Internet: www.asx.com.au/warrants