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Summary of

Securities Act (Listed Equity Warrant Issuers) Exemption Amendment Notice 2001

SR2001/327

Gazetted on 1 November 2001

Context
This notice amends the Securities Act (Listed Equity Warrant Issuers) Exemption Notice 1997 (the principal notice).

The principal notice exempts some offers of equity warrants to the public from certain provisions of the Securities Act and Securities Regulations.

Equity warrants give investors a right, but not an obligation, to buy certain shares at a fixed time in the future for a fixed price. The shares that may be bought if the warrant holder chooses to do so are the "underlying securities". When a warrant holder decides to buy the underlying securities the warrant holder "exercises the warrant". The warrant issuer's obligation to sell the underlying securities to the warrant holder if the warrant holder wishes to exercise the warrant is called "delivering the warrant".

A risk for investors is that the issuer of the warrants may not be able to deliver enough underlying securities to meet the demand of warrant holders exercising their warrants. Issuers can minimise this risk by buying and holding in trust a sufficient quantity of the underlying securities to meet this demand, in which case the warrants are called "covered warrants", and the risk of non-delivery is reduced.

The principal notice applied only to equity warrants quoted on either the New Zealand Stock Exchange (NZSE) or the Australian Stock Exchange (ASX) and issued by companies listed on the NZSE or ASX.

The ASX will approve persons who are not listed on the ASX to issue equity warrants if they come within certain categories. Warrants issued by these persons are quoted on the ASX and offered to the public in Australia. Non-listed issuers that can be approved are companies who intend to issue only "fully covered warrants". These are defined, by the ASX's business rules, as warrants subject to a suitable cover arrangement.

The exemption
The notice amends the principal notice by:

• extending the definition of "equity warrant" to include warrants issued by a person approved by ASX to issue fully covered warrants.
• amending the definition of "covered equity warrant" to include the definition used by the ASX.
• amending other parts of the principal notice to reflect the changes to the definitions of "equity warrant" and "covered equity warrant".

Effects of the Exemption
The exemption enables a non-listed person approved by the ASX to issue fully covered warrants to offer those warrants to the public in New Zealand.

Reasons
The amendments to the principal notice are appropriate because:

• issuers are confined to issuing fully covered warrants, and must comply with the terms of their ASX approval during the period when warrants are offered to the public; and
• the ASX process for approving issuers of warrants and supervising cover arrangements, together with public warning statements, provide adequate disclosure for potential subscribers to properly evaluate the merits of buying the warrants.