There are two methods to buy Covered Warrants (CWs):

- Method 1: You can register to buy CWs at the time the issuers offer them on the primary market (immediately after receiving approval from the Vietnam Securities Commission for the offering).

- Method 2: You can buy CWs on the secondary market (after they are listed on the Stock Exchanges).

When trading listed Covered Warrants (CWs) on the Stock Exchanges, you can use your regular stock trading account to buy/sell CWs. The trading hours, matching method, order types, price determination principles and trading units are similar to those for stocks. However, there are some specific rules that differ from stock trading such as:

- Quoted price unit: VND10 for all CW price level

- Ceiling/floor price of CW in the trading day: Based on the price fluctuation range of the underlying securities, determined by the formula: Ceiling/Floor price of CW = Reference Price of CW ± Price Fluctuation Range of the Underlying Securities/Conversion Ratio.

A Covered Warrant (CW) in circulation has different types of prices, each with its own meaning, so you need to distinguish between these prices in a CW:
- CW price (price of the Covered warrant) is the cost you must pay if you want to own the CW. At the time of issuance, the CW price is the offering price set by the issuer. When the CW is listed and traded on the Stock Exchanges, the CW price refers to the market price at which the CW is traded.   
- Exercise price (price of exercising the rights): is the price at which you, as a holder of the covered warrant (CW), have the right to buy or sell the underlying asset from the issuer of the CW when the CW mature. This price is the basis for comparing and determining the profit or loss status when investing in the CW. The exercise price is disclosed by the issuer at the time of the CW offering. In general, the exercise price remains fixed throughout the duration of the CW and is only adjusted in certain cases such as corporate events related to the underlying asset.
- Settlement price: is the price determined and announced by the Stock Exchanges before the expiration date of the Covered Warrants (CWs). The difference between the settlement price and the exercise price indicates your profit or loss at the time of CW expiration. This difference serves as the basis for the issuer to pay the cash settlement when you exercise your right. The settlement price of a CW upon exercise is the average closing price of the underlying asset over the five (05) trading days immediately preceding the expiration date, excluding the expiration (Regulations of Securities Trading on Ho Chi Minh City Stock Exchange).

During the period of Covered Warrants (CWs), you can realize profits or cut losses by buying or selling CWs on the Stock Exchanges.
Alternatively, on the expiration date, if you hold CWs that are in a profitable position, you have the right to exercise the CW and receive a cash payment equal to the difference between the settlement price and the exercise price. The payment will be completed within five (05) working days from the day you place the exercise order or from the expiration date.
If you do not place an exercise order for CWs in a profitable position, the issuer will still pay the cash difference to you for those CWs.

Example:
You buy 1,000 covered warrants of VNM stock with the following details:
- Conversion ratio: 5:1
- Exercise price: VND150,000
- Current price of VNM stock: VND145,000
- Duration of warrants: 6 months
- Price per warrant: VND1,000
The total investment in the CW = 1,000 CW * 1,000 = VND1,000,000

This is the amount you spend to buy the 1,000 CWs.
- After three months, assuming the VNM stock price in the market is VND155,000 and the market price for one CW is VND1,500. You can realize a profit by selling the CW on the Stock Exchanges.

Your profit = 1,000 CWs * (1,500 - 1,000) = VND500,000.

So, you would earn a profit of VND500,000 by selling the 1,000 CWs
- On maturity date:
Assuming you hold the CW until the expiration date and the settlement price for VNM stock is calculated and announced as VND165,000.
The issuer will pay you the amount: (1,000/5) * (165,000 – 150,000) = VND3,000,000
Your profit will be = 3,000,000 - 1,000,000 (total initial investment to buy CWs) = VND2,000,000

However, if the settlement price for VNM stock is calculated and announced as less than or equal to VND150,000 (the exercise price), the difference between the settlement price and the exercise price will be ≤ VND0. In this case, the CW will not be exercised and you will lose your initial investment of VND1,000,000.

How are covered warrants traded on the stock exchange?

Covered Warrant (CW) transactions are subject to personal income tax (PIT)

According to Notification No. 1468/BTC-CST issued by the Ministry of Finance regarding tax policies for CW transactions, personal income tax (PIT) is applied at different stages of CW trading:

• Before expiration date: PIT = (Execution price of CW * Number of CWs) * 0.1%
• On expiration date: PIT = (Settlemet price of underlying stock * Number of CWs/Conversion ratio) * 0.1%

Example:

You buy 1,000 buying CWs of HPG stock with the following details:

Therefore, the total investment in the CW = 1,000 CWs * 1,000 = VND1,000,000

• Case 1: After six months, selling CW

Market price per CW: VND1,200. You can take profits by selling CWs immediately on the Stock Exchanges at this point.

Profit/Loss = 1,000 * (1,200 – 1,000) = VND200,000

PIT = 1,200 * 1.000 * 0.1% = VND1,200

Net Profit after tax = 200,000 – 1,200 = VND198,800

• Case 2: A customer holds CW until the expiration date

Assume that on the expiration date, the settlement price for HPG shares is calculated and announced at VND35,200 (greater than the exercise price). The CW will be exercised and the issuer will pay you accordingly.

Settlement price = 1,000/5 * (35,200 – 30,000) = VND1,040,000

PIT = 35,200 * 1,000/5 * 0.1% = VND70,400

Profit/Loss = Payment amount – Amount spent to buy the CW = 1,040,000 – 1,000,000 = VND40,000

Profit after tax = 40,000 – 70,400 = -VND30,400

In this case, the customer does not earn any profit from investing in the covered warrant (CW).