Warrants
Warrant is an option based financial instrument. It is
attached to a bond or preferred stock. It can be defined as an option to
purchase a specified number of shares of common stock at a stated price and
time. Warrants are used as ‘sweeteners’ in bonds/debentures and preferred
stocks. So the company can easily sell all the securities.
When the holders exercise (use warrants to purchase
additional shares) warrants, they surrender the warrants. After their exercise,
warrants convert into shares of the issuing company and total numbers of shares
outstanding also increase.
Types
of warrants
There are two types of warrants. These are categories
on the basis of their negotiable feature. Meaning that, warrants may be
negotiable and non-negotiable. A negotiable warrant is known as detachable
warrant. This type warrant can be sold and bought separately, that is, without
buying and selling the underlying securities (bond or preferred stock). In
contrast, the another type of warrant is non-negotiable warrant, this type of
warrant can not be sold separately meaning that we can not sell or buy the
warrant without selling and buying the underlying securities.
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