ISSUE BRIEFING European Parliament Warrants and Bonds Prospectuses

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ISSUE BRIEFINGEuropean ParliamentWarrants and
Bonds Prospectuses
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Société Générale Equities Derivatives

•  Trading and sale of equity derivatives
  products 
• More precisely, derivatives products such as
• Simple calls puts
• example a plain vanilla call gives the right to
  buy a specific underyling at a fixed price - at
  or up to a determined date (maturity date)
• a wide range of  innovative  options
• example corridor option gives the right to
  receive 1 euro per day, where the underlying
  asset closes inside specific range (up and down
  limits) during a period of time.

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Société Générale Equities Derivatives

•  Trading and sale of equity derivatives
  products 
• Structured products
• with simple or innovative indexations
• example at maturity the holder will receive
  100 of the initial amount invested plus x of
  the performance of the CAC 40 index over the
  period.

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Adapting the offer to client needs ...

• Different  wrappers  .
• Warrants
• Certificats
• EMTN
• Funds
• . answering specific needs for different types
  of customers

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What are Covered Warrants?

• Generally simple call put options
• Covered means that when the issuer launches a
  warrant on the market, he buys/sells the
  underlying share to cover its position (i.e. no
  equity creation in case of exercise)
• Issued by a financial institution
• Mid to long-term (6 to 24 month) options
• High liquidity provided on the exchanges
• Leverage effect
• Possibility to hedge portfolio protection

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Warrant markets in the world
Helsinki
W
Stockholm
Frankfurt Stuttgart
Amsterdam
W
Brussel
Zurich
Paris
Lisboa
Milan
Madrid
W
Sydney
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2002 Turnover on Warrant markets
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Issue process today

• SG acts as issuer targeting retail investors in
  13 countries
• Today, plain vanilla call and put warrants are
  considered as  standard  by market authorities
  throughout Europe
• SG Manages a global range of 5,000 warrants
  updated on a daily basis (strikes, maturities)
  with a lot of product replication due to a lack
  of common European regulations and definitions
• When it comes to innovative products
  discrepancies throughout Europe limit the
  offering possibilities

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Germanys legal framework

• The oldest warrants market (with Switzerland)
  1st issue in 86
• German market authorities have set the listing
  guidelines with the input of issuers
• Great reactivity listing within two days
• Same issue procedures for simple and innovative
  warrants
• Deposit of a Master Document for each category
  once a year with the new financial statements of
  the issuer
• For all following issues only a complete
  prospectus is required to be deposited at the
  exchange listing the next day
• No legal restrictions on the characteristics
  (strikes, redemption at maturity, expiry)

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Frances legal framework

• The warrants are issued and listed on the Stock
  Exchange since the issue is approved by the COB
• Less reactivity listing within a week (minimum)
• Different procedures for simple warrants and
  innovative products
• Warrants program registered by the COB updated
  once a year with the new financial statements of
  the issuer
• Innovative structures should be issued as bonds
  (legal and fiscal consequences)

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Italys legal framework

• The warrants are issued and listed on the Stock
  Exchange since the issue is approved by first
  CONSOB then Borsa Italiana
• Different procedures for simple warrants and
  innovative products
• Warrants program registered with the CONSOB
  updated once a year.
• Delay of approval 1 month and 1 week for every
  supplement
• Innovative structures should be issued on a
  stand alone format.
• Delay for approval 1 month minimum
• Registration costs extremely high

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Issue process today

• Issuers still have to cope with 13 different
  issue procedures (requirements and delays)
• All market authorities have different views on
  the product
• a digital option should be issued as a warrant?
  As a certificat? As an EMTN?
• Up and in options?
• What Does the Directive Prospectus propose ?

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The Directive proposals

• First proposal
• European Passport
• No choice of competent market authority
  headquarter of the issuer
• Language of the prospectus (French exception)
• The current proposal
• Choice of the competent market authority
  country of the headquarter of the issuer or
  country where the public offer will take place
• Since market authorities accept different
  products under the name of warrants,
  competition discrepancies between issuers will
  subsist (ex German issuers)
• Different rules for warrants when issued by SG on
  SG share
• different requirements are not justified on a
  financial basis

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The  ideal world 

• All market authorities should agree on the same
  definition and language
• local rules should converge, in particular in the
  context of Stock Exchange mergers
• adapted language one common and usual languages
  should be accepted by all market authorities
• Accuracy and reactivity of the product range to
  market fluctuations
• Delays reduced to the minimum 1 week maximum
• Investor protection
• information on the underlying asset should not
  undermine an understandable description of the
  rights attached to the product
• adapted language summary in the language of the
  country where the product is offered