where SV = cash settlement value in U.S. dollars;
SV = F(S - X) for call warrants (6.1) = F(X - S) for put warrants
F = the adjustment factor; = M/X for the Merrill Lynch MHW Warrant and 1/DE for all other
|S = the spot price of the HKI value;|
|X = exercise price (index);|
|M = a predetermined multiplier;|
|D = a predetermined divisor; and|
|E = the fixed exchange rate between HK$ and U.S.$.|
The date on which the HKI value is used to determine the settlement value of a warrant is generally the New York business day following the exercise date. The AMEX's trading hours are from 9:30 a.m. to 4:00 p.m. Eastern time and Hong Kong's trading hours are from 10:00 a.m. to 12:30 p.m. and 2:30 p.m. to 3:30 p.m. Hong Kong time, which is 13 hours ahead of Eastern standard time. Consequently, due to the nonsynchronicity between price quotes for the warrants and underlying index, the warrant's final settlement value will not be known until the day following the exercise.
Third, all warrants allow for early exercise, provided that a minimum number of warrants (100 for MHW and 500 for the rest) are presented for redemption. Furthermore, except in the case of automatic exercise, all warrant holders except MHW, in connection with any exercise of warrants, will have the limit option to specify that such warrants are not to be exercised if the spot price on the valuation date deviates from the closing index level on the exercise date by a prespecified amount. 1 Fourth, exercises are cash-settled in U.S. dollars and are privately guaranteed and paid by the respective issuers.