Irish warrants run out of steam

The Irish covered warrant market has effectively collapsed less than 18 months after its launch. International finance group Investec, which was the sole licensed seller of warrants in the Irish market, has said it has no plans to introduce more of the products in the near future.

Its decision came after the remaining warrants available in Dublin matured earlier this week. Investec initially offered warrants in the five largest companies on the Irish exchange - AIB, Bank of Ireland, Anglo Irish Bank, Ryanair and CRH.

Investec spokesman Mr Gerry Dunne said the warrants failed to attract sufficient investor interest.

Mr Dunne said that the commission payable on warrants had made them unattractive to investors compared with other derivative products.

Covered warrants operate like options, giving investors the opportunity to buy or sell shares in a given company at a set price up to a predetermined maturity date.

At their launch in October 2001, covered warrants were hailed as the next big thing in the Irish market. Investec, which was seen as the trailblazer for a number of providers, had a proven track record offering warrants in Johannesburg since 1997.

Covered warrants were seen by the stock exchange as a way of enticing investors back to the bear market following the bursting of the technology bubble earlier that year.

At the time, Mr Brian Healy, the exchange's director of trading and regulation, said the introduction of warrants had boosted business levels by 15-20 per cent in Australia and South Africa.

Plans by Investec to offer warrants in a wider range of British and Irish stocks on the Irish market were dropped and other providers failed to materialise.

Mr Healy said yesterday the parallel growth in contracts for difference - an agreement to exchange at the end of a "contracted" period the difference between the prices at the beginning and the end of the contract multiplied by the number of shares involved in the deal without ever owning the shares - was one of the reasons warrants failed to attract as much business as expected on the Irish market.

Apart from the absence of commission, contracts for difference have the advantage of benefiting from dividends paid during the contract without incurring the stamp duty involved in buying the shares.

Mr Healy said the failure of more providers to come to market also limited the appeal.

He said covered warrants were still attractive for the same reasons that they were initially attractive and, subject to the ironing out of taxation and stamp duty issues, he is confident they will be offered again on the Irish market.