When trading in covered warrants starts on the London Stock Exchange next week it could turn into a ...
When trading in covered warrants starts on the London Stock Exchange next week it could turn into a market worth more than £80m per day, according to Europe's second biggest covered warrants market maker TradingLab.
The derivatives subsidiary of UniCredito Italiano is in the UK to participate in regional roadshows along with the LSE to promote the opportunities of the new product to intermediaries and their clients, who are nursing losses after the worst bear market since the 1970s.
Covered warrants are derivatives that come in "call" and "put" variants and enable investors to buy or sell against a set maturity date, and realise gains depending on the rise or fall in the value of, for example, share prices or indices.
Market makers such as TradingLab can issue covered warrants on any financial instrument such as shares or unit trusts without the need to get clearance from the listed companies or funds covered.
Despite the wider state of the equities market, TradingLab's managing director Anna Procopio says that the opportunities of this type of product means it may suit a wide range of retail investors who are looking for a higher risk/reward potential than domestic unit trusts - without falling into futures options or spread-betting territory.
Key to the firm's promotion of the 40-50 covered warrants it will be marketing when dealing starts on 28 October is its Kilovar branded risk ratings tool.
Set to be fully available online, the tool provides investors with absolute values in relation to potential gains or losses, which sets it apart from similar tools such as Riskgrades, which provides relative values, Procopio says.
Using the Kilovar tool should enable investors to re-rate the risk/reward potential of their covered warrants on a daily basis - although it can also be used to calculate risk associated with any financial instrument, such as shares, gilts and unit trusts.
TradingLab will also be looking to provide educational and marketing tools for IFAs in order to ensure that they understand the products that may be recommended to clients.
Procopio says the firm has previously entered into co-branding marketing in the Italian, German and French covered warrants markets, to help advisers and brokers promote this type of investment.
Six market makers are due to take part in the UK market, but this number is expected to grow as the Italian market already has 23.
Trading in covered warrants is free of stamp duty.
Annuity market worth £4bn in 2017
For ‘distress’ caused
Oversees £30bn of advised and D2C assets
Less than a third of top paid employees are women
£1bn business since inception