Tuesday, August 03, 2010

CBLC- an interesting instrument re-examined

This week, I learned two things from the Edge. The first thing is a good article entitled Callable Bull & Bear Certificates- the evolution of exotic options. If you have read my earlier post (here), you would have gotten a wrong impression that Callable Bull & Bear Certificates ('CBLCs & CBBCs') are CWs with a serious disadvantage to the holders. After reading Ms Jasvin Josen's article, I think I need to retract my earlier assertion.

CBLCs (the only Callable Certificates issued so far) are CWs with a safeguard. The safeguard is the Mandatory Call Event ('MCE') which automatically forces the issuer to recall the CBLC when it hit a Minimum Trading Price ('MTP'). We saw how this happened in the case of the BJCorp-JA which was recalled on July 22- 5 days after its listing on July 16. The reason for the recall was that BJCorp-JA hit the MTP of RM1.05. Go here.

The function of the MTP is similar to setting of protective stop for any trading position. Fortunately or otherwise, this MTP is very rigid and once it is hit, the issuer would call back the CBLC. We are out of the game and hopefully preserving our capital for another day.


kayroll said...

so Alex,
Do we get back invested money after the certificate hit MTP ???

Alex Lu said...

Hi IjanMaster

If the MTP is higher than the Exercise Price, you will get the difference. See the calculation for BJCorp-JA (link below).


Unknown said...

Hi Alex,
Thanks for the summary of CBLC. I assume MTP will always be higher than the exercise price. Is there any examples of MTP being lower than the exercise price?


Alex Lu said...

Hi Mey Ping

I have appended below the currently traded CBLCs, where all the Exercise Price to Call Prices are at 0.93-0.96 time.


The above CBLCs are issued by CIMB Investment Bank.