London Stock ExchangeCovered Warrants Policies & Procedures


Covered Warrantsother Structured Products

Policies & Procedures

TABLE OF CONTENTS

Introduction

Establishment of Programme

Initial Admission of New Issuer to the London Stock Exchange

Programme Establishment

Programme Renewal

Covered Warrants/Structured Products Issuance

Publication of Dealing Notice

Market Regulation

Liquidity Provision – Market Makers Obligations

Exceptions to Market Maker Obligations

System Failures

Reversal of Erroneous Transactions

Miscellaneous

TIDMs

Settlement

Corporate Actions

Automatic Early Expiry

Ratios

Suspensions

Resetting of Reference Price

Capacity Management

Naming Conventions

Forms

Covered Warrant Trading Form

Indicative Price Form

Introduction...... 3

Establishment of Programme...... 3

Initial Admission of New Issuer to the London Stock Exchange...... 3

Programme Establishment...... 3

Programme Renewal...... 4

Covered Warrants/Structured Products Issuance...... 4

Publication of Dealing Notice...... 5

Market Regulation...... 5

Liquidity Provision – Market Makers Obligations...... 5

Exceptions to Market Maker Obligations...... 6

System Failures...... 7

Reversal of Erroneous Transactions...... 7

Miscellaneous...... 7

TIDMs...... 7

Settlement...... 8

Corporate Actions...... 8

Automatic Early Expiry...... 9

Ratios...... 9

Suspensions...... 9

Resetting of Reference Price...... 9

Capacity Management...... 9

Naming Conventions...... 10

Forms...... 10

Covered Warrant Trading Form...... 10

Indicative Price Form...... 13

Appendices

NamingConventions

Issuer Codes

Exotic Characteristic Codes

TradingSectors

Introduction

This document summarises i) the process for being admitted as a new Issuer of Covered Warrants and other Structured Products on the London Stock Exchange;ii) operational processes inherent in being an Issuer ; and iii) the obligations of a Market Maker in these products. This document is not a substitute for, and should be read in conjunction with the:

  • Rules of the London Stock Exchange;
  • Admission and Disclosure Standards;
  • the Guide to TradElect; and
  • TradElect Parameters.

All can be found at londonstockexchange.com

Establishment of Programme

Initial Admission of New Issuer to the London Stock Exchange

The FSA’s UKListing Authority (UKLA)is responsible for admitting issuers to the Official List, and should be contacted several months before the expected admission date to discuss listing requirements and the initial listing documents required. The UKLA Helpdesk can be contacted in the first instance on +44 20 7066 8333.

In conjunction with the Official Listing, application must be made for admission to trading on the London Stock Exchange.

Please note that the lead time can be considerable, so it is recommended that an interested issuer make contact with the Exchange and the UKLA as early as possible.

Programme Establishment

To establish a programme, the Issuer must submit the following documentsto the Exchange by email to :

  • Application for Admission of Securities to Trading (Form 1)
    found at
  • Notice of board resolution; and
  • Programme document.

As per the UKLA Listing Rules, these documents must be received by the Exchange at least 3 whole business days prior to listing of thefirst structured products.

Programme Renewal

As per the UKLA’s Listing Rules, the above procedure must be repeated every twelve months, or when changes are required (e.g. when a type of instrument outside the scope of the current Programme is to be listed).

Covered Warrants/Structured Products Issuance

SEDOL/ISIN Codes

When an admitted Issuer with a Programme in place wishes to issue a line of warrants, SEDOL and ISIN codes are required:

  • Issuers Incorporated in UK – Request SEDOL and ISIN codes by emailing the completed Covered Warrants Trading Form to there are 25 securities or less, ISIN/SEDOL codes will be returned within 1 business day. If there are more than 25 securities but less than 75, ISIN/SEDOL codes will be returned within 2 business days.
  • Issuers Incorporated Outside ofUK – Request ISIN from relevant authority in country of incorporation and fill in ISIN field of Covered Warrants Trading Form. Form then needs to be submitted to . If there are 25 securities or less,SEDOL codes will be returned within 1 business day. If there are more than 25 securities but less than 75, SEDOL codes will be returned within 2business days.

Covered Warrant Trading Form & Pricing Supplement/s

  • Submit the completed Covered Warrant Trading Form (including ISIN and SEDOL codes) by email to as early as possible. The final version of the trading form must be submitted to the Exchange no later than 12pm on the day prior to listing and admission to trading. Issuers wishing to issue multiple lines will avoid admission delays by submitting this information earlier (see shaded box below). Details on the forms can be found below in the ‘Forms’ section of this document.
  • Forward the Pricing Supplement/s and an Indicative Price form (available on the LSE website) to and also to the relevant contact at the UKLA by 12pm on the day prior to listing (see shaded box below). See Forms section of this document for further details.

The Issuer Implementation team which handles admission to trading can be contacted with any queries on +44 20 7797 3410 or at .

Please note: the Exchange and UKLA can admit up to 74 warrants each day, provided that final documentation is received to the following timetables:

If there are 25 or less securities due to admit, the above documentation is required from the issuer the day before admission (12pm deadline).

If there are more than 25 but less than 75 securities due to admit, the above documentation is required from the issuer two days before admission 12pm deadline).

To admit any number of securities greater than 74, please contact Issuer Implementation.

The Exchange will make best endeavours to ensure all covered warrants and structured products are admitted on the requested date, however reserves the right to delay the date of issue, particularly if documentation has been supplied at short notice.

Publication of Dealing Notice

When admission of the warrant line is approved, a Dealing Notice is distributed to the market by the Exchange at 8am on the day of admission.

In addition, full reference data details for each warrant line are distributed via the Reference Data Service the business day before admission.

Normal trading begins at 8:15am.

Market Regulation

Liquidity Provision –Market Makers Obligations

To ensure effective and efficiently run markets each liquidity provider must fulfil a number of obligations. These are clearly explained in the Guide to TradeElect and the Rules of the London Stock Exchange, however for completeness are also outlined below:

  • Executable Quotes (EQs) must be of a size at least equal to 1 xEMS.
  • Market Maker is required to maintain a size of 1 xEMS on the order book for both the bid and offer prices during the trading day;
  • EQ must be refreshed within 90 seconds to at least 1 xEMS where it is executed against in full, deleted or has expired;
  • Where a Market Maker updates the price of any of its EQs that have fallen below the normal EMS as a result of partial execution, the order must at the same time be refreshed to at least one EMS.
  • Maximum spreads in EQs are the greater of 10% of the bid price or 1p0.02 (or 2 where the trading currency is GBX);

Note: There is no requirement to enter EQs during any intra-day price monitoring automatic execution suspensions or for five minutes thereafter.

Exceptions to Market Maker Obligations

These obligations will be enforced by the Exchangesubject to the following circumstances:

  • There is no obligation for a Market Maker to maintain EQs in a security where:

–There is a public holiday on an exchange or registered organisation on which the underlying security has a principal listing;

–A trading halt is ordered or declared in the relevant underlying security by an exchange or registered organisation on which the underlying security has a principal listing;

–The covered warrant is valued at less than the minimum tick size for the structured product;

–An intra-day auction has been triggered in the covered warrant or structured product(and for five minutes following the end of the intra-day auction);

–Where the underlying is a US stock or index, or is a basket containing a US stock or index, market makers are not obliged to enter any order until 14:45 each day. Should a market maker enter orders before 14:45, they must adhere to minimum size / maximum spread rules;

–It is the day of expiry for that particular covered warrant or structured product.

For the avoidance of doubt, the following situations are not exceptions and therefore require a market maker to fulfil obligations as above:

  • Where there is increased volatility or pricing uncertainty in the underlying security;
  • Where there have been heavy trading volumes in the warrant and/or the underlying;
  • Where the Issuer is unable to hedge its market exposure for any reason; and
  • Where meeting the obligations leads to Issuers’ financial loss.

System Failures

Where a Committed Principal experiences system failures and wishes to delete orders, market supervision should be advised immediately by calling Market Supervision at the Exchange on +44 20 7797 3666 (stx 33666) option 1.

Reversal of Erroneous Transactions

At the request of a member firm, the Exchange may reverse a transaction on the covered warrant order book where prevailing market conditions indicate that the transaction is erroneous. The Exchange will consider reversal of such a transaction where both parties to the transaction are unable to agree to use the contra facility and specific criteria are met as per the Rules of the London Stock Exchange.

Miscellaneous

TIDMs

The selection of a TIDM is the responsibility of the Issuer, who will follow one of the following formulae:

  • Issuer code (1 character – see Appendix 2), followed by 1 letter, followed by 2 numbers. Valid examples are GA01 and TB97; or
  • Issuer code (1 character – see Appendix 2), followed by 3 numbers. Valid examples are G894 and T031.

Once all possible combinations have been exhausted, the Issuer may re-issue used TIDMS if they are not currently in use and have not been in use over the past six months.

Settlement

The Issuer’s location dictates where settlement occurs, as per below table:

Warrant Issuer Located In UK / Warrant Issuer Located Outside UK
CREST Settlement / Settlement will take place in CREST in the same way as any other UKsecurity / Settlement can take place in CREST without using the CDI format providing that transfers are stated to be under UK law. In these cases, a registrar will be required.
Note: Securities subject to UK law could have ISINs other than “GB”.

Corporate Actions

The procedure to be followed in the event of a corporate action in the underlying is to be outlined in the warrant prospectus.

It is the responsibility of the Issuer to notify the Exchange of any changes to be made to their warrants in light of a Corporate Action as follows:

  • Submit the Covered Warrants Trading Form to detailing the affected warrants with required changes clearly highlighted;
  • Submit a covering email detailing the corporate action which has occurred to the underlying and the precise impact on the warrant; and
  • Submit aregulatory announcement to notify the market of changes in the warrants (as required by the UKLA).

A notice will then be published by the Exchange highlighting the changes to the market.

Automatic Early Expiry

Where the terms of a product provide for the automatic and early expiry of a covered warrant or structured product, the liquidity provider may immediately withdraw EQ orders. Subsequently, the following process must be followed:

  • Advise the UKLA immediately and send an email to , detailing the ISIN and TIDM of affected warrants.
  • Additionally, the Issuer should make a regulatory announcement before the next market opening (i.e. before 8am the following day).

The warrant/s will be withdrawn from trading in due course. Subsequently, the Issuer is required to submit expiry values within three business days, as above.

Ratios

It is assumed, unless there is a specific reason for divergence to be discussed with the Exchange in advance, that issuers will adopt the market standard ratio where one already exists in relation to an underlying asset to avoid any unnecessary confusion. Bearing this in mind, when issuing a covered warrant on a new underlying, it is for the Issuer to determine the most appropriate ratio, taking particular account of the price of the underlying.

Suspensions

Trading in a warrant will be suspended upon receipt of instructions from the UKLA where the underlying itself is subject to a suspension.

Additionally, trading in the covered warrant/structured product segment might be suspended where it impacts the operation of the underlying market.

Resetting of Reference Price

From time to time, at the request of the Issuer or liquidity provider, the Exchange may reset the reference price of a covered warrant for the purposes of market monitoring. Requests should be made to Market Supervision on +44 20 7797 3666 (stx 33666) option 2.

Capacity Management

In order to maintain a fair and equitable market, liquidity providers are required to adhere to a limited number of order messages (entry and delete) per second and per day. This will be constantly monitored by the Exchange and is subject to review at the discretion of the Exchange.

Naming Conventions

Short and long names are derived electronically from the information entered on the Covered Warrants Trading Form and requires no further user input. Naming conventions for short and long names are outlined in Appendix 1.

Forms

Covered Warrant Trading Form

This form is used to communicate information required for entry into the Trading System to the Exchange. Below is a table outlining what should be entered in each field, and by whom. Note that where the number/type of characters is restricted, it will not be possible to enter data which does not meet this validation.

Field / Description / Responsibility / Format & Example
Tick Size / The smallest increment in which the price can move / Issuer / Three Four options:
Z (one ten thousandth) or
J (one hundredth) or
X (one tenth)
W (one whole).
Listingdate / Indicative admissiondate of the warrant issue. / Issuer / Date in format dd/mm/yy, e.g. 25/06/06
ISIN Code / Unique code to identify each warrant line. / Issuer / 12 character code, e.g. DE0107836157
SEDOL Code / Assigned by the Exchange to uniquely identify a tradable instrument. / Issuer / 7 alphanumeric characters, e.g. B00KWB4
Warrant TIDM / Denotes unique code for the warrant, to complement ISIN (based on combination of issuer code and tranche number). / Exchange / 4 characters:
1 or 2 alpha indicating Issuer (see Appendix 2); followed by
2 or 3 numerals
e.g. G194 or TA78
Full name of underlying / Used to support the TIDM used for the underlying above. / Issuer / Name of underlying, e.g. Vodafone Group PLC.
TIDM code of underlying / Underlying being used on the warrant (from existing recognised Exchange TIDMs). / Issuer / Alpha format of up to 4 characters, with issuers to use recognised Exchange TIDMs. Where one does not exist, the Exchange will create a ‘standard’, e.g. F100
Comstock code of underlying / Only required where underlying is not LSE-listed / Issuer / Please login to Comstock website to find the code. Go to LSE, Password: xnx8510. Click on “Symbol Directory” and enter search parameters.
Underlying Category / Choice of categories of the underlying / Issuer / Four Options:
Equity, Index, Commodity or Currency.
Issuer code / Shows issuer of the warrant. May be different from the liquidity provider. / Issuer / Issuer code – up to 4 letters, allocated by the Exchange, e.g. “MLIS”
Warrant type / Show warrant characteristics in terms of type. / Issuer / Three options:
C for calls
P for puts
D for dual
Warrant style / Expiry style. / Issuer / Three options:
A for American
E for European
B for Bermudan
Other characters / Shows any special/exotic characteristics. / Issuer / Single letter, as per Appendix 3, e.g. “B” for Barrier Warrant
Issue identifier / Distinguishes between warrants with the same short/display name. / Issuer / Single character, e.g. “A”
Strike price currency / Currency denomination - may be absent in case of indices. / Issuer / As per ISO standards, e.g. “GBP”, “USD”, “JPY”
Strike price / Price at which warrant holders can either buy or sell the underlying (depending on contract specifications). / Issuer / Up to 6 characters, e.g. “2150”
Instrument Type / Warrant/Certificate? / Issuer / Two options:
Warrant or Certificate
Certificate Stop-Loss Level (if relevant) / Level at which Leveraged Certificate expires automatically / Issuer / Up to 6 characters, e.g. “230”
Certificate Bonus Level (if relevant) / Level at which Bonus Certificate will expire so long as specific conditions are met / Issuer / Up to 6 characters, e.g. “160000”
Barrier Level (if relevant) / Level at which barrier warrantwill automatically expire / Issuer / Up to 6 characters, e.g. “1200”
Certificate Discount/Upside Participation Level (if relevant) / Level of discount at which certificate trades, or level at which the certificate takes part in upside / Issuer / Up to 6 characters, e.g. “12”
Discount Certificate Cap Level / Level at which upside of discount certificate is capped / Issuer / Up to 6 characters, e.g. “135”
Warrant ratio / Number of warrants required to obtain exposure to a single unit of the underlying. / Issuer / Max 6 characters, e.g. “10000”.
Exchange Market Size (EMS) / This is the minimum number of stocks the market maker (issuer) will be required to quote in at the displayed price. / Issuer
Settlement type / Show whether cash or stock/other settled. / Issuer / Two options:
Cash for cash-settled
Stock for stock/other-settled
Expiry date / Date when warrant will expire. / Issuer / Format ddmmyy, e.g. 250606
Expiry time / Time warrant will expire on expiry date. / Issuer / hh:mm:ss, e.g. 16:30:00
Expiry source / Allows issuer to indicate which price of the underlying they would prefer to use for the expiry of the warrant. / Issuer / Two options:
CLOSEfor closing price
VWAPfor VWAP price on expiry date
LAST AT for last automatic trade completed in underlying
OTHER for any other price
Number of warrants issued / Number of warrants issued in this line. / Issuer / Numbers only, e.g. “5000000”
Trading Segment / Appropriate segment for the warrant / Issuer / LVSD or INSD
Trading sector / Allows Issuer to indicate where they would like their warrants located, whether it’s on the order book or RSP Gateway. / Issuer / 4 letter code specifying relevant sector in relevant - see Appendix 4
Country of register (if applicable) / Location of the warrant registrar. May not be used by all issuers / Issuer / Country codes as per ISO standards, e.g. “GB”
Trading currency / Currency the issuer expects the warrant to trade in. / Issuer / 3 characters, conforming to ISO standards, e.g. “GBX”
Liquidity provider code / Name of member firm that will provide liquidity in warrants (will be used as defacto CP registration where CP is the Issuer). / Issuer / 4-letter code of member firm mnemonic, e.g. “GSIL”
Warrant tranche number / Issuance controlled by Issuers. / Issuer / Used by the Exchange to create the TIDM.
3 numbers, e.g. “495”

Indicative Price Form