Merrill Lynch is continuing to issue equity-linked warrants into Taiwan, in spite of the market being boycotted by domestic participants. "Local players have legitimate grievances and Merrill stopped issuing warrants out of respect to these houses," said an official at the firm, "But at some point you need to focus on the commercial considerations." The U.S. house has launched a handful of warrants since regulatory restrictions for international players were eased late last year (DW, 12/05), but has remained cautious in the market as domestic players and other foreign houses are still on the sidelines. The firm's latest issue, a few weeks ago, was referenced to China Steel Corp.
Domestic issuers went on strike at the onset of the year to protest against taxation of the full warrant premium, when in fact much of the money received from issuing warrants is used for trading shares to delta-hedge the position (DW, 2/10). Since then some inroads have been made with regulators and premium on new issues will no longer be fully taxed. Talks have stalled, however, as authorities continue to demand full taxes for previous issuance, which stretches back years.
Warrants for Taiwan are typically hedged via over-the-counter options or through equity-linked notes.
