Derivative investments are 'derived' from other tradeable securities. The value of derivative investments should be obtained from market reports in the Australian Financial Review and other newspapers.
Futures contracts
Futures contracts are:
- agreements to buy or sell commodities or securities, at an agreed price and on a specified date,
- available through the Sydney Futures Exchange, and
- purchased for a fraction of their settlement value.
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Assessment of exchange traded options
9.5.5/Deemed Income from Listed Securities, Derivative Investments & Foreign Shareholdings
Exchange traded options
Exchange traded options are contracts:
- to buy or sell nominated shares during a specified period,
- traded through the Sydney-based Australian Options Market, and
- between two investors, not dealings between an investor and a company.
There are two types of exchange traded options as described in the following table:
|
A... |
Gives the holder the right to... |
|
'call' option |
buy nominated shares. |
|
'put' option |
sell nominated shares. |
The price at which the option contract can be exercised is:
- called the 'strike' or 'exercise' price, and
- determined at the time of issue.
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Assessment of exchange traded options
9.5.5/Deemed Income from Listed Securities, Derivative Investments & Foreign Shareholdings
Warrants
A warrant is a form of option that gives the holder the right to buy or sell a share at a pre-determined price. Warrants are traded on the Australian Stock Exchange through the same trading system as ordinary shares. The timing for exercising this option can vary as described in the following table:
|
If a warrant is traded as an... |
Then the holder has the right to buy or sell... |
|
American-style exercise |
within a fixed period. |
|
European-style exercise |
on a specified date. |
Endowment warrants
Endowment warrants:
- are purchased for a percentage of the current value of the underlying shares (typically 30% to 60%), and
- comprise a selection of shares with reliable dividends, which are used to pay off the outstanding amount of the purchase over an 8 to 10 year period.
When the outstanding amount is paid off, the investor gains full ownership of the shares, including capital gains that have accrued during the settlement period.
Assessment of endowment warrants
9.5.5/Deemed Income from Listed Securities, Derivative Investments & Foreign Shareholdings
Rights
A right is an offer of additional shares to existing shareholders, and its market value is typically a small percentage of the value of the company's ordinary shares. Exercising a 'rights' offer increases a pensioner's shareholding, and therefore, the total value of their financial assets for deeming purposes.
Share ratio contracts
A share ratio is based on the performance of an individual share against the All Ordinaries Index.
Assessment of share ratio contracts
9.5.5/Deemed Income from Listed Securities, Derivative Investments & Foreign Shareholdings
A share ratio contract:
- is an equity derivative, and
- reflects a share's performance against that of other shares traded in the market, as measured by the All Ordinaries Index.