Corporate Actions Warrants

BME adjusts warrants to maintain economic equivalence following events in the underlying asset:

• Knock-out Redemption: If the underlying touches a barrier (in Turbo products), the warrant expires automatically and prematurely.

• Corporate Actions: BME modifies the Strike Price and Ratio (Parity) following extraordinary dividends, splits, reverse-splits, or spin-offs to prevent artificial value fluctuations.

• Barrier Activation: For Bonus or Inline certificates, touching a barrier changes the payout structure or eliminates capital protection. 

The primary goal of any adjustment performed by BME is to maintain Economic Equivalence. This means that the financial operation should be "value-neutral" for both the investor and the issuer at the moment it occurs:

• Adjustment to Strike and Ratio: When a corporate action (like a split or extraordinary dividend) occurs, BME applies an Adjustment Factor (R-factor).
  • The Strike Price is typically multiplied by the R-factor.
  • The Ratio (Parity) is typically divided by the R-factor.
  • This ensures that the "Intrinsic Value" of the warrant remains the same before and after the event.

• Impact of Knock-out Events: In the case of an early redemption (Knock-out), the price effect is immediate: the warrant's market value drops to its residual value (which may be zero), and the product is delisted