This article explains specific instrument properties used in FundApps to define the characteristics of convertible bonds and warrants.

These two instruments contain an underlying instrument, usually an equity. In a positions file, this is represented as the component. The InstrumentId of the component allows FundApps to reference the underlying equity properties without having the instrument properties listed twice in the positions file. However, there are still some properties specific to the top-level instrument that play a large role in determining whether a convertible bond or warrant is disclosable under specific disclosure regimes.

Convertible bonds are debt instruments modelled with the asset class of "Convertible" in FundApps and have an underlying equity. There are various characteristics of these bonds which are relevant in the shareholding disclosure world. In shareholding disclosure, the treatment of these bonds is very similar to the treatment of warrants, modelled with the asset class "Warrant".

These two asset classes are similar in the sense that the same characteristics for both asset types determine whether they are disclosable under certain regimes. Below is a description of these characteristics as well as an explanation of how FundApps captures these aspects.

When providing the Quantity for convertible bonds and warrants, enter the number of actual bonds or warrants held. We have seen examples of clients providing the nominal value of their assets instead of the quantity. If this is the case, you should calculate the quantity as:

Quantity = (nominal value of your asset)/(face value of a single bond)

This should be the first day the security can be converted into the underlying.

This property defines whether a convertible bond references shares already in issue or shares to be issued by the issuer upon conversion of the bond. This information is needed as some disclosure regimes only ask for disclosure of bonds that convert into shares already issued in the market, sometimes referred to as exchangeable bonds.

As the prospectus for some convertible bonds may allow for conversion into issued shares, "to be issued" shares, and even cash in some cases, we understand that setting this property is not as black and white as it sounds. Further, the conversion choice might be determined on the day of conversion and will not be something that investors will know during the time the bond is held. Hence, if this information can't be sourced readily, FundApps allows the use of the value "Undetermined". The reason that FundApps allows this value is that setting the property to "True" or "False" will not be conservative across the entire rule package. Using "Undetermined" will treat the convertible bonds conservatively across all the FundApps rules.

This property works exactly the same way as IsCoveredConvertible, meaning that it determines whether the warrant references shares already in issue (True) or shares to be issued upon conversion of the warrant (False). We have not come across warrants where the conversion was not defined, so the "Undetermined" value is not accepted in this case.

This property is used to specify whether the holder of the convertible bond or warrant also holds the right to convert it. Some disclosure regimes are only interested in convertibles and warrants if the holder also has control over them when the conversion takes place, meaning that the holder can decide when it will receive the underlying shares of the convertible or warrant. These regimes will, therefore, not be interested in holdings that are converted when instructed by the issuer of the bonds. If in doubt about how to populate this property, the conservative approach will be to set it to "True" for all convertible bonds and warrants.

These are the most important characteristics of convertible bonds and warrants regarding shareholding disclosure. To view the full data specifications, please visit our documentation page. Should you have any additional questions, please contact FundApps Support.