Harmless Warrant
Categories: Derivatives
You traffic in stolen vintage clothing (mostly disco shirts from 1970s Eastern Europe). Cops arrive at your house with a search warrant, but you’re not worried. The contraband is stored in your grandma’s attic. Harmless warrant.
Another definition comes up in finance. It involves a bond that carries a warrant that forces the holder to turn in the bond if they want to buy another bond of exactly the same type.
You have a 5-year bond with a 5% interest rate from Swaptastic Co. It carries a harmless warrant. If you want to buy another 5-year bond with a 5% interest rate from Swaptastic Co., you have to trade in your first bond.
The main goal is to prevent the sale of too many bonds...it keeps the debt issuance in check. Meanwhile, the warrant doesn't have any other effect. That fact explains why it's called "harmless."