What is XW?
XW is a ticker-symbol extension that signifies that a stock is trading ex-warrant.
How Does XW Work?
Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time. Occasionally, companies offer warrants for direct sale or give them to employees as an incentive, but the vast majority of warrants are "attached" to newly issued bonds or preferred stock.
For example, if Company XYZ issued $100 million of preferred stock with warrants attached, each shareholder might get the right to purchase 10 shares of Company XYZ stock at $20 per share over the next five years. Warrants usually permit the holder to purchase common stock of the issuer, but sometimes they allow the purchaser to buy the stock or bonds of another entity (such as a subsidiary or even a third party).
Similar to when a stock goes ex-dividend, when the warrant window closes, the stock starts trading ex-warrant, and the ticker symbol carries an XW after it. In McDonalds's case, for example, the ticker would change from MCD to MCD-XW if and when the stock goes ex-warrant. If the stock were trading with warrants attached in the first place, the ticker would have WW at the end (like this: MCD-WW).
Why Does XW Matter?
When a security starts trading ex-warrant, its price typically dips. That's because the buyer no longer gets that little extra bonus of a warrant attached. In turn, the buyer of an XW security does not receive the warrant; the seller gets it. Accordingly, it is very important to understand what ticker extensions mean, and it is equally important to know in advance when a security will start trading ex-warrant.
