Foreign banks have played a central role in making warrants a wildly popular investment in Singapore.

Now, after three years of heady expansion, they are confident this year will be another record-breaker - even if growth may not be as breathtaking.

Banks are now issuing fresh warrants with longer maturities to enable traders to sit out the sort of short-term wild price swings that have hit the market in the wake of the United States sub-prime mortgage crisis in August.

Through warrant offerings, banks also give investors a chance to get exposure to stocks in popular markets, such as Malaysia, which are enjoying an export-led commodities boom.

Warrants give the holder an option to buy into a popular blue chip or a stock market index over a period of time - usually three to six months - at a pre-determined price.

Traders stand to make a fat profit or lose a big pile because a small change in the mother share can mean a bigger percentage change in the warrant price.

'As more investors become aware of the advantages of warrants and how to use them, the size of the warrant market will continue to increase,' said Mr Barnaby Matthews, Macquarie Securities' head of warrants.

Turnover in the warrant market has continued to grow over the past six months, despite the turmoil inflicted on stock markets all over the world by the US sub-prime crisis.

'If you compare the six months ending January this year with the same period last year, you can see that traded volumes have almost doubled,' he added.

Turnover in warrants almost doubled to $28.2 billion last year from $14.2 billion in 2006, as contracts on widely followed market indexes, such as the Hang Seng and the Straits Times Index, saw record volumes.

The number of active warrant traders also shot up dramatically from some 2,000 SGX accounts trading covered warrants in July 2006 to around 22,000 a year later.

While short-term warrants were all the rage among traders during last year's supercharged bull run, however, investors are now going for warrants with longer maturity terms.

Mr Simon Yung, BNP Paribas' head of retail listed products sales for Singapore and Hong Kong, said warrants, with a six- to 12-month timeframe accounted for more than half of all contracts traded last month.

By contrast, when investors were still in an exuberant mood in November, 65 per cent of the traded warrants expired in three months or less.

'We recently launched a series of warrants maturing in 2010. The seminar introducing them was packed, and we had to turn away a lot of people. It is a good reflection of the people's choice in a volatile market.'

The same goes for Macquarie, which received very positive feedback for its 'investment' warrants whose special features included a longer expiry date and passing all dividend payouts to their holders.

Taking a different approach, though, another big warrant issuer, Societe Generale (SG), is promoting contracts issued on Malaysian stocks.

'The outlook for the Malaysian market looks good, with commodities prices at record levels.. These warrants offer investors another avenue to participate in the Malaysia stock market,' said Mr Ooi Lid Seng, SG vice-president of structured products for Asia, excluding Japan.

engyeow@sph.com.sg