Callable Bull/ Bear Contracts (CBBC) Driving Investment Power

Transcription

1 Callable Bull/ Bear Contracts (CBBC) Driving Investment Power

2 T a b l e o f C o n t e n t s Basic Power One How do CBBC work? 4 Two How are CBBC priced? 5 Three Difference between Category R and N 6 Four Mandatory Call Mechanism 7 Five How to calculate Investment Profit/Loss? 8-11 Six Investment Risks of CBBC 12 Advanced Power One Factors affecting Gearing Ratio 14 Two Conversion Ratio reflects Sensitivity 15 Three Interpreting the name of CBBC 16 Four Comparison between CBBC and Warrants 17 Five Other Important Trading Information 18 Releasing Power One Steps to select CBBC 20 Two Medium to Long-Term Strategy 21 Three Short-Term Strategy 22 Practical Tests 23 Introduction to HSBC CBBC Website HSBC CBBC Hotline: Prepared by Wealth Management Sales, HSBC Global Markets

3 BASIC POWER

4 B A S I C P O W E R ONE How do CBBC work? Callable Bull/Bear Contracts (CBBC) are derivatives traded on the Hong Kong stock exchange. Investors who have a positive view on the underlying asset can consider investing in a bull contract. Conversely, those who are bearish on the prospect of the underlying asset may invest in a bear contract. Movement of the price of CBBC is essentially dependent on the movement of the price of the underlying asset. CBBC s gearing feature allows investors to capture the movement of the underlying asset and hence magnify investment returns by paying only a fraction of the underlying asset price. However, investors potential loss would also be magnified in the same fashion if their market forecast is proven to be wrong. The first CBBC in Hong Kong was launched in June The underlying asset can be a local or foreign index and stock, or even a commodity or a currency. In addition to its gearing feature, the pricing mechanism of CBBC is simple and direct, and its price transparency is higher than that of other structured products. The price of CBBC consists of two components, Intrinsic Value (the difference between the price of the underlying asset and the exercise price of CBBC) and Financial Costs charged by the issuer. In the meantime; however, CBBC features a mandatory call mechanism. If the price of the underlying asset touches or is below the Call Price of a bull contract, or the price of the underlying asset touches or is above the Call Price of a bear contract, a Mandatory Call Event will take place to the relevant bull contract or bear contract, and trading will be terminated immediately. Moreover, CBBC is an investment tool with a time period and has a maturity date. If an investor holds a CBBC until maturity, his/her profit or loss from this investment will depend on the settlement conditions. 4

5 B A S I C P O W E R TWO How are CBBC priced? As a type of derivatives, the price of CBBC is naturally linked to the price of the underlying asset. Intrinsic value and financial costs are the two major components of the price of CBBC. Hence, the price of the underlying asset and financial costs will be the key influential factors on the theoretical price of CBBC. However, as an investment tool traded freely on the stock exchange, the actual price of CBBC may be affected by market demand and supply and therefore, deviate from the theoretical value. Intrinsic value is the difference between the spot price of the underlying asset and the exercise price of the CBBC. The wider the gap, the higher the intrinsic value will be. For example*: the exercise price of a bull contract on Stock A is HKD100.00, the conversion ratio is 1:1 and the spot price of Stock A is HKD120.00; then the intrinsic value of the bull contract on Stock A will be HKD Financial costs are the charges an issuer imposes on investors to cover its financing costs. These financing costs are usually adjusted according to the borrowing rate of the market. For instance, the inter-bank offered rate will be used as a reference and a certain percentage will be added to it. Financial costs will be reflected by the price of CBBC, and will be reduced from the price of the CBBC on a daily basis as the CBBC is approaching maturity. Financial costs are calculated by the following formula: Financial costs = exercise price x annual rate x tenor of CBBC The following two simple formulae can be used to calculate the theoretical price of CBBC: Theoretical price of a bull contract = (underlying asset price - exercise price) + financial costs conversion ratio Theoretical price of a bear contract = (exercise price underlying asset price) + financial costs conversion ratio Factors affecting price movement of CBBC: Factor Change in Factor Price Movement of Bull Contract Price Movement of Bear Contract Underlying asset price Financial costs * The example is for illustrative purposes only and is not indicative of future returns. 5

6 B A S I C P O W E R THREE Difference between Category R and N Different from warrants, CBBC not only has an exercise price but also a call price. Depending on where the exercise price and the call price are placed, CBBC can be classified as Category R and Category N. Category R refers to CBBC that has a residual value after the mandatory call event whereas Category N refers to CBBC that has no residual value after the mandatory call event. Both Category R CBBC and Category N CBBC have an exercise price and a call price. The distinction is that the call price and the exercise price of Category N CBBC are set at the same level whilst there is a gap between the exercise price and the call price of Category R CBBC. For a Category R bull contract, the call price will be above the exercise price; and the call price of a Category R bear contract will be below the exercise price. When a mandatory call event occurs to a Category N CBBC, its intrinsic value will be equal to HKD0, and therefore, no residual value can be distributed to its holders. On the contrary, when a Category R CBBC is called, its intrinsic value is generally above HKD0, and therefore it may have residual value to be distributed to its holders. In the worst case scenario, there may not be any residual value. Bull Contract Bear Contract Category Category R Bull Contract Category N Bull Contract Category R Bear Contract Category N Bear Contract Function Bullish view Bullish view Bearish view Bearish view Where the call price and exercise price are placed call price > exercise price call price = exercise price call price < exercise price call price = exercise price 6

7 B A S I C P O W E R FOUR Mandatory Call Mechanism The mandatory call mechanism of CBBC is often considered an automatic execution of stoploss arrangement on behalf of investors. A CBBC being called implies that investors have already forecasted the price movement of the underlying asset inaccurately. The mandatory call event may allow investors to regain part of the principal so as to plan for further investment. The operation of the mandatory call mechanism is that, when the price of the underlying asset touches or is below the call price of a bull contract, or when the price of the underlying asset touches or is above the call price of a bear contract, such bull or bear contract will be matured early and trading will be terminated immediately. For instance, assume the call price of a Hang Seng Index bull contract is 25,000 points and if the Hang Seng Index falls to the level of 25,000 points from a level higher, even though the index would bounce back soon after touching the call level, such Hang Seng Index bull contract will be called regardless. The arrangement of a CBBC after the mandatory call event depends on whether it belongs to Category R or N. For Category N CBBC with no residual value after the mandatory call event, its value will be equal to HKD0 and its holders will not receive any cash distribution. On the contrary, for Category R CBBC which has residual value, under normal circumstances its holders will be able to receive residual value. The listing document of a CBBC will clearly specify the calculation of residual value. First of all, a settlement price during a specific observation period will be used as a reference to calculate residual value. The observation period starts soon after the moment the mandatory call event occurred to the CBBC and is up to the next complete trading session. The lowest trading price during the observation period will be used for bull contracts while the highest trading price during the observation period will be used for bear contracts. However, one should note that under most circumstances residual value would be lower than the value of the CBBC before the mandatory call event. Under individual and distinctive circumstances such as market being unusually volatile, the settlement price could be below (for bull contracts) or above (for bear contracts) the exercise price, and CBBC holders would be left no residual value to receive. The formulae to calculate residual value of CBBC are as follows: Residual value of bull contract = Residual value of bear contract = settlement price ** - exercise price conversion ratio exercise price - settlement price ** conversion ratio ** Note: The settlement price of the bull contract must not be lower than the minimum trading price of the underlying asset during the period between the mandatory call event and up to and including the next trading session. The settlement price of the bear contract must not be higher than the maximum trading price of the underlying asset during the period between the mandatory call event and up to and including the next trading session. 7

8 B A S I C P O W E R FIVE How to calculate Investment Profit/Loss? The following examples* explain the profit and loss of CBBC under different scenarios: Assumptions: Category R Bull Contract on Stock A Exercise price: HKD Call price: HKD Conversion ratio: 10:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 1 year Spot price of Stock A: HKD Price of bull contract (cost): [(HKD HKD100.00) + (HKD x 10.00% x 1)] / 10 = HKD3.000 Scenario 1: Contract is sold in market prior to maturity Category R Bull Contract on Stock A Exercise price: HKD Call price: HKD Conversion ratio: 10:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 6 months Spot price of Stock A: HKD Price of bull contract: [(HKD HKD100.00) + (HKD x 10.00% x 6/12)] / 10 = HKD5.500 Rise in Stock A: HKD HKD = HKD30.00 Rise in Stock A (%): [(HKD HKD120.00) / HKD120.00] x 100% = 25.00% Gain on each bull contract: HKD Cost HKD3.000 = HKD2.500 Gain on each bull contract (%): [(HKD HKD3.000) / HKD3.000] x 100% = 83.33% * The example is for illustrative purposes only and is not indicative of future returns. 8

9 BScenario 2: Mandatory call event occurred prior to maturity Category R Bull Contract on Stock A A S I C P O W E R Exercise price: HKD Call price: HKD Conversion ratio: 10:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 6 months The price has once fallen below HKD110.00, the settlement price is HKD (Note: The settlement price of the bull contract must not be Price of Stock A: lower than the minimum trading price of the underlying asset during the period between the mandatory call event and up to and including the next trading session.) Mandatory call event occurred to the bull contract, only Residual value: residual value can be received: (HKD HKD100.00) / 10 = HKD0.800 Fall in Stock A: HKD HKD = HKD12.00 Fall in Stock A (%): [(HKD HKD108.00) / HKD120.00] x 100% = 10.00% Loss on each bull contract: Cost HKD HKD0.800 = HKD2.200 Loss on each bull contract (%): [(HKD HKD0.800) / HKD3.000] x 100% = 73.33% Scenario 3: Contract is held until maturity Category R Bull Contract on Stock A Exercise price: HKD Call price: HKD Conversion ratio: 10:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 0 month Settlement price of Stock A: HKD Settlement price: (HKD HKD100.00) / 10 = HKD5.000 Rise in Stock A: HKD HKD = HKD30.00 Rise in Stock A (%): [(HKD HKD120.00) / HKD120.00] x 100% = 25.00% Gain on each bull contract: HKD Cost HKD3.000 = HKD2.000 Gain on each bull contract (%): [(HKD HKD3.000) / HKD3.000 = 66.67% * The example is for illustrative purposes only and is not indicative of future returns. 9

10 Assumptions: B A Category R Bear Contract on Stock B S I C P O W E R Exercise price: HKD11.00 Call price: HKD10.00 Conversion ratio: 1:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 1 year Spot price of Stock B: HKD9.00 Price of bear contract (cost): [(HKD HKD9.00) + (HKD11.00 x 10.00% x 1)] / 1 = HKD3.100 Scenario 1: Contract is sold in market prior to maturity Category R Bear Contract on Stock B Exercise price: HKD11.00 Call price: HKD10.00 Conversion ratio: 1:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 6 months Spot price of Stock B: HKD7.75 Price of bear contract: [(HKD HKD7.75) + (HKD11.00 x 10.00% x 6/12)] / 1 = HKD3.800 Fall in Stock B: HKD HKD7.75 = HKD1.25 Fall in Stock B (%): [(HKD HKD7.75) / HKD9.00] x 100% = 13.89% Gains on each bear contract: HKD Cost HKD3.100 = HKD0.700 Gains on each bear contract (%): [(HKD HKD3.100) / HKD3.100] x 100% = 22.58% * The example is for illustrative purposes only and is not indicative of future returns. 10

11 BScenario 2: Mandatory call event occurred prior to expiry Category R Bear Contract on Stock B A S I C P O W E Exercise price: HKD11.00 Call price: HKD10.00 R Conversion ratio: 1:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 6 months The price has risen above HKD10.00, the settlement price is HKD Price of Stock B: (Note: the settlement price of a bear contract must not be higher than the maximum trading price of the underlying asset during the period between the mandatory call event and up to and including the next trading session.) Mandatory call event occurred to the bear contract, Residual value: only residual value can be received: (HKD HKD10.50) / 1 = HKD0.500 Rise in Stock B: HKD HKD9.00 = HKD1.50 Rise in Stock B(%): [(HKD HKD9.00) / HKD9.00] x 100% = 16.67% Loss on each bear contract: Cost HKD HKD0.500 = HKD2.600 Loss on each bear contract (%): [(HKD HKD0.500) / HKD3.100 = 83.87% Scenario 3: Contract is held until maturity Category R Bear Contract on Stock B Exercise price: HKD11.00 Call price: HKD10.00 Conversion ratio: 1:1 Financial costs: Annual rate 10.00% Time remaining to maturity: 0 months Settlement price of Stock B: HKD6.00 Settlement price: (HKD HKD6.00) / 1 = HKD5.000 Fall in Stock B: HKD HKD6.00 = HKD3.00 Fall in Stock B (%): [(HKD HKD6.00) / HKD9.00] x 100% = 33.33% Gains on each bear contract: HKD Cost HKD3.100 = HKD1.900 Gains on each bear contract (%): [(HKD HKD3.100) / HKD3.100] x 100% = 61.29% * The example is for illustrative purposes only and is not indicative of future returns. 11

12 B A S I C P O W E R SIX Investment Risks of CBBC Since investment involves risks, investors should understand the theory of high returns, high risks. With its gearing feature, a CBBC may magnify potential returns and potential losses as well. An investor should carefully evaluate his/her own risk tolerance prior to investment. If an investor does not borrow money to invest, in the worst case scenario he/she would only lose all investment capital as a result of the CBBC investment. The risks of CBBC investment will become prominent under the following scenarios: Inaccurate Market Forecast: Inaccurately judging the movement of the price of the underlying asset is the most common cause that CBBC investors suffer losses. If an investor discovers errors in the initial analysis, or market conditions and factors affecting the price of the underlying asset have changed and the price of CBBC is falling as a result of inaccurate market forecast, it would be better for the investor to consider a stop-loss. Mandatory Call Event to CBBC: When the market is undergoing unusual fluctuations, the chance that a CBBC is being called would be substantially higher. Investors should pay attention to relevant risks and consider a CBBC that has a wider gap between the call price and the price of the underlying asset. Moreover, when a mandatory call event occurs to a CBBC, the holders would generally suffer losses. This is because even for Category R CBBC that has residual value, the distributed residual value following the call event would normally below the value of the CBBC before the call event. On certain occasions, there would be no distribution of residual value. Gearing Feature: The lower the intrinsic value of a CBBC, the higher its effective gearing. When a CBBC is very close to its call price, its price volatility would suddenly increase. This is because during that period the CBBC may feature several ten times of effective gearing, even a slight change in the price of the underlying asset would affect the price of the CBBC. Moreover, the close-tohappening of a call event may trigger investors to sell the contracts due to fear, resulting in the price of the CBBC deviating from the theoretical level. This situation is more prominent for CBBC with a high outstanding quantity. 12

13 ADVANCED POWER P.13

14 A D V A N C E D P O W E R ONE Factors affecting Gearing Ratio CBBC allow investors the potential of making huge gains through small investment. This is because through CBBC investment investors may receive potential returns very similar to direct investment in the underlying asset; however, investors would only need to invest a small fraction compared to direct investment in the underlying asset. The ratio of using only a small capital to control a larger entitlement can be reflected by the gearing ratio. The method to calculate the gearing ratio is as follows: Gearing ratio = underlying asset price price of CBBC x conversion ratio Since CBBC are a type of derivatives with delta being equivalent to 1, the value of its gearing ratio is therefore, equivalent to effective gearing. Effective gearing helps to quicken the calculation of the price movement of the CBBC in response to the price movement of the underlying asset. For instance, a CBBC with an effective gearing of 10 times means that for each 1% change in the price of the underlying asset, the theoretical price of the CBBC may increase or decrease by 10%. Generally speaking, the closer between the exercise price and the spot price of a CBBC s underlying asset, the higher the gearing ratio the CBBC will have. This implies that the CBBC will feature a higher price fluctuation its price will go up and down more quickly. While the potential returns are attractive, investors should pay attention to high risks associated with such high returns. In addition, this type of CBBC has a higher risk of being called. Since financial costs normally account only a small portion of the price of the CBBC; therefore, investors in general focus more on the impact of the exercise price on the gearing ratio. 14

15 A D V A N C E D P O W E R TWO Conversion Ratio reflects Sensitivity Conversion ratio is one of the terms and conditions of a CBBC. While it would not affect the effective gearing of the CBBC, this particular term would determine the sensitivity of the price of the CBBC in response to the price movement of the underlying asset. It refers to how much the underlying asset has to move in order to push the theoretical price of the CBBC up or down by one unit. The smaller the conversion ratio, the more sensitive the price of the CBBC would be in response to the price movement of the underlying asset. This means that only a small price movement of the underlying asset is required in order to push the theoretical price of the CBBC up or down by one unit. The calculation is very simple: Price movement of the underlying asset = the lowest trading spread of CBBC x conversion ratio Example*: Assume the conversion ratio of an index CBBC is : 1 and its price is below HKD0.250, then its lowest trading spread will be HKD According to the above formula, we will have x = 10, which means that for each 10 points of movement in the index futures will push such CBBC up or down by HKD * The example is for illustrative purposes only and is not indicative of future returns. 15

16 A D V A N C E D P O W E R THREE Interpreting the name of CBBC The short form of a CBBC consists of some characters such as HS#HSI RC0903A. Studying the name of a CBBC in detail will allow us to distinguish a CBBC from a warrant clearly and understand some terms and conditions. Example*: HS#HSI RC0903A HS The first 2 characters represent the acronym of the issuer, in this example HSBC. # This represents CBBC. HSI R C The characters represent the underlying asset, in this example Hang Seng Index. The character represents the CBBC being a Category R CBBC. For Category N CBBC, the character will become N. The character represents the CBBC being a bull contract. For a bear contract, the character will become P The characters represent the maturing year and month. In this example, March A The character represents the number of issuances, the first time is A, the second is B, and so on. * The example is for illustrative purposes only and is not indicative of future returns. 16

17 A D V A N C E D P O W E R FOUR Comparison between CBBC and Warrants Both CBBC and warrants are derivative investment products listed on the stock exchange. Some investors may get confused due to certain similarities between these two products in terms of the product nature. Actually, the two products differ in some areas and the following table is a summary of them: Comparison CBBC Warrants Underlying asset Index, stock, commodity, currency, etc. Index, stock, commodity, currency, etc. Trading method Traded on the stock exchange Traded on the stock exchange Taking bullish view Bull contract Call warrant Taking bearish view Bear contract Put warrant Exercise price Yes Yes Call price Yes No Mandatory call mechanism When the price of the No underlying asset touches or is below the call price (bull contract) When the price of the underlying asset touches or is above the call price (bear contract) Impact of implied volatility No Yes Maturity Yes Yes Holding cost Financial costs will be deducted daily Time value will gradually decrease when product approaches maturity 17

18 A D V A N C E D P O W E R FIVE Other Important Trading Information Every CBBC features a maturity date and this will be clearly stated in the listing documents. Investors must note that if a mandatory call event does not occur to a CBBC prior to maturity, the last trading day of the CBBC is actually the trading day prior to maturity but not the maturity date itself. If a CBBC is held by an investor until maturity, then investment returns will depend on the settlement conditions of the CBBC. If the settlement price is above the exercise price of a bull contract or below the exercise price of a bear contract, the investor will receive settlement amount. In regard to determining the settlement price, stock CBBC and index CBBC vary slightly. The settlement price of stock CBBC is based on the closing price of the underlying on the last trading day, whereas the calculation of the settlement price of index CBBC is based on the settlement price of the last trading day of the same month expiry index futures contract (EAS 5 minute average price of the index). Stock CBBC Sunday Monday Tuesday Wednesday Thursday Friday Saturday 21/9 22/9 23/9 24/9 25/9 26/9 27/9 - Last trading day Maturity - Price calculation day date - Mandatory call event observation period until trading close 28/9 29/9 30/9 1/10 2/10 3/10 4/10 Index CBBC Sunday Monday Tuesday Wednesday Thursday Friday Saturday 21/9 22/9 23/9 24/9 25/9 26/9 - Last trading day - Mandatory call event observation period until trading close 28/9 29/9 - Maturity date (settlement date of same month expiry index futures contract) - Price calculation day 18 27/9 30/9 1/10 2/10 3/10 4/10

19 RELEASING POWER

20 R ELEASING POWER ONE Steps to select CBBC Having a viewpoint on the price of the underlying asset is of utmost importance in CBBC investment. After analyzing the future market performance of the underlying asset, personal goals in returns and own risk tolerance, an investor may apply the following five steps to select a CBBC: Select Underlying Asset Select Bull Contract or Bear Contract Select Call Price, Category N or R Select Exercise Price and Conversion Ratio Select Maturity Date 20

21 R ELEASING POWER TWO Medium to Long-Term Strategy Investment goal: To capture the medium to long-term price trend of the underlying asset (e.g. from 6 months up to 1 year). Key points in selecting CBBC: Since medium to long-term holding is planned, it is preferable to choose a CBBC with a longer maturity. Besides, in order to avoid the mandatory call mechanism from being triggered by short-term volatility of the market when aiming to capture the price movement over a longer period, it is preferable to choose a CBBC with a wider gap between its call price and the price of the underlying asset as this will reduce the chance of the CBBC being called. Example*: Select Underlying Asset (If there is a view on the Hang Seng Index, a CBBC on Hang Seng Index can be considered.) Select Bull Contract or Bear Contract (If there is a bullish view on the future trend of the Hang Seng Index, a bull contract on Hang Seng Index can be considered.) Select Call Price, Category N or R (If the Hang Seng Index is anticipated to be very volatile that the range could be up to several thousand points, a bull contract on Hang Seng Index in which the gap between the call price and the spot price of the Hang Seng Index features approximately 2000 points can be considered.) Select Exercise Price and Conversion Ratio (Based on risk tolerance to choose the exercise price. To capture the market trend, a bull contract on Hang Seng Index of a moderate conversion ratio may be considered.) Select Maturity Date (To capture the upward trend of the Hang Seng Index in the next few months, a bull contract on Hang Seng Index to be matured in 6 months to 1 year may be considered.) * The example is for illustrative purposes only and is not indicative of future returns. 21

22 R ELEASING POWER THREE Short-Term Strategy Investment goal: To capture the short-term price trend of the underlying asset (e.g. from same day trading up to 3 months). Key points in selecting CBBC: Since short-term holding is planned, consideration will not be limited to CBBC with a longer maturity. Besides, since the aim is to make profit by capturing short-term volatility, investors may take a more aggressive approach to select a CBBC featuring a closer gap between the call price and the price of the underlying asset so as to achieve a higher effective gearing. Moreover, it is preferable to select a CBBC with a smaller conversion ratio so as to increase the sensitivity of the price of CBBC in response to the underlying. Example*: Select Underlying Asset (If there is a view on the Hang Seng Index, a CBBC on Hang Seng Index can be considered.) Select Bull Contract or Bear Contract (If there is a bullish view on the future trend of the Hang Seng Index, a bull contract on Hang Seng Index can be considered.) 22 Select Call Price, Category N or R (If the Hang Seng Index is anticipated to be very volatile that the range could be up to several thousand points, therefore, a bull contract on Hang Seng Index in which the gap between the call price and the spot price of the Hang Seng Index features approximately 2000 points can be considered.) Select Exercise Price and Conversion Ratio (Based on risk tolerance to select the exercise price. To capture short-term volatility, a bull contract on Hang Seng Index that features a smaller conversion ratio can be considered.) Select Maturity Date (To capture the short-term growth of the Hang Seng Index, a bull contract on Hang Seng Index that features a period of 1 month and above can be considered.) * The example is for illustrative purposes only and is not indicative of future returns.

23 P R A C T I C A L T E S T S Test 1 How are the financial costs of a CBBC calculated? Answer: Financial costs = exercise price x annual rate x tenor of CBBC. Test 2 What is the difference between Category R CBBC and Category N CBBC? Answer: Category R refers to CBBC that has a residual value after the mandatory call event whilst Category N refers to CBBC that has no residual value after the mandatory call event. Test 3 Is the call price of a Category R bear contract is higher or lower than its exercise price? Answer: Lower. Test 4 How does the mandatory call mechanism work? Answer: When the price of the underlying asset touches or is below the call price of a bull contract, or when the price of the underlying asset touches or is above the call price of a bear contract, such bull or bear contract will be matured early and trading will be terminated immediately. Test 5 The call price of a Category R bull contract on stock is HKD80.00, its exercise price is HKD70.00 and conversion ratio is 10:1. Assume after reaching the call price the stock bounced back to HKD90.00, can this bull contract be traded continuously? Answer: No. For each bull contract, the residual value received will not be more than (HKD HKD70.00) / 10 = HKD However, it should be noted that after the mandatory call event and up to and including the next trading session if the minimum trading price of the underlying asset is even lower than the exercise price, CBBC holders would be left no residual value to receive. 23

24 I N T R O D U C T I O N T O H S B C C B B C W E B S I T E For those of you intending to invest in CBBC, good preparation prior to taking any actions would certainly give you a higher chance of success than others. Please go to HSBC Warrants website ( and click on the HSBC CBBC (as shown in blue circle below). HSBC CBBC 24

25 CBBC Search Not sure how many CBBC are available in the market? CBBC Search allows you to look for suitable CBBC based on criteria such as issuer, underlying, CBBC type and so on! CBBC Search Market Data Information on latest HSBC CBBC list, most active HSBC CBBC, top ten gainers and losers, outstanding quantity, top ten most traded CBBC, underlying distribution as well as world indices are all in Market Data! You will be able to closely monitor the CBBC market and become on top of it! Market Data 25

26 Quick CBBC Search One step ahead of others when checking particular CBBC information! If you have followed the trend of a particular CBBC, you can key in the CBBC code directly into the CBBC Search field on the top right-hand corner of the webpage (as shown in blue circle below). You can then further examine the price, technical data and other basic information of the CBBC. Quick CBBC Search Outstanding Quantity Using Outstanding Quantity, you can check out CBBC turnover for the past few trading days, liquidity provider s (LP) buy/sell quantities, as well as outstanding quantity and so on. 26 Outstanding Quantity

27 HSBC CBBC Handbook (Bilingual) Suddenly forget important CBBC terminologies when browsing the website? After checking HSBC CBBC Handbook (Bilingual), questions from relevant terminologies to how to select CBBCs and settlement methods would be resolved instantly! HSBC CBBC Handbook (Bilingual) 27

28 Disclaimer The information contained in this document is issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC) for information only. The issuance of and details contained in this document do not constitute an offer or solicitation for, or advice that you should enter into any transaction, including the purchase or sale of any structured products. Investors are warned that the price of the structured products may fall in value as rapidly as it may rise and holders may sustain a total loss of their investment. You should ensure you understand the nature of the structured products and carefully study the risk factors set out in the Base Listing Document and the relevant Supplemental Listing Document and, where necessary, seek professional advice before you invest in the structured products. Before purchasing the structured products you should ensure that you fully understand the potential risks and rewards and independently determine that they are appropriate for you given your objectives, experience, financial and operational resources and other relevant circumstances. Investors should note that HSBC acting through its appointed liquidity provider may be the only market participant in the structured products and the secondary market for such structured products may be limited. Please also read the disclaimer for structured products with indices as the underlying asset, contained in the relevant Supplemental Listing Documents. The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor accepts responsibility of any kind with respect to the completeness, timeliness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of this document. Any examples given are for the purposes of illustration only. Investors should note that the past performance of the structured products and their underlying assets does not guarantee or predict future performance. Note: In the event of any inconsistency between the Chinese and English texts, the Chinese text shall prevail. Issued by The Hongkong and Shanghai Banking Corporation Limited