Product Booklet for Non-Principal Protected Unlisted Bull Equity Linked Investments Linked to a Single Security (Bull ELIs)

Transcription

1 Product Booklet dated 22 July 2011 C-45 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED (a company incorporated in Hong Kong with limited liability, a licensed bank regulated by the Hong Kong Monetary Authority and registered under the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) for Types 1, 2, 4, 5 and 6 regulated activities) as Issuer Product Booklet for Non-Principal Protected Unlisted Bull Equity Linked Investments Linked to a Single Security (Bull ELIs) C-2(g) Arranger to the non-principal protected unlisted equity linked investment programme (Programme) The Hongkong and Shanghai Banking Corporation Limited Our Bull ELIs are NOT equivalent to time deposits and are NOT principal protected. They are structured investment products embedded with derivatives. You may sustain a total loss in your investment. If you are in any doubt about any of the contents of the Bull ELI offering documents, you should seek independent professional advice. The Securities and Futures Commission (SFC) has authorised our Bull ELIs under Section 104A(1) of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) (SFO) and the issue of this product booklet and the term sheet based on the standard format set out in Appendix A to this product booklet as part of the offering documents for our Bull ELIs under Section 105(1) of the SFO. The SFC takes no responsibility for our Bull ELIs or the contents of this product booklet, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this product booklet. The SFC s authorisation does not imply SFC s endorsement or recommendation of our Bull ELIs referred to in this product booklet nor does it imply that the SFC guarantees the commercial merits of our Bull ELIs or their performance. The SFC s authorisation does not mean our Bull ELIs are suitable for all investors nor is it an endorsement of their suitability for any particular investor or class of investors. Interested persons should consider obtaining independent professional advice before investing in our Bull ELIs.

2 IMPORTANT You are warned that the market value of our Bull ELIs may fluctuate and you may sustain a total loss of your investment. You should therefore ensure that you understand the nature of our Bull ELIs and carefully study the risk warnings set out in this product booklet and other Bull ELI offering documents and, where necessary, seek independent professional advice, before you invest in our Bull ELIs. The offering documents for our Bull ELIs include particulars given in compliance with the Code on Unlisted Structured Investment Products issued by the SFC (the Code ) for the purpose of giving information with regard to The Hongkong and Shanghai Banking Corporation Limited ( HSBC ), our Bull ELIs and our Programme. HSBC accepts full responsibility for the contents of, and the completeness and accuracy of the information contained in the Bull ELI offering documents and confirms, having made all reasonable enquiries, that to the best of its knowledge and belief there is no untrue or misleading statement, or other facts the omission of which would make any statement herein untrue or misleading. HSBC also confirms that it meets the applicable eligibility requirements under the Code and the Bull ELIs comply with the Code. C-34(a) C-34(b) Our Bull ELIs constitute general, unsecured and unsubordinated contractual obligations of HSBC (as the issuer) and of no other person. If you invest in our Bull ELIs, you are relying upon HSBC s creditworthiness and have no rights under the terms of the Bull ELIs against the issuer of the reference asset. Post-sale cooling-off period pursuant to Part IV of the Code applies to our Bull ELIs with an investment period of more than one year. For further details, please refer to pages 39 to 40 of this product booklet. A Chinese version of this product booklet is also available from the distributor(s) and/or from the offices of The Hongkong and Shanghai Banking Corporation Limited at Level 15, HSBC Main Building, 1 Queen s Road Central, Hong Kong. C-37 / ( 1 15 ) CONTENTS Page KEYFACTSSTATEMENT... 3 RISK WARNINGS... 9 HYPOTHETICAL EXAMPLES FOR OUR BULL ELIS OUR BULL ELIS EXTRAORDINARY UNFORESEEABLE EVENTS AND ADJUSTMENTS.. 20 HOW DO OUR BULL ELIS WORK? A FLOWCHART DESCRIPTION GLOSSARY THE MEANING OF THE KEY TERMS OF OUR BULL ELIS MORE INFORMATION ABOUT DELIVERY OF THE PHYSICAL SETTLEMENT AMOUNT MORE INFORMATION ABOUT OUR BULL ELIS APPENDIX A FORM OF INDICATIVE TERM SHEET FOR THE BULL ELIS APPENDIXB GENERALTERMS AND CONDITIONS OF THE BULL ELIS APPENDIXC FORMOFPRICINGSUPPLEMENT FOR THE BULL ELIS

3 Key Facts Statement C-6 Non-Principal Protected Unlisted Bull Equity Linked Investments Linked to a Single Security (Bull ELIs) issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC) This key facts statement only provides you with the key information about our Bull ELIs. It does not contain all the information that may be important to you as an investor in our Bull ELIs and your investment decision should not be made solely on the basis of the information contained in this key facts statement. You should read the remaining sections of this product booklet (in particular, the section headed Risk Warnings ) and the other Bull ELI offering documents before deciding whether to invest in our Bull ELIs. If you are in any doubt about any of the contents of the Bull ELI offering documents, you should obtain independent professional advice. IMPORTANT RISK WARNINGS Structured Investment Product Our Bull ELIs are NOT equivalent to time deposits. They are structured investment products which are embedded with derivatives. Not Principal Protected Our Bull ELIs are not principal protected: you could lose all of your investment. Limited Maximum Potential Gain The maximum potential gain per Bull ELI is capped at the difference between the issue price you pay for a Bull ELI and the nominal amount of the Bull ELI (less any cash settlement expenses). No Collateral Our Bull ELIs are not secured on any of our assets or any collateral. Limited Market Making Arrangements Our Bull ELIs are designed to be held to their expiry date. We (as market agent) will provide limited market making arrangements on a bi-weekly basis for all our Bull ELIs. If you try to sell your Bull ELIs before expiry, you may receive an amount which is substantially less than the original amount invested. Not the same as Investing in the Reference Asset Investing in our Bull ELIs is not the same as investing in the reference asset. Changes in the market price of the reference asset may not lead to a corresponding change in the market value of, or your potential payout under, the Bull ELIs. Not Covered by Investor Compensation Fund Our Bull ELIs are not listed on any stock exchange and are not covered by the Investor Compensation Fund. Maximum Loss upon HSBC s Default or Insolvency Our Bull ELIs constitute general, unsecured and unsubordinated contractual obligations of HSBC as issuer, and of no other person (including the ultimate holding company of our group, HSBC Holdings plc). When you buy our Bull ELIs, you will be relying on HSBC s creditworthiness. If HSBC becomes insolvent or defaults on its obligations under the Bull ELIs, in the worst case scenario, you could lose all of your investment. English version of the terms and conditions prevails over Chinese version For the purpose of lodgement with the relevant clearing system(s), the global certificate representing a series of Bull ELIs and the terms and conditions of the Bull ELIs are issued in the English language only. If there is any inconsistency between the Chinese version of the terms and conditions of our Bull ELIs and the English version, the English version will prevail over the Chinese version. If you do not understand the English version, you should obtain independent professional advice. C-34(c) C-34(d) 3

4 Exposure to risk from trade date You should note that as all the commercial variables of our Bull ELIs are determined on the trade date, you will be subject to the terms and conditions of our Bull ELIs from the trade date and you will be exposed to the market risk and price movement of the reference asset from the trade date which may affect the market value of the Bull ELIs. Conflicts of Interest You should note that potential and actual conflicts of interest may arise from the different roles played by us and our subsidiaries and affiliates in connection with our Bull ELIs. You do not have direct contractual rights to enforce our Bull ELIs You do not have direct contractual rights against us as the issuer to enforce our Bull ELIs. To assert your rights as an investor in our Bull ELIs, you will have to rely on your distributor (directly or indirectly via its custodian) to take action on your behalf. If your distributor fails to take action in accordance with your instructions or if your distributor s custodian fails to take action in accordance with the instructions of your distributor, or your distributor or its custodian becomes insolvent or defaults on its obligations, you will need to take action against your distributor in accordance with the terms of arrangement between you and your distributor. Commissions: We may pay a commission to the distributor(s). Distributor(s) commissions and other transaction costs including our cost of hedging are factored into the original issue price of the Bull ELIs. What are Bull ELIs? A. Overview C-2(b), (c), (d), (f) C-9 Bull ELIs are structured investment products which contain an embedded put option over the reference asset. If you purchase a Bull ELI, you will be selling a put option over the reference asset to us. If the closing price of the reference asset on the expiry date is below the exercise price, you will be obliged to buy the reference asset from us at the exercise price. If the closing price of the reference asset on the expiry date is equal to or higher than the exercise price, you will receive the maximum potential payout being the nominal amount and make the maximum potential gain which is the difference between the issue price and the nominal amount of the Bull ELIs. See also the sub-section headed B. At Expiry below. Payout under the Bull ELIs is linked to the closing price of the reference asset (being shares in a company or units of a fund listed on the Hong Kong Stock Exchange and quoted in Hong Kong dollars) on the expiry date. Not all Hong Kong listed shares or funds can be used as the reference asset, you should check with your distributor what kind of reference asset is available. We will determine the exercise price based on a specified percentage of the initial spot price of the reference asset on the trade date. The exercise price may be expressed as a specified percentage of the initial spot price or in a range of percentages of the initial spot price (such range will be no wider than 2.5%) in the relevant term sheet. The initial spot price is either (i) the closing price of the reference asset on the trade date or (ii) the prevailing market price of the reference asset as quoted by the Hong Kong Stock Exchange at the time your Bull ELI purchase order is executed on the trade date. Our Bull ELIs will be denominated and settled in Hong Kong dollars, United States dollars or other non-restricted and freely convertible currencies as specified in the relevant term sheet. If the settlement currency of the Bull ELIs is different from Hong Kong dollars (being the currency in which the reference asset trades), we will convert one currency into another at the exchange rate as specified in the relevant term sheet in making calculations under the Bull ELIs (if applicable). You can buy a Bull ELI at its issue price, which is set at a discount to the nominal amount of the Bull ELI. The nominal amount of a Bull ELI is equivalent to the face amount of the Bull ELI and will be specified in the relevant term sheet. The minimum investment amount is HK$100,000 (or its equivalent in foreign currency). You should note that while you place your Bull ELI purchase order(s) during the offer period, all of the commercial variables in relation to the reference asset (including the initial spot price and exercise price of the reference asset) that are used to determine the payout of your Bull ELI will only be recorded and determined on the trade date after you have purchased the Bull ELI. A contract note prepared by your distributor containing all the finalised commercial terms that apply to your Bull ELI will be sent to you by your distributor within 2 Hong Kong business days after the trade date. 4

5 B. At Expiry C-2(i) Payout under the Bull ELIs will be determined on the expiry date: If, on the expiry date, the closing price of the reference asset is: Equal to or higher than the exercise price Below the exercise price Best/Worst case scenario: Best case scenario Worst case scenario Then, on the settlement date (being 3 business days after the expiry date), you will receive*: Nominal amount of the Bull ELIs (less any cash settlement expenses) If you elect for physical settlement: A number of the reference asset (equal to the physical settlement amount) (after payment of physical settlement expenses) The physical settlement amount is calculated as: Nominal amount (converted into Hong Kong dollars at the prevailing exchange rate on the expiry date) (if applicable) Exercise price The physical settlement amount will be rounded down to the nearest whole number. Any odd lot(s) of the reference asset will also be delivered to you. Any fractional shares or units of the reference asset (rounded up to the nearest 4 decimal places) will be settled by a cash payment calculated based on the closing price of the reference asset and the prevailing exchange rate (if applicable) on the expiry date. No cash settlement expenses will be payable for the cash payment of such fractional shares or units. If you elect for cash settlement: Cash equivalent of the physical settlement amount (calculated based on the closing price of the reference asset on the expiry date) (less any cash settlement expenses) * You should note that your payout under the Bull ELIs will be reduced by any distributor s charges and any cash settlement expenses or physical settlement expenses payable by you at expiry of the Bull ELIs. Best Case Scenario: In this scenario, you will receive the maximum potential payout under our Bull ELIs. As the issue price (which is the price you pay for each Bull ELI) is set at a discount to the nominal amount, you will make a gain which is capped at the difference between the issue price and the nominal amount of the Bull ELIs (less any cash settlement expenses). Worst Case Scenario: In this scenario, the put option will be exercised by us and you will be obliged to buy the reference asset from us at the exercise price, which would be above the closing price of the reference asset on the expiry date. You will suffer a loss if the market value of the physical settlement amount (together with any fractional shares or units of the reference asset) (in both cases calculated based on the closing price of the reference asset on the expiry date) or the cash equivalent of the physical settlement amount is less than the original amount invested. In an extreme case, the physical settlement amount (together with the cash payment for any fractional shares or units of the reference asset) or the cash equivalent of the physical settlement amount could be worth nothing and you could lose all your investment. You should also note that, if you elect for physical settlement, the physical settlement amount will only be delivered to you on the settlement date. Therefore, you may incur a further loss if the market price of the reference asset falls further between the expiry date and the settlement date. If you choose not to sell the reference asset on the settlement date, you will also be exposed to the market risk of holding the reference asset. 5

6 Scenario Analysis C-7 The following diagram illustrates the maximum potential gain/loss of our Bull ELIs. Please note that the diagram does not take into account (i) any distributor s charges; (ii) any cash settlement expenses or physical settlement expenses payable by you at expiry of the Bull ELIs; and (iii) (if you have elected for physical settlement and the closing price of the reference asset on the expiry date is below the exercise price) the fact that you will suffer a further loss if the market price of the reference asset falls further between the expiry date and the settlement date. Please note that this is a hypothetical scenario and you should not treat this hypothetical scenario as giving any representation as to the likely gain or loss on our Bull ELIs. Potential Gain/Loss ($) Maximum potential gain = nominal amount issue price C Potential loss Breakeven price Exercise price Potential gain Closing price of the reference asset on the expiry date ($) Maximum potential loss = issue price (i.e. original amount invested) Mode of Settlement at Expiry When you place your purchase order for the Bull ELIs, you will need to specify whether you elect for cash settlement or physical settlement upon expiry of your Bull ELIs in the case where the closing price of the reference asset on the expiry date is below the exercise price. You can change your election at any time no later than 4:00 p.m. on the 3rd Hong Kong business day before the expiry date. Please ask your distributor for details. Adjustment to the terms and conditions and early termination of our Bull ELIs Upon the occurrence of certain adjustment events (such as a potential adjustment event, a merger event or a tender offer) affecting the reference asset, we can adjust some of the terms of our Bull ELIs (including adjusting the exercise price of the reference asset) to account for that event so as to preserve the economic equivalence of the Bull ELIs. If we determine that any adjustment to the terms of the Bull ELIs is not appropriate to account for the relevant merger event or tender offer and to preserve the economic equivalence of the Bull ELIs, we will early terminate our Bull ELIs in accordance with the terms and conditions of our Bull ELIs. Upon the occurrence of certain termination events (such as an insolvency or a delisting) affecting the reference asset, we will early terminate our Bull ELIs in accordance with the terms and conditions of our Bull ELIs. Upon the occurrence of certain market disruption events, we can postpone some of the key dates relevant to the terms of our Bull ELIs. Any adjustments or early termination will be determined by us in our sole and absolute discretion acting in good faith and in a commercially reasonable manner. Please refer to the summary table on pages 20 to 24 of this product booklet for further details. What charges do I have to pay? C-3(d) Cash Settlement Expenses If a settlement amount in cash is payable, you will have to pay for any expenses incurred by us in connection with making the payment of the settlement amount in cash to you, including, for example, any taxes and duties arising from the expiry of the Bull ELIs. Currently there are no such expenses. If such expenses are payable in the future, we will notify the distributor(s) who will in turn inform you in advance. 6

7 Physical Settlement Expenses Before the physical settlement amount is delivered to you on the settlement date, you will have to pay for all out-of-pocket expenses relating to the transfer and receipt of the physical settlement amount, including buyer s stamp duty, transaction levies, registration charges and any other charges levied by your distributor (see also Distributor s charges below). Distributor s charges Your distributor may charge you fees (including any charges for opening and maintaining a securities account or an investment account with the distributor and any handling fee in relation to the Bull ELIs ). Please contact your distributor for details. Cash settlement expenses, physical settlement expenses and distributor s charges will affect the potential gain or loss you get on your investment. How can I buy the Bull ELIs? If you would like to buy our Bull ELIs, you will have to place your Bull ELI purchase order with your distributor. You can contact the appointed distributor(s) to enquire about the Bull ELIs on offer and the application procedures. Your distributor will inform you of the purchase consideration (being the issue price) and any applicable charges. Once you place your Bull ELI purchase order with your distributor on the order date, you are committed to purchase the Bull ELIs unless the post-sale cooling-off period is applicable (see section below on Is there a post-sale cooling-off period for our Bull ELIs? ) or you have cancelled your order within the specified period of time as notified by your distributor following the publication of an updated programme memorandum and/or an addendum to the programme memorandum and/or this product booklet during the offer period after you have placed your order. Your purchase order will be executed by us on the trade date and your distributor will pay the purchase consideration (being the issue price) to us on your behalf on the issue date (being 3 business days after the trade date). Please contact your distributor for details on how and when you have to pay the issue price to your distributor. A contract note prepared by your distributor containing all the finalised commercial terms will be sent to you by your distributor within 2 Hong Kong business days after the trade date. Is there a post-sale cooling-off period for our Bull ELIs? C-2(o) Bull ELIs with an investment period of more than one year If you have purchased a Bull ELI with an investment period (i.e. the period from (and including) the trade date to (and including) the expiry date) of more than one year, you can choose to cancel or unwind the whole (and not part) of your Bull ELI purchase order during the period from (and including) the date you place your purchase order to (and including) the 5th Hong Kong business day after that date (this period is referred to as the post-sale cooling-off period ) by submitting your instructions to your distributor between 10:00 a.m. and 12:00 noon on any Hong Kong business day during the post-sale cooling-off period. If you submit your instructions to cancel your Bull ELI purchase order to your distributor before your Bull ELI purchase order has been executed on the trade date, your distributor will not pay the issue price to us on your behalf on the issue date. If you submit your instructions to unwind your Bull ELI purchase order to your distributor after your Bull ELI purchase order has been executed on the trade date, your distributor will pay the issue price to us on your behalf on the issue date and we will pay your distributor a cash amount equal to the issue price less any market value adjustments on the 3rd business day after the day you submit your instructions to unwind your Bull ELI purchase order. In both cases, your distributor may charge you a handling fee when you cancel or unwind your Bull ELI purchase order and (if applicable) such handling fee will be deducted from the cash amount returned to you. Please check with your distributor for further details of when you will receive such cash amount from your distributor. The cash amount returned to you may be substantially less than the original amount invested. In either case, the distributor s commission (if any) will not be deducted from the issue price or cash amount returned to you. Bull ELIs with an investment period of one year or less Please note that the right to cancel or unwind your Bull ELI purchase order during the post-sale cooling-off period DOES NOT apply to Bull ELIs with an investment period of one year or less. Is there any market making arrangement for your Bull ELIs before expiry? Our Bull ELIs are not listed on any stock exchange. We (as market agent) will provide limited market making arrangements for all our Bull ELIs (regardless of the length of the investment period and the scheduled tenor) on each market making day falling every other Tuesday after the issue date up to the 3rd Hong Kong business day before the expiry date. On each market making day, we (as market agent) will provide (via the distributor(s)): (i) indicative bid prices (on a per-bull ELI basis) during normal business hours; and (ii) a firm bid price (on a per-bull ELI basis) upon your request, C-39(a) (b) C-39(d) 7

8 provided that such request is submitted to your distributor between the opening of the morning session of the Hong Kong Stock Exchange and the close of the morning session of the Hong Kong Stock Exchange on such market making day. You may choose to sell part of or the entire holding of your Bull ELIs provided that the minimum sell back order is equal to one Bull ELI and the total amount of Bull ELIs you wish to sell is an integral number. The indicative bid prices will be determined by us taking into account certain factors as set out on pages 40 to 41 of this product booklet. The indicative bid prices are provided for your reference only as they will be subject to intra-day change and may not be the same as the firm bid price at which we are willing to buy back your Bull ELIs. Upon your request for a firm bid price, we (as market agent) will determine such firm bid price based on the indicative bid price and the prevailing market conditions at the time of your request. We will notify your distributor of such firm bid price and your distributor will in turn inform you. You should note that the firm bid price provided to you by your distributor will only be valid for a limited period of time as notified to you by your distributor. Upon acceptance of the firm bid price by you within that specified period of time, we will buy back your Bull ELIs at that firm bid price on that market making day. Your distributor may also charge you a handling fee when you sell your Bull ELIs back to us on a market making day. You should note that the amount you receive from selling your Bull ELIs back to us on a market making day will be reduced by any distributor s fees or charges and may be substantially less than the original amount invested. If you choose to sell your Bull ELIs back to us on a market making day, we will deliver the sale proceeds of your Bull ELIs to your distributor on the 3rd business day after that market making day. Please check with your distributor for further details. Please also note that indicative bid prices and/or firm bid prices and/or market making activities may not be available on a market making day if certain events or technical problems occur (in which case the affected market making day will be postponed to the next Hong Kong business day on which the Hong Kong Stock Exchange is open for trading which is not affected by any of these events or problems). C-39(d) C-39(e) C-39(e) C-39(f) How can I find out the indicative bid price of my Bull ELIs? C-39 We (as market agent) will make available (via the distributor(s)) indicative bid prices for all our Bull ELIs on each market making day. We will not upload such information onto our website and you will need to contact your distributor for further details on the most effective way to access the indicative bid prices. Additional Information A. Bull ELI offering documents The following Bull ELI offering documents contain detailed information about HSBC, the Programme and the Bull ELIs. You should read all of these documents before deciding whether to invest in our Bull ELIs: (i) (ii) (iii) the relevant indicative term sheet for the series of the Bull ELIs you would like to buy; the Programme Memorandum dated 22 July 2011 together with any addendum as stated in the relevant term sheet; and this Product Booklet together with any addendum as stated in the relevant term sheet. The distributor(s) has an obligation to distribute to you ALL of the above documents in English or Chinese as you may prefer. B. Ongoing disclosure by HSBC HSBC will keep the SFC and the distributor(s) informed as soon as reasonably practicable if (i) HSBC (as issuer) ceases to meet any core requirements in Appendix A to the Code; (ii) HSBC (as product arranger) ceases to meet any eligibility requirements in 4.2 of the Code; and (iii) to the extent permitted by any applicable law, there are changes in our financial condition or other circumstances which could reasonably be expected to have a material adverse effect on our ability (as issuer) to fulfil our commitment in connection with our Bull ELIs. Your distributor will in turn inform you. Please contact your distributor for further details. If you would like to enquire about our Bull ELIs, visit any designated branches of the appointed distributor(s) for the Bull ELIs. 8

9 RISK WARNINGS C-8 Our Bull ELIs are not principal protected: you could lose all of your investment Our Bull ELIs are non-principal protected unlisted structured investment products embedded with derivatives; you may sustain a total loss in your investment. Our Bull ELIs are not equivalent to time deposits. What you will get at expiry of the Bull ELIs will depend on the closing price of the reference asset on the expiry date as compared to the exercise price. Your payout under our Bull ELIs may be the physical settlement amount (together with the cash payment for any fractional shares or units of the reference asset) or the cash equivalent of the physical settlement amount. The market value of such physical settlement amount (together with any fractional shares or units of the reference asset) (in both cases calculated based on the closing price of the reference asset on the expiry date) or the cash equivalent of the physical settlement amount may be substantially less than the original amount invested. In an extreme case, the physical settlement amount (together with the cash payment for any fractional shares or units of the reference asset) or the cash equivalent of the physical settlement amount could be worth nothing and you could lose all your investment. C-2(f) You should also note that, if you receive the physical settlement amount (in board lots and odd lots (as the case may be) of the reference asset) on expiry of our Bull ELIs, subsequent to the delivery of the physical settlement amount to you, you will be exposed to the market risk of holding the reference asset if you choose not to sell the reference asset on the settlement date. If an odd lot of the reference asset is delivered to you, the market price of the odd lot may be lower than the whole board lot, and you may also experience difficulty in selling such odd lot in the market. Limited Maximum Potential Gain The maximum potential gain per Bull ELI is capped at the difference between the issue price you pay for a Bull ELI and the nominal amount of the Bull ELI (less any cash settlement expenses). Our Bull ELIs are designed to be held to their expiry date. There will be limited market making arrangements for all our Bull ELIs Our Bull ELIs are designed to be held to their expiry date. You should be prepared to invest your funds for the full scheduled tenor of the Bull ELIs. There will, however, be limited market making arrangements for all our Bull ELIs (regardless of the length of the investment period and scheduled tenor of the Bull ELIs) provided by us (as market agent) on each market making day on a bi-weekly basis. The indicative bid prices and firm bid prices will be determined by us at our sole and absolute discretion acting in good faith and in a commercially reasonable manner and taking into account certain factors as set out on pages 40 to 41 of this product booklet. You should note that the amount you receive from selling your Bull ELIs back to us on a market making day may be substantially less than the original amount invested. You could lose part or all of your investment if you choose to sell your Bull ELIs back to us before expiry. Also, your distributor may charge you a handling fee when you sell your Bull ELIs back to us on a market making day and such fees or charges will reduce the amount you receive when you sell your Bull ELIs back to us before expiry. Please contact your distributor for details. Also, you should note that indicative bid prices and/or firm bid prices and/or market making activities may not be available on a market making day if the relevant Bull ELI is affected by market disruption events and/or suspension of trading in the reference asset or if we (as market agent) experience any technical problems beyond our control affecting our ability to provide a bid price for our Bull ELIs, including any power failure or breakdown of our computer system. Please refer to the section headed Is there any market making arrangements for your Bull ELIs before their expiry? in this product booklet for further details. 9

10 If you choose to exercise your post-sale cooling off right, the cash amount returned to you may be substantially less than the original amount invested If you have purchased a Bull ELI with an investment period of more than one year, you can choose to cancel or unwind the whole (and not part) of your Bull ELI purchase order during the period from (and including) the date you place your purchase order to (and including) the 5th Hong Kong business day after that date (this period is referred to as the post-sale cooling-off period ). If you submit your instructions to unwind your Bull ELI purchase order to your distributor after your Bull ELI purchase order has been executed on the trade date, the cash amount returned to you will be reduced by any market value adjustments (the value of which will be determined by us in good faith and in a commercially reasonable manner and will depend on factors such as market interest rate movements, HSBC s financial condition, the market s view of HSBC s credit quality, the value of the embedded put option and the price performance and price volatility of the reference asset). Our transaction costs (if any), including any cost which has been incurred by us in unwinding the hedging arrangements relating to the relevant Bull ELI will also be included in the calculation of the market value adjustments. If you submit your instructions to cancel your Bull ELI purchase order to your distributor before your Bull ELI purchase order has been executed on the trade date, there will be no market value adjustment. However, in both cases, your distributor may charge you a handling fee when you cancel or unwind your Bull ELI purchase order and (if applicable) such handling fee will be deducted from the cash amount returned to you. Please check with your distributor for further details. The cash amount returned to you may be substantially less than the original amount invested. Post-sale cooling-off right only applies to our Bull ELIs with an investment period of more than one year You should note that the right to cancel or unwind your Bull ELI purchase order during the post-sale cooling-off period DOES NOT apply to Bull ELIs with an investment period of one year or less. Please refer to the section headed Is there a post-sale cooling-off period for our Bull ELIs? in this product booklet for further details. Our Bull ELIs are not listed on any stock exchange, they are not covered by the Investor Compensation Fund C-34(d) As our Bull ELIs are not listed, they are not covered by the investor compensation fund if your distributor or any other intermediary defaults. When you buy our Bull ELIs, you will be relying on the issuer s creditworthiness When purchasing our Bull ELIs, you will be relying upon HSBC s creditworthiness. Our Bull ELIs represent our general, unsecured and unsubordinated contractual obligations and are not secured on any assets or any collateral. If we become insolvent or default on our obligations under the Bull ELIs, you will have to rely on your distributor (directly or indirectly via its custodian) to take action on your behalf to claim as an unsecured creditor of HSBC (as issuer) regardless of the price performance of the reference asset and you will have no rights under the terms of the Bull ELIs against the issuer of the reference asset. In the worst case scenario, you may get nothing back and the maximum loss could be 100% of the original amount invested. We are not the ultimate holding company of the group to which we belong and with which our name is identified. The ultimate holding company of our group is HSBC Holdings plc. We, The Hongkong and Shanghai Banking Corporation Limited, are a company incorporated in Hong Kong with limited liability and a licensed bank regulated by the Hong Kong Monetary Authority and it is our creditworthiness, instead of the creditworthiness of HSBC Holdings plc, which you will be relying on when you buy our Bull ELIs. There is no guarantee given by anyone (including HSBC Holdings plc) in respect of our payment and/or delivery obligations as the issuer under our Bull ELIs. 10

11 You should refer to the programme memorandum and any addendum to the programme memorandum referred to in the relevant term sheet for our corporate and financial information. You do not have direct contractual rights to enforce our Bull ELIs C-2(n) Our Bull ELIs will be represented by a single global certificate in registered form (which will be registered in the name of the nominee for the relevant clearing system(s)). As a result, the legal holder of our Bull ELIs will be the relevant nominee of the relevant clearing system(s). You do not have any direct contractual rights against us as the issuer, if we fail to pay any cash amount or deliver the physical settlement amount to the legal holder of our Bull ELIs in accordance with the terms and conditions of our Bull ELIs. To assert your rights as an investor in our Bull ELIs, you will have to rely on your distributor (directly or indirectly via its custodian) to take action on your behalf. Your distributor (if it is a participant or accountholder with the relevant clearing system(s)) or its custodian will be given direct rights of enforcement against us as the issuer of the Bull ELIs under a deed of covenant executed by us if we fail to pay any cash amount or deliver the physical settlement amount to the legal holder of our Bull ELIs in accordance with the terms and conditions of our Bull ELIs. If your distributor fails to take action in accordance with your instructions or if your distributor s custodian fails to take action in accordance with the instructions of your distributor, or your distributor (or its custodian) becomes insolvent or defaults on its obligations, you will not have any direct contractual rights against us or such custodian and you will need to take action against your distributor in accordance with the terms of arrangement between you and your distributor. It is therefore important that you familiarise yourself with, and ensure you understand your relationship with your distributor in relation to the holding arrangements of our Bull ELIs and the arrangements with your distributor regarding taking action against your distributor, your distributor s custodian (if applicable) or against us upon a default of our obligations under our Bull ELIs. If you do not understand such arrangements with your distributor or you would like to know the steps to enforce your rights under the Bull ELIs, you should obtain independent professional advice. You will also be relying on the creditworthiness of your distributor or its custodian or the relevant clearing system through which you hold our Bull ELIs Your distributor will hold the Bull ELIs you have purchased for you, directly or through its custodian, in accounts at the relevant clearing system(s). There is no assurance of protection against a default by your distributor or, where applicable, such custodian or the relevant clearing system, in respect of their obligations under the terms of the relevant account keeping or custodian agreement. Depending on the terms of the relevant account keeping or custodian agreement, upon the insolvency or default of your distributor or such custodian or the relevant clearing system, you may have a claim only as an unsecured creditor of such distributor or custodian (via the distributor) or the relevant clearing system (via your distributor or its custodian) regardless of the price performance of the reference asset and regardless of whether we (as issuer) have defaulted in our obligations under the Bull ELIs. In addition, you do not have direct contractual rights against your distributor s custodian or the relevant clearing system. Even if the Bull ELIs you purchased do not form part of the pool of assets which are applied towards satisfying the claims of the general unsecured creditors of the insolvent or defaulted distributor or custodian or the relevant clearing system there could still be substantial delay before you could receive the cash paid or the physical settlement amount delivered under the Bull ELIs if your distributor or its custodian or the relevant clearing system becomes insolvent or defaults on its obligations. In the worst case scenario, you may get nothing back and the maximum loss could be 100% of the original amount invested. You have no rights in the reference asset unless and until the physical settlement amount (if applicable) is determined on the expiry date to be deliverable to you C-34(c) Our Bull ELIs are structured investment products embedded with derivatives: you have no rights in the reference asset (including any right to vote and to receive dividends or other distributions), except in the case where you have elected for physical settlement and it is determined on the expiry date that the physical settlement amount is to be delivered to you on the settlement date. In the case where the 11

12 reference asset which forms the physical settlement amount is determined on the expiry date to be deliverable to you under the terms and conditions of the Bull ELIs, you are entitled to all those rights attaching to the reference asset which forms the physical settlement amount as if you had been registered as the holder of such reference asset from (and including) the expiry date. However, you should note that during the period from the expiry date and until such time as the reference asset which forms the physical settlement amount is delivered to you, we are not under any obligation (i) to deliver to you any letter, certificate, notice, circular, dividend, distribution or any other document or payment whatsoever received by us or our affiliate(s) in our capacity as the registered holder of such reference asset; or (ii) to exercise any or all rights (including voting rights) attaching to such reference asset. We are not liable to you in respect of any loss or damage which you may suffer as a result, whether directly or indirectly, of us or our affiliate(s) being registered as the legal owner of such reference asset during such period. However, we will notify you of the receipt of any dividend, distribution, bonus issue, share or units issued pursuant to a share split or consolidation, by us during such period, in respect of the reference asset beneficially owned by you, and make available such dividend or distribution payment of the reference asset to you in a commercially reasonable manner upon production of such evidence of entitlement and identification as we may reasonably require. Please refer to conditions 4(g) and 4(h) of the general terms and conditions as set out in Appendix B to this product booklet for further details. The market value of our Bull ELIs may fluctuate Changes in the market price of the reference asset may not lead to any corresponding change in the market value of our Bull ELIs. The market value of our Bull ELIs will fluctuate depending on factors such as market interest rate movements, HSBC s financial condition, the market s view of HSBC s credit quality, the value of the embedded put option and the price performance and price volatility of the reference asset. In extreme circumstances, you may lose all of the original amount invested. The potential gain or potential loss on our Bull ELIs is affected by distributor s charges and any cash or physical settlement expenses C-3(d) Your potential gain on our Bull ELIs will be reduced, or your potential loss will be increased, by any handling fee your distributor charges when you make your application and any fees it charges to open and maintain your securities or investment account. Please contact your distributor for more information about the amount of the relevant charges payable. Your potential gain on our Bull ELIs will also be reduced, or your potential loss will be increased, by any cash settlement expenses or physical settlement expenses payable on settlement. For further details on the cash and physical settlement expenses payable for our Bull ELIs, please refer to the relevant term sheet. Your distributor may also charge you a handling fee when you cancel or unwind your Bull ELI purchase order during the post-sale cooling-off period or sell your Bull ELIs back to us on a market making day and such fees or charges will reduce the amount you receive when you cancel or unwind your Bull ELI purchase order or sell your Bull ELIs back to us before expiry. Please ask your distributor for details. The English version of the terms and conditions of our Bull ELIs prevails over the Chinese version For the purpose of lodgement with the relevant clearing system(s), the global certificate representing a series of Bull ELIs and the terms and conditions of the Bull ELIs are issued in the English language only. Therefore, if there is any inconsistency between the Chinese version of the terms and conditions of our Bull ELIs and the English version, the English version will prevail over the Chinese version. If you do not understand the English version, you should obtain independent professional advice. Exposure to risk from trade date You should note that as all the commercial variables of our Bull ELIs are determined on the trade date, you will be subject to the terms and conditions of our Bull ELIs from the trade date and you will be exposed to the risks of our Bull ELIs, including the market risk and price movement of the reference asset from the trade date which may affect the market value of the Bull ELIs. 12

13 You will be committed to purchase the Bull ELIs before all of the commercial variables are determined The commercial variables (including the initial spot price and the exercise price of the reference asset) will not be available at the time you place your Bull ELI purchase order with your distributor. As such commercial variables will only be determined on the trade date, you will not know the exact levels of such commercial variables at the time of your purchase order and you will have to bear the risk of changing market conditions between the date you purchased your Bull ELI and the trade date. Once you place your Bull ELI purchase order with your distributor, you are committed to purchase such Bull ELI before such trade specific commercial variables are determined, subject to exercise of your post-sale cooling-off right or your right to cancel your order following the publication of an updated programme memorandum and/or addendum to the programme memorandum and/or this product booklet during the offer period after you have placed your order. There could be conflicts of interest arising out of our other activities which may affect our Bull ELIs C-22 We are the issuer and the arranger to our Programme and we are also the market agent and a distributor for our Bull ELIs. We and our subsidiaries and affiliates may engage in transactions involving, and may provide investment banking and other services to, any company or fund referenced by our Bull ELIs or their securities. Those transactions may have a positive or negative impact on the market value of our Bull ELIs. We and our subsidiaries and affiliates may have officers who serve as directors of any of the companies which is the issuer of the reference asset of our Bull ELIs. We may issue other competing financial products which may affect the market value of our Bull ELIs. You should note that potential and actual conflicts of interest may arise from the various activities and transactions undertaken in the ordinary course of our and our subsidiaries and affiliate s businesses. Although our economic interests in these activities and transactions may be adverse to your interests in our Bull ELIs, we maintain regulatorily required information barriers between our different business areas as well as policies and procedures designed to minimise and manage such conflicts of interest to comply with applicable laws and regulations, and to ensure our transactions and/or dealings will be transacted at arm s length. If the physical settlement amount is deliverable to you, there are risks of settlement disruption or delay If the physical settlement amount is deliverable to you, the physical settlement amount will only be delivered to you on the settlement date. Therefore, you will be exposed to any movement in the market price of the reference asset during the period between the expiry date and the settlement date, which will be a period of 3 business days. All settlement of the physical settlement amount would be effected through the Central Clearing and Settlement System ( CCASS ). Our ability to effect electronic settlement of the physical settlement amount may be restricted if there are settlement disruptions within CCASS. If this occurs, delivery of the physical settlement amount to the legal holder of our Bull ELIs and to your distributor or its custodian (which are registered as accountholders or participants of the Bull ELIs in the clearing system(s) entitled to receive the physical settlement amount) will be postponed to the following CCASS business day which is not affected by such settlement disruptions. This will result in delays in you receiving the physical settlement amount. If such settlement disruption event persists on the 8th CCASS business day after the scheduled settlement date, we will seek to deliver the physical settlement amount to the legal holder of the Bull ELIs (who will in turn arrange to deliver the same to your distributor or its custodian) as soon as practicable in a commercially reasonable manner outside CCASS. If we determine in our sole and absolute discretion acting in good faith and in a commercially reasonable manner that the physical settlement amount cannot be delivered in any other commercially reasonable manner outside CCASS, the settlement date will be postponed until delivery can be effected through CCASS or in any other commercially reasonable manner. 13

14 There is no assurance on the duration of such delay. Where such a delay occurs, movements in the market price of the reference asset could affect the market value of the physical settlement amount delivered on the postponed settlement date. We will not pay any extra amount for any delay in delivery of the physical settlement amount. Investing in Bull ELIs may involve exchange rate risk Our Bull ELIs may be issued and settled in a currency other than Hong Kong dollars. Where necessary, we will convert the settlement currency into Hong Kong dollars (being the currency in which the reference asset trades) or convert Hong Kong dollars into the settlement currency at the exchange rate on the expiry date as specified in the relevant term sheet in making calculations under the Bull ELIs (if applicable). If the Bull ELIs are not denominated in your home currency, the amount you receive when converting the foreign currency payments you receive under the Bull ELIs back to your home currency will be affected by fluctuation in the exchange rate between the settlement currency and your home currency. You should note that fluctuations in the exchange rate may have an adverse impact on your financial return on our Bull ELIs. We may adjust the terms and conditions of the Bull ELIs or early terminate the Bull ELIs in our sole and absolute discretion acting in good faith and in a commercially reasonable manner C-10(d)(e) C-2(l) If we determine that (i) an event which has a diluting or concentrative effect on the theoretical value of the reference asset has occurred (including but not limited to, a subdivision or consolidation of the reference asset, a bonus or rights issue) or (ii) a merger event or (iii) a tender offer affecting the reference share or the company issuing the reference share or the reference fund has occurred (details of which are set out in condition 6(a) of the general terms and conditions in Appendix B to this product booklet), we will determine in our sole and absolute discretion acting in good faith and in a commercially reasonable manner any corresponding adjustment to be made to the terms of the Bull ELIs to account for that event so as to preserve the economic equivalence of the relevant Bull ELI. If we determine (in our sole and absolute discretion acting in good faith and in a commercially reasonable manner) that any adjustment to the terms of the Bull ELIs is not appropriate to account for the relevant merger event or tender offer (as described above) and to preserve the economic equivalence of the Bull ELIs, we will early terminate our Bull ELIs and pay you as soon as practicable a fair market value of our Bull ELIs as of the date of termination of our Bull ELIs (determined by us in our sole and absolute discretion acting in good faith and in a commercially reasonable manner). The fair market value of the Bull ELIs will depend on factors such as market interest rate movements, HSBC s financial condition, the market s view of HSBC s credit quality, the value of the embedded put option and the price performance and price volatility of the reference asset. It will also take into account any cost which is, or would be, incurred by us in unwinding our hedging arrangements. Depending on the then prevailing market conditions, this fair market value may be less, or substantially less, than the original amount invested. If we determine that (i) an insolvency; (ii) a nationalisation; (iii) a delisting; (iv) a change in law; (v) an increased cost of hedging; (vi) an insolvency filing; or (vii) a fund termination event affecting the reference share or the company issuing the reference share or the reference fund has occurred (details of which are set out in condition 6(a) of the general terms and conditions in Appendix B to this product booklet), we will early terminate our Bull ELIs and pay you as soon as practicable a fair market value (as described in the preceding paragraph) of our Bull ELIs as of the date of termination of our Bull ELIs (determined by us in our sole and absolute discretion acting in good faith and in a commercially reasonable manner). Depending on the then prevailing market conditions, this fair market value may be less, or substantially less, than the original amount invested. 14

15 You should refer to the section headed Our Bull ELIs Extraordinary Unforeseeable Events and Adjustments on pages 20 to 24 of this product booklet and the general terms and conditions (in particular, condition 6) as set out in Appendix B to this product booklet for further details. Any adjustments or early termination of the Bull ELIs will be determined by us in our sole and absolute discretion acting in good faith and in a commercially reasonable manner; and such adjustments could have an adverse effect on the market value of your Bull ELIs. The unwinding of hedging arrangements relating to our Bull ELIs could itself affect the market price of the reference asset We may enter into hedging transactions with counterparties in the market in order to enable us to receive the final settlement payout due to you under our Bull ELIs. These transactions would typically involve contracts for the purchase and/or sale of the reference asset and the establishment of long and/or short positions in the reference asset which may be constantly adjusted. The unwinding or adjustment of the positions in the reference asset may itself affect the market price of the reference asset, particularly if there is otherwise low trading volume in the reference asset at that time. It is possible that this activity could cause the closing price of the reference asset on the expiry date to fall below the exercise price, resulting in the delivery of the physical settlement amount (together with the cash payment for any fractional shares or units of the reference asset) or payment of the cash equivalent of the physical settlement amount on the settlement date. The market value of the physical settlement amount (together with any fractional shares or units of the reference asset) (in both cases calculated based on the closing price of the reference asset on the expiry date) or the cash equivalent of the physical settlement amount may be less than the original amount invested. In an extreme case, the physical settlement amount (together with the cash payment for any fractional shares or units of the reference asset) or the cash equivalent of the physical settlement amount could be worth nothing and you could lose all your investment. Risks related to real estate investment trusts ( REITs ) and exchange traded funds ( ETFs ) in general Each REIT or ETF is managed by its manager and the investment objectives and investment restrictions of the relevant fund may change from time to time. Neither we nor our affiliates have any control over the decisions made by the manager regarding the relevant fund and have no rights against the manager for its decisions. The manager of the relevant fund is not involved in the offer of our Bull ELIs in any way and has no obligation to consider your interests in taking any action that might affect the market price of the units of the relevant fund and, in turn, affect the potential return of our Bull ELIs. The manager s decisions may have an adverse impact on the potential return of the Bull ELIs. There is also a risk that the investment objectives and/or investment restrictions as set out in the constitutive documents in relation to the relevant fund are materially changed or are not complied with or the method of calculating the net asset value of the relevant fund is materially changed during the investment period of the relevant series of Bull ELIs. In addition, the applicable laws and regulations governing the relevant fund may also restrict the operations of the relevant fund and restrict its ability to achieve the investment objectives. Such risks may have a negative impact on the performance of the relevant fund and therefore on the potential return of our Bull ELIs. You should read the offering documents of the relevant fund for further information about the risks applicable to the relevant fund. Risk factors specific to Bull ELIs linked to an ETF The investment objective of most ETFs is to track the performance of the equity(ies) or assets underlying the ETFs or, as the case may be, a specified index. An ETF is exposed to the political, economic, currency and other risks related to the underlying equity(ies), assets or index that the ETF is designed to track. There may also be disparity between the performance of the ETF and the performance of the underlying equity(ies), assets or index that the ETF is designed to track as a result of, for example, failure of the tracking strategy, currency differences, fees and expenses. In addition, where the index or equity(ies) 15

16 or assets that the ETF tracks is subject to restricted access, the efficiency in the unit creation or redemption to keep the price of the ETF in line with its net asset value may be disrupted, causing the ETF to trade at a premium or discount to its net asset value. Such risks may have a negative impact on the performance of the ETF and therefore on the potential return of our Bull ELIs. Risks factors specific to Bull ELIs linked to a synthetic ETF Some ETFs may not invest directly in the index constituents but instead they may synthetically replicate the performance of the relevant index by investing in derivatives issued by market counterparties that are linked to the index constituent or the index. For these synthetic ETFs, you are exposed to the credit risk of the counterparties which issue the derivatives, in addition to the risks relating to the index. Potential contagion and concentration risks of these counterparties which issue the derivatives should also be taken into account (for example, since these counterparties are predominantly international financial institutions, the failure of one derivative counterparty of a synthetic ETF may have a knock-on effect on other derivative counterparties of the synthetic ETF). Some synthetic ETFs have collateral to reduce counterparty risk, but there may be a risk that the market value of the collateral has fallen substantially when the synthetic ETF seeks to realise the collateral. In addition, a higher liquidity risk is involved if a synthetic ETF is embedded with derivatives which do not have an active secondary market, and wider bid-offer spreads in the price of the derivatives may result in losses. There may also be disparity between the performance of the synthetic ETF and the performance of the underlying index due to, for instance, failure of the tracking strategy of the synthetic ETF, currency differences, fees and expenses. The value of the embedded derivatives and the synthetic ETF may fall substantially in the circumstances described above and may have an adverse impact on the potential return of our Bull ELIs. Risk factors specific to Bull ELIs linked to a REIT The investment objective of REITs is to invest in a real estate portfolio. Each REIT is exposed to risks relating to investments in real estate, including but not limited to (a) adverse changes in political or economic conditions, (b) changes in interest rates and the availability of debt or equity financing, which may result in an inability by the REIT to maintain or improve the real estate portfolio and finance future acquisitions, (c) changes in environmental, zoning and other governmental rules, (d) changes in market rents, (e) any required repair and maintenance of the portfolio properties, (f) breach of any property laws or regulations, (g) the relative illiquidity of real estate investments, (h) real estate taxes, (i) any hidden interests in the portfolio properties, (j) any increase in insurance premiums and (k) any uninsurable losses. There may also be disparity between the market price of the units of a REIT and the net asset value per unit. This is because the market price of the units of a REIT also depends on many factors, including but not limited to (i) the market value and perceived prospects of the real estate portfolio, (ii) changes in economic or market conditions, (iii) changes in market valuations of similar companies, (iv) changes in interest rates, (v) the perceived attractiveness of the units of the REIT against those of other equity securities, (vi) the future size and liquidity of the market for the units and the REIT market generally, (vii) any future changes to the regulatory system, including the tax system and (viii) the ability of the REIT to implement its investment and growth strategies and to retain its key personnel. Such risks may have a negative impact on the performance of the units of the REIT and therefore on the potential return of our Bull ELIs. 16

17 HYPOTHETICAL EXAMPLES FOR OUR BULL ELIs The following hypothetical examples are for illustrative purposes only and do not reflect a complete analysis of all possible gain or loss scenarios. Where applicable, numbers have been rounded to four decimal places with or above rounded upwards. You must not rely on them as an indication of the price performance of the reference asset or the payout on the Bull ELIs. They do not take into account any expenses payable by the investor. C-7 C-17 In this example, suppose an investor bought 1,500 Bull ELIs with the following terms: Scheduled tenor of the Bull ELIs (being the period from the issue date to the settlement date): Investment period of the Bull ELIs (being the period from the trade date to the expiry date): 180 days 180 days Reference asset: Reference asset 1 Initial spot price on trade date: Issue price (for each Bull ELI): Exercise price at expiry: Nominal amount (for each Bull ELI): HK$ HK$97.37 (97.37% of the nominal amount) HK$ (92.43% of the initial spot price of HK$108.19) HK$ Physical settlement amount (for each Bull ELI): Physical settlement amount for 1,500 Bull ELIs: Nominal amount Exercise price Nominal amount Exercise price = 1 unit of the reference asset x 1,500 Bull ELIs = 1,500 units of the reference asset Total issue price for 1,500 Bull ELIs: Total nominal amount for 1,500 Bull ELIs: HK$97.37 x 1,500 Bull ELIs = HK$146,055 HK$100 x 1,500 Bull ELIs = HK$150,000 A. Best Case scenario: if the closing price of the reference asset on the expiry date exercise price Assume the closing price of reference asset on the expiry date = HK$105.00, which is above the exercise price. Investor receives the nominal amount of HK$150,000 (1,500 Bull ELIs x HK$100.00) on the settlement date. For each Bull ELI, investor makes a gain of HK$2.63 (HK$ HK$97.37). For 1,500 Bull ELIs, investor makes a gain of HK$3,945 (1,500 Bull ELIs x (HK$ HK$97.37)) (equivalent to a gain of %, calculated as: HK$3,945 HK$146,055 x 100% (or an annualised return of %* p.a.)). C-18 B. Loss scenario: if the closing price of the reference asset on the expiry date < exercise price Assume the closing price of the reference asset on the expiry date = HK$30.00, which is below the exercise price. (a) Assume investor has elected for physical settlement: Investor receives the physical settlement amount of 1,500 units of the reference asset. If the investor has elected for physical settlement on expiry of our Bull ELIs, the physical settlement amount (rounded down to the nearest whole number of units of the reference asset) will only be delivered on the settlement date. Therefore, the investor will be exposed to any movement in the market price of the reference asset during the period between the expiry date and the settlement date, which will be a period of 3 business days. * The investment period of the Bull ELIs is 180 days. Hence, the investor makes a return of % in 180 days, which is equivalent to a daily return of % (2.7010% 180). Assume further that the investor is able to purchase the Bull ELIs under the same terms and makes the same level of daily return on a rolling basis throughout the 365-day period, the annualised return would be % (being % x 365 days). The above assumptions are purely hypothetical and for reference only. It does not reflect the actual return of the Bull ELIs. You should not rely on the annualised rate of return as an indication of the expected return on our Bull ELIs. C-18 17

18 (b) If investor sells the reference asset on the settlement date (assuming the selling price is the same as the closing price on the expiry date), for each Bull ELI, the investor will suffer a loss of HK$67.37 (HK$ HK$97.37), and for 1,500 Bull ELIs, the investor will suffer a loss of HK$101,055 (1,500 Bull ELIs x (HK$ HK$97.37)) (equivalent to a loss of %, calculated as: HK$101,055 HK$146,055 x 100% (or an annualised loss of %** p.a.)). If investor chooses not to sell the reference asset on the settlement date, for each Bull ELI, the investor will suffer a paper loss of HK$67.37 (HK$ HK$97.37) and for 1,500 Bull ELIs, the investor will suffer a paper loss of HK$101,055 (1,500 Bull ELIs x (HK$ HK$97.37)) (calculated based on the closing price of the reference asset on the expiry date) and will also be exposed to changes in the market price of the reference asset after the settlement date. The investor may incur a further loss if the market price of the reference asset falls further between the expiry date and the settlement date. Assume investor has elected for cash settlement: Investor receives the cash equivalent of the physical settlement amount (calculated based on the closing price of the reference asset on the expiry date) which is equal to HK$30.00 for each Bull ELI. For 1,500 Bull ELIs, the cash equivalent of the physical settlement amount will be HK$45,000 (being 1,500 units of the reference asset x HK$30.00). For each Bull ELI, investor suffers a loss of HK$67.37 (HK$ HK$97.37), and for 1,500 Bull ELIs, investor suffers a loss of HK$101,055 (1,500 Bull ELIs x (HK$ HK$97.37)) (equivalent to a loss of %, calculated as: HK$101,055 HK$146,055 x 100% (or an annualised loss of %** p.a.)). C. Worst case scenario: if the closing price of the reference asset on the expiry date = HK$0 (a) (b) Assume the closing price of the reference asset on the expiry date = HK$0, which is below the exercise price. Assume investor has elected for physical settlement: Investor receives the physical settlement amount of 1,500 units of the reference asset. If investor sells the reference asset on the settlement date (assuming the selling price is the same price as the closing price on the expiry date), for each Bull ELI, the investor will suffer a loss of HK$97.37 (HK$0 - HK$97.37), and for 1,500 Bull ELIs, the investor will suffer a loss of HK$146,055 (1,500 Bull ELIs x (HK$0 - HK$97.37)) (equivalent to a loss of 100%, calculated as: HK$146,055 HK$146,055 x 100% (or an annualised loss of %*** p.a.)). If investor chooses not to sell the reference asset on the settlement date, for each Bull ELI, the investor will suffer a paper loss of HK$97.37 (HK$0 - HK$97.37), and for 1,500 Bull ELIs, the investor will suffer a paper loss of HK$146,055 (1,500 Bull ELIs x (HK$0 - HK$97.37)) (calculated based on the closing price of the reference asset on the expiry date) and will also be exposed to changes in the market price of the reference asset after the settlement date. The investor may incur a further loss if the market price of the reference asset falls further between the expiry date and the settlement date. Assume investor has elected for cash settlement: Investor receives the cash equivalent of the physical settlement amount (calculated based on the closing price of the reference asset on the expiry date) which is equal to HK$0 for each Bull ELI. For 1,500 Bull ELIs, the cash equivalent of the physical settlement amount will be HK$0 (being 1,500 units of the reference asset x HK$0). For each Bull ELI, investor suffers a loss of HK$97.37 (HK$0 - HK$97.37), and for 1,500 Bull ELIs, investor suffers a loss of HK$146,055 (1,500 Bull ELIs x (HK$0 - HK$97.37)) (equivalent to a loss of 100%, calculated as: HK$146,055 HK$146,055 x 100% (or an annualised loss of %***p.a.)). ** The investment period of the Bull ELIs is 180 days. Hence, the investor makes a loss of % in 180 days, which is equivalent to a daily loss of % ( % 180). The annualised loss would be % (being % x 365 days). *** The investment period of the Bull ELIs is 180 days. Hence, the investor makes a loss of 100% in 180 days, which is equivalent to a daily loss of % (100% 180). The annualised loss would be % (being % x 365 days) The above assumptions are purely hypothetical and for reference only. C-18 18

19 D. How to calculate the break-even price The diagram below illustrates the maximum potential gain or potential loss in respect of each Bull ELI at expiry against the closing price of the reference asset on the expiry date. Please note that this is a hypothetical scenario and you should not treat this hypothetical scenario as giving any representation as to the likely gain or loss on the Bull ELIs. Diagram showing maximum potential gain/loss and break-even price Potential Gain/Loss ($) Maximum potential gain = nominal amount issue price C Potential loss Breakeven price Exercise price Potential gain Closing price of the reference asset on the expiry date ($) Maximum potential loss = issue price (i.e. original amount invested) As illustrated above, you will suffer a loss on your investment in our Bull ELIs if the closing price of the reference asset on the expiry date falls below a certain reference point called the break-even price. The more the closing price of the reference asset falls below the break-even price, the higher the amount of loss on your investment. The following illustrates how the break-even price can be calculated, using the same data set out on page 17. Break-even price = Issue price Physical settlement amount for one Bull ELI = HK$ unit of the reference asset = HK$97.37 E. Additional Scenario: if HSBC as issuer becomes insolvent or defaults on its obligations under the Bull ELIs Assume further that HSBC as issuer becomes insolvent or defaults on its obligations under the Bull ELIs during the scheduled tenor of the Bull ELIs. An investor can only claim via his distributor (directly or indirectly via its custodian) as an unsecured creditor of HSBC regardless of the price performance of the reference asset. In the worst case scenario, the investor may get nothing back (including the nominal amount of the Bull ELIs, the physical settlement amount or the cash equivalent of the physical settlement amount) and the potential maximum loss could be 100% of the original amount invested. 19

20 OUR BULL ELIs EXTRAORDINARY UNFORESEEABLE EVENTS AND ADJUSTMENTS A. Extraordinary unforeseeable events; Adjustments to terms and conditions What do you get if an extraordinary unforeseeable event occurs in respect of the Bull ELIs? As we cannot foresee all extraordinary unforeseeable events that can occur in relation to us or the reference asset, we may have to adjust the terms of our Bull ELIs or early terminate our Bull ELIs upon the occurrence of these events. (a) If we, as the issuer, become insolvent or default on our obligations under our Bull ELIs on or before the settlement date of the Bull ELIs: Our Bull ELIs represent our (as issuer) general, unsecured and unsubordinated contractual obligations. If we become insolvent or default on our obligations under our Bull ELIs, you will have to rely on your distributor (directly or indirectly via its custodian) to take action on your behalf to claim as one of our unsecured creditors, regardless of the price performance of the reference asset and you will have no rights under the terms of the Bull ELIs against the issuer of the reference asset. In the worst case scenario, you may get nothing back and the potential maximum loss could be 100% of the original amount invested. (b) During the investment period, if an event which has a diluting or concentrative effect on the theoretical value of the reference asset has occurred (including but not limited to, a subdivision or consolidation of the reference asset, a bonus or rights issue) (as more particularly set out in Condition 6(a) of the general terms and conditions in Appendix B): We will determine in our sole and absolute discretion acting in good faith and in a commercially reasonable manner any adjustment to be made to the terms of our Bull ELIs (including, for example, adjusting the exercise price of the reference asset) to account for that diluting or concentrative event so as to preserve the economic equivalence of the relevant Bull ELIs. Such adjustments could have an adverse effect on the market value of your Bull ELIs. C-2(j)(k)(l) C-10(d)(e) 20