Overseas underlying assets

You can only trade CBBCs linked to an underlying asset listed overseas during trading hours of the Exchange. However, when the Exchange is closed, even though the overseas exchange is open for trading, you cannot trade your CBBCs.  

If the overseas underlying asset becomes volatile during the trading hours of the overseas exchange, you will not be able to trade out your position while the Exchange is closed.  This is one of the risks of trading CBBCs linked to an overseas underlying asset where the Exchange and the overseas exchange have different trading hours.

In addition, if you hold a CBBC linked to an overseas underlying, you should also be aware that you will not be able to sell it when it approaches knock-out while the Exchange is closed.

Conversely, when overseas exchange is closed and there is no trading of overseas underlying during the trading hours of the Exchange. You may not be able to obtain the underlying price for reference.  As a result, the bid/ask spread of the CBBCs linked to an overseas underlying may be wider, as compared to CBBCs linked to a local underlying asset.

CBBCs are traded according to the trading hours of the Exchange. You can still trade your CBBCs linked to an overseas underlying asset when the overseas exchange is closed, as long as the Exchange is open for trading.

Unlike CBBCs linked to local indices or other actively traded local stocks, liquidity providers are not required to proactively provide quotes for products linked to an overseas underlying asset.  In case you do not see liquidity providers’ quotes in the market, you have to call them to request for quotes. They are obligated to provide quotes within 10 minutes with a maximum bid/ask spread of 20 ticks and a minimum offer size of 20 board lots subject to certain exemptions set out in paragraph 3.3 of the Industry Principles.

Despite there being no movement of the overseas underlying asset during trading hours of the Exchange, issuers may take into account various factors in determining the price of the CBBCs. These factors may include but not limited to the price of the index futures contracts of relevant indices, the after hour trading price of the stock, company results announcements, company related news and the price of depositary receipts in other stock markets.  

Generally, you may find the price of the overseas underlying assets from the overseas exchanges or information vendors on a delayed basis. If you want to obtain real time pricing information, you may need to subscribe for real time price dissemination.

Yes. Due to the difference in trading hours among exchanges, the underlying company may release price sensitive news during trading hours of the Exchange, so you must be careful and do your own assessment.  If the sensitive news is released during trading hours of the Exchange, the price of the CBBCs may become highly volatile, and you may only have limited time to digest the news and assess its potential impact.  Additionally, such news or information may not be published in your preferred language.

For the occurrence of a mandatory call event outside the Exchange’s trading hours, trading in the CBBC linked to overseas underlying assets will be suspended upon market open on the trading day of the Exchange immediately after the mandatory call event is triggered.    

For the occurrence of a mandatory call event during the Exchange’s trading hours, trading in the CBBC linked to overseas underlying assets will be suspended as soon as practicable after the mandatory call event is triggered.   

Normally, if trading in the overseas underlying asset of a CBBC is suspended, trading in the related CBBC will also be suspended as soon as practicable. This arrangement is generally the same as that applicable to local underlying assets.

When issuers need to reference the closing price of overseas underlying stocks on the last-cum date to make corporate action adjustment to the CBBCs, due to the time difference between Hong Kong and the location of overseas exchange (for example the US), issuers may not be able to announce the adjustments before trading of related CBBCs commences on the Exchange on the Exchange’s trading day immediately following close of trading on the overseas exchange on the last-cum date. Given the adjusted terms have not been announced, trading in those CBBCs will be suspended for that entire trading day of the Exchange.

You should note that depending on the type of corporate action, trading in the CBBCs on the Exchange may be suspended for more than one trading day in certain circumstances.  In all cases, issuers will publish announcements setting out the corporate action adjustment and suspension arrangement (if any), you can refer to HKEXnews website for details.

Not necessarily. The CBBCs may be traded and settled in Hong Kong Dollar even though the overseas underlying assets are traded and settled in foreign currency (e.g. United States Dollar).  Investors should be aware of the exchange rate risk in this scenario.