Callable Bull/Bear Contracts

A CBBC is an instrument that tracks the performance of an underlying asset. The trading price of a CBBC tends to mirror the movement in the price of its underlying asset. Like derivative warrants, CBBCs can be issued over a range of eligible underlying assets prescribed by the Exchange from time to time. However the scope of eligible underlying assets is currently more restrictive for CBBCs than it is for derivative warrants. The list of eligible stocks for CBBCs is posted on the HKEX’s website.

A CBBC can be issued as a bull contract or a bear contract.

(a)  A “bull” CBBC may be invested in by an investor who holds a view that the price of the underlying asset will increase during the term of the CBBC.

(b)  A “bear” CBBC may be invested in by an investor who holds a view that the price of the underlying asset will decrease during the term of the CBBC.

A CBBC is generally issued at a price that represents the difference between the spot price or level of the underlying asset and the strike price or level of the CBBC, plus the issuer’s funding costs.

CBBCs have a mandatory call feature measured by reference to a call price or level. If the spot price or level of the underlying asset is at or below (in respect of a series of bull CBBCs) or at or above (in respect of a series of bear CBBCs) the call price or level at any time during an observation period (including pre-opening session, continuous trading session and closing auction session), a mandatory call event is triggered, following which the CBBC is terminated early and the trading of that CBBC ceases immediately. Otherwise, the following happens on expiry:

(a)  Bull CBBCs - For a bull CBBC, if the closing price or level of the underlying asset at expiry is:

1. higher than the CBBC’s strike price or level, you will receive a cash payment calculated by reference to the positive difference between that closing price or level and the strike price or level of the CBBC, adjusted by the entitlement ratio; or
2. equal to or lower than its strike price or level, the CBBC will become worthless.
   
   

(b)  Bear CBBCs - For a bear CBBC, if the closing price or level of the underlying asset at expiry is:

1. lower than the CBBC’s strike price or level, you will receive a cash payment calculated by reference to the positive difference between strike price or level of the CBBC and that closing price or level, adjusted by the entitlement ratio; or
2. equal to or higher than its strike price or level, the CBBC will become worthless.

The difference between these two categories of CBBCs is where the call price or level of the CBBC is set.

(a)  A “Category N” CBBC refers to a CBBC where its call price or level is equal to its strike price or level, under which you will not receive any cash payment after the occurrence of a mandatory call event and will lose your entire investment.

(b)  A “Category R” CBBC refers to a CBBC where its call price or level is different from its strike price or level, and you may receive a residual cash payment (called "residual value") upon the occurrence of a mandatory call event. However, in the worst case, you will not receive any residual value and will lose your entire investment. 

The following table describes the key differences between CBBCs, derivative warrants and inline warrants.

Investing in CBBCs is not suitable for everyone.

CBBCs involve a high degree of risk and you must be comfortable with that risk before investing. The relevant listing documents disclose the key risks applicable to the relevant CBBCs. You must consider and understand those risks. You must also be able to assume the risks, which includes being financially able to bear the potential losses in a “worst case” scenario.

Generally speaking, the key risks include the following:

(a)  Non-collateralisation - CBBCs are not secured by any asset of the issuer or the guarantor (if any) or supported by any other collateral.

(b)  Credit risk - Holders of CBBCs are unsecured creditors of the issuer and the guarantor (if any) and they have no preferential claim to any assets that an issuer or a guarantor (if any) may hold. When you purchase CBBCs, you are relying upon the creditworthiness of the issuer and/or a guarantor (if any).

(c)  Gearing risk - Although CBBCs often cost less than the underlying assets, they may change in value to a much greater extent than the underlying assets. Although the potential return on CBBCs may be higher than that on the underlying assets, in the worst case the value of CBBCs may fall to zero and holders may lose their entire investment amount.

(d)  Limited life - Unlike stocks, CBBCs have an expiry date and therefore a limited life.

(e)  Time value - So long as other factors remain unchanged, the funding costs of CBBCs will decrease over time and will become zero upon maturity. Therefore, without a strong view of the underlying assets, CBBCs should be viewed as a relatively short term investment product in comparison with an investment in the underlying assets.

(f)  Market forces - In addition to the basic factors that determine the theoretical price of a CBBC, prices of CBBCs are also affected by the demand for and supply of the CBBCs. This is particularly the case when the existing issuance of a single series of CBBCs are almost sold out and when there are further issues in that single series of CBBCs.

(g)  Turnover ‐ High turnover should not be regarded as an indication that the price of a CBBC will go up. The price of a CBBC is affected by a number of factors in addition to market forces, such as the price of the underlying assets and their volatility, the time remaining to expiry, interest rates and the expected dividend on the underlying assets.

(h)  Possibly limited secondary market - The liquidity provider may be the only market participant for a particular CBBC. The more limited the secondary market, the more difficult it may be for you to realise the value in the CBBC before expiry.

(i)  Operational and technical problems affecting liquidity services - The liquidity provider may not be able to provide liquidity when there are operational and technical problems hindering its ability to do so. Even if the liquidity provider is able to provide liquidity in such circumstances, its performance on liquidity provision may be adversely affected. For example:

1. the spread between bid and ask prices quoted may be significantly wider than its normal standard;
2. the size for which liquidity will be provided by the liquidity provider may be significantly smaller than its normal standard; and
3. the liquidity provider’s response time for a quote may be significantly longer than its normal standard.

(j)  Corporate action of the underlying stocks - Corporate actions affect the value of the underlying stocks which in turn affect the value of the CBBCs. Adjustments may or may not be made to the terms of the CBBCs (such as entitlement ratio, exercise price, etc.) depending on the terms and conditions set out in the listing documents.

Where adjustments are to be made, the adjustments will only become effective (the “Effective Date”) when all necessary parameters can be determined.

The prices of the CBBCs may be volatile from the ex-entitlement date of the underlying stocks until the Effective Date. You should exercise particular caution in trading those CBBCs during that period. In addition, no adjustment will be made to those CBBCs that expire within that period.

(k)  Knock out risk - Since a CBBC will be called by the issuer and expire early due to the occurrence of a mandatory call event when the price or level of the underlying asset hits its call price or level. The payoff for a Category N CBBC is zero when it expires early due to the occurrence of a mandatory call event. When a Category R CBBC expires early due to the occurrence of a mandatory call event, the holder may receive a small residual value payment, but there may be no residual value payment in some situations.

In general, the larger the buffer between the Call Price and the spot price of the underlying assets, the lower the probability of the CBBC being called, since the underlying assets of that CBBC would have to experience a larger movement in their price before it is called.  However, the larger the buffer, the lower the leverage effect.

Once the CBBC is called, even though the underlying assets may bounce back in the right direction from the investors' point of view, the CBBC which has been called will not be revived and investors will not be able to profit from the bounce-back.

You should read carefully the risk disclosure in the relevant listing documents of the CBBCs before investing in such products.

The issuer’s existing CBBCs are still valid and you can continue to trade them through the Exchange trading system. The issuer must publish an announcement regarding the credit rating downgrade and continue to provide liquidity for its existing CBBCs and perform its settlement obligations upon expiry.

However, when an issuer no longer meets the eligibility requirements in the Listing Rules, the issuer will not be allowed to launch new issues or further issues.  It must apply for the withdrawal of CBBCs launched but not yet listed and all CBBCs with no outstanding positions held by the public.

You should be cautious that prices of CBBCs issued by the affected issuer may be affected by its or its guarantor’s credit downgrade. For the avoidance of doubt, where the issuer or the guarantor relies on the credit rating of their respective holding company for satisfying the eligibility requirements under the Listing Rules, such credit rating is for investors’ reference only, and investors shall have no recourse against the relevant holding company under the terms of the CBBCs.

You can access information about the credit ratings of the issuers, their guarantors (if any) or their respective holding companies (where such credit rating is relied upon for satisfying the eligibility requirements in the Listing Rules) on the HKEX’s website.

No, CBBCs are not eligible for trading in closing auction session and their market closing time is 4:00 p.m.

However, some underlying securities are eligible for trading in closing auction session and the closing level of the relevant index will be ascertained after 4:10 p.m. (or 12:10 p.m. in the case of half day trading) (“eligible underlying asset”). As a result, the market closing time for a CBBC and its underlying asset can be different. In this case, the price or level of eligible underlying assets may move in closing auction session while investors cannot buy or sell related CBBC. Moreover, the CBBC can be knocked out and mandatory call event will occur if the closing price or level of the eligible underlying asset hits the call price or level at the end of the closing auction session.

Since the affected underlying security or index is not suspended and continues to trade within a specified price limit during the 5-minute cooling off period after the triggering of the VCM, the CBBC can still be traded without any price limit. You can access information about VCM on the HKEX’s website.

However, investors should note that where events surrounding VCM cause abnormal trading behavior of the underlying leading to hedging difficulties, the liquidity provision obligations of issuers could be exempted. In this case, there may be a temporary absence of price quotes, a reduction in quote size, or a wider bid-ask spread during the 5-minute cooling-off period.

VCM is a dynamic price limit model applied at the individual instrument level. Where the price deviates more than a predefined percentage within a specific time frame, the instrument will trade within band during a 5-minute cooling off period. This provides a window allowing market participants to reassess their strategies, if necessary. It also helps to re-establish an orderly market during volatile market situations.

If a cash settlement amount is payable by an issuer at expiry but the issuer defaults in its payment obligation, you can claim as an unsecured creditor against the issuer, and if the product is guaranteed, also against the guarantor.

None of the CBBCs currently listed on the Exchange is collateralised. This means that there is no specific security or asset to back up the obligations of the issuer or guarantor. If the issuer or its guarantor (if any) becomes insolvent or default, you may not recover all or even part of the amount due (if any).

(a)  Exchange rate risk

Investors trading in CBBCs with overseas underlying assets may be exposed to an exchange rate risk during the term of the CBBCs when the price and cash settlement amount of such CBBC is converted from a foreign currency in which the overseas underlying asset is priced into Hong Kong dollars.

(b)  Different trading hours between the underlying exchange on which the overseas underlying assets are traded and the Exchange

If trading in the overseas underlying assets is suspended on the underlying exchange, trading in the CBBCs will be suspended for a similar period.

The trading hours of the underlying exchange (based on Hong Kong time) are likely to be different from the trading hours of the Exchange. Trading in the overseas underlying assets on the underlying exchange may be suspended during non-trading hours of the Exchange. Such suspension may be lifted, and trading may resume, during non-trading hours of the Exchange.

If trading in the overseas underlying assets on the underlying exchange is suspended, trading in the CBBCs on the Exchange will not be automatically suspended – in such case, the market price of the CBBCs may fluctuate significantly until trading in the CBBCs on the Exchange is suspended. If trading in the overseas underlying assets on the underlying exchange resumes following a suspension, trading in the CBBCs on the Exchange will not be resumed automatically and you will not be able to trade the CBBCs until trading in the CBBCs on the Exchange is resumed.

In addition, the trading price of the overseas underlying assets is calculated and published during the trading hours of the underlying exchange. You should be aware of the time zone difference between Hong Kong and the location in which the underlying exchange is situated in assessing the trading price of the overseas underlying assets. The trading prices of the overseas underlying assets may be volatile in response to the movements on the underlying exchange during which the Exchange is not opened for trading of the CBBCs.

(c)  Less public information about the overseas underlying assets and such information may not be available in English or Chinese

There may be less publicly available information about the overseas underlying assets than those about Hong Kong underlying assets and some of that information may not be available in English or Chinese. If you do not understand any such information, you should obtain independent advice.

(d)  Political and economic risk

The trading prices of the overseas underlying assets may be subject to political, economic, financial and social factors that apply in those geographical regions, which may differ favourably or unfavourably from those factors that apply to Hong Kong. Moreover, foreign economies may also differ favourably or unfavourably from the Hong Kong economy in important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.

(e)  Occurrence of mandatory call event for CBBCs outside trading hours

CBBCs linked to overseas underlying assets may be called outside the Exchange’s trading hours. In such cases, the CBBCs will be suspended from trading on the Exchange in the next trading session or soon after the issuer has notified the Exchange about the occurrence of the mandatory call event. There will be no automatic suspension of the CBBCs by the trading systems of the HKEX’s securities market upon the occurrence of a mandatory call event. For Category R CBBCs, valuation of the residual value will be determined on the valuation day according to the terms and conditions as set out in the listing documents.

The credit rating of the issuer’s holding company is required to be disclosed in the listing document for investors’ reference if the issuer is relying on the credit rating of its holding company for satisfying the eligibility requirements under the Listing Rules (for example, where the issuer itself is not rated).  However, the holding company does not have any contractual obligation to provide financial support to the issuer or to meet the issuer’s obligations in respect of the CBBCs.

No. If the issuer defaults, investors will have no recourse against the holding company and may only claim against the issuer (and the guarantor, if any) in accordance with the terms and conditions of the relevant product.

Where the credit rating of the issuer’s holding company is disclosed in the listing document, investors should understand that it is provided for reference only. They should assess its relevance and significance carefully, and should not solely rely on it when making investment decisions.

Not necessarily. While high turnover may suggest that a CBBC is actively traded, it does not always reflect sustainable liquidity.

Investors should be aware that trading activity may be concentrated among a small number of participants. In such cases, a high proportion of turnover may be driven by the trading strategies of a few investors rather than broad market demand. If these investors change or withdraw their positions, liquidity may decline rapidly, potentially making it more difficult to trade the product at expected prices.

Investors should refer to the List of Structured Products with High Trading Concentration which highlights CBBCs where trading activity is concentrated among a small group of investors.

No, investors should not rely solely on turnover when selecting CBBCs. In assessing liquidity, investors should also consider other factors, including but not limited to the bid‑ask spread, the quote size provided by liquidity providers and the duration for which quotes are available.

You can learn some basic features of a CBBC from its stock short name. Below are the naming conventions for reference.

The “#” sign in the stock short name could help investors differentiate a CBBC from a derivative warrant and an inline warrant. You should note that the above naming conventions are applicable in most cases but not exclusive for all circumstances. The stock short names of CBBCs indicate some basic information only.

You should refer to the relevant listing documents of the product and consult your brokers or investment advisers before trading. Listing documents can be found at the HKEXnews website.

Investors can start to buy CBBCs on the Exchange from the first listing day of the products. To initiate the listing process, CBBCs issuers submit product term sheets to the Exchange for approval on the launch day (“Launch Date”). Commencing from 13 July 2020, the listing cycle has been shortened from five trading days to three trading days following the product launch.

For example:

The listing date will be postponed due to an exceptional situation causing the stock market to (i) close for the entire day; or (ii) close prior to its regular hours on any of the two trading days between launch date and the scheduled listing date. No further notice or announcement will be published in respect of such postponement. Below is an illustrative example in respect of a product launched on Monday with a listing date on Thursday:

Trading of CBBCs will remain available during typhoon signal number 8 or above or the black rainstorm warning issued by the Hong Kong Observatory, or ‘extreme conditions’ issued by the Hong Kong Special Administrative Region Government.  In addition, structured products issuers will provide active quotes and quote requests for structured products as usual.

However, the Exchange will assess specific circumstances in consultation with the Government and the Securities and Futures Commission to decide whether there is an exceptional situation that warrants the markets, including structured products market, to be closed.  In this case, the Exchange will make relevant announcements as required to provide the market with advanced notice and updates.

Yes. Similar to the trading of shares, transaction fees currently include:

(a)  brokerage commission and fees charged by the relevant broker;

(b)  the transaction levies imposed by the SFC and the Accounting and Financial Reporting Council of Hong Kong; and

(c)  a trading fee charged by the Exchange.

No. Currently, all CBBCs traded on the Exchange are cash settled and trading in such cash settled CBBCs are not subject to any stamp duty.

No, trading of CBBCs linked to the affected indices will be halted as soon as practicable after publication of a notice of such failure by Hang Seng Indexes Company on its website. Where such notice is published within 15 minutes before the end of a continuous trading session, trading halt will take place in the next continuous trading session. 

A liquid product has a tradable market with tight bid and ask prices and sufficient size, in which there are opportunities to buy and sell CBBCs. The provision of liquidity is an important feature of CBBCs because it allows investors to buy and sell CBBCs that may otherwise be illiquid (that is, have insufficient supply or demand).

Most CBBCs do not have public holdings on their first listing dates.  Issuers may provide liquidity in respect of their products through a designated liquidity agent (called a “liquidity provider”). In Hong Kong, liquidity providers are commonly known as “market makers”.

Each issuer must appoint one liquidity provider, who must be an Exchange participant, for each of its products.

A liquidity provider provides quotations for a particular CBBC to support a tradable environment for that product. Such quotations take into account the prevailing market conditions affecting the underlying asset, such as hedging costs and liquidity, spread and volatility of the underlying. Liquidity providers provide liquidity by inputting orders into the trading system of the Exchange when they receive “quote requests”. They do so according to the committed service levels as set out in the relevant listing document. These standards typically include:

(a)  the maximum response time – i.e. the maximum time it will take to submit a pair of quotes after a request is received;

(b)  the maximum spread between the bid and ask prices;

(c)  the minimum quote size;

(d)  the minimum holding time for the quotes; and

(e)  situations in which a quote will not be provided.

Under certain circumstances, liquidity providers are required to provide “active quotes” (that is, even where no request has been submitted by investors) by actively inputting orders into the Exchange’s trading system.

Each liquidity provider is currently identified by a 4-digit broker ID code of 95XX, 96XX or 97XX. The relevant listing documents of an issuer set out the exact obligations of its liquidity provider.

In circumstances where the outstanding quantity of a CBBC in the market increases, the liquidity provider may be less active in providing quotes for such CBBC. This is because the key role of a liquidity provider is to facilitate liquidity when there is limited or no market liquidity on the CBBC (such as when the CBBCs are newly listed on the Exchange with limited or no trading by market participants or investors) and to support a tradable environment for the CBBC. If a CBBC is not eligible for active quotes due to the fact that there is more than 50% of its aggregate number outstanding in the market, then there may not be any active quote from the liquidity provider. You can find out the outstanding quantity of CBBC as of the previous trading day on the HKEX’s website.

Where the number of market participants for a particular product grows, the “market force” increases, and the product becomes less dependent on the liquidity provider as the sole source of liquidity. By implication, the role of the liquidity provider becomes less important when there is a higher number of particular CBBC outstanding in the market because this means there are more investors trading in the product, leading to a natural market.

No. Liquidity providers are not required to support prices of CBBCs. In practice, like other market participants, a liquidity provider is free to buy and sell at any price.

Each series of CBBC will have only one liquidity provider appointed for such series.

You can obtain the liquidity provider’s name and contact details in two ways:

(a)  Visit the HKEX’s website: The designated HKEX’s website lists all the liquidity providers for all CBBCs listed on the Exchange.

(b)  Check the relevant listing documents of the CBBC.

Simply contact the liquidity provider directly during trading hours on a trading day at its designated phone number. 

Through the liquidity provider, the issuer takes into account the prevailing market conditions affecting the underlying asset (e.g. hedging costs and liquidity, spread and volatility of the underlying) in the quotations provided to the market.

Not necessarily. Trading CBBCs is similar to trading stocks listed on the Exchange. Any investor’s bid or ask price may be accepted and traded upon by other investors. You may also place orders just like trading in listed stocks. However, there may not be sufficient interest in trading such CBBCs.

If the appointed liquidity provider is no longer an Exchange participant, it cannot continue to provide liquidity. The issuer must appoint another liquidity provider in its place.

The Exchange has set out the minimum service levels for liquidity provision in the Product Sheets. Issuers are required to specify the minimum service levels in their listing documents and ensure that they comply with the minimum service levels as published by the Exchange from time to time. Liquidity must be provided in respect of their CBBCs in accordance with these minimum service levels.

Quote request is one of the methods in which liquidity is provided. It refers to the provision of liquidity by entering orders into the Exchange’s trading system in response to an investor’s request.

Quote request standards are the minimum service level for all CBBCs applicable to all possible market conditions (regardless of the underlying assets), subject to certain exemptions set out in the listing documents.

The following table summarises the current service levels.

When a liquidity provider responds to your quote request, it must continue to hold a quotation (which effectively means it must continue to make available an offer to trade for investors) for at least 5 minutes after it is posted on the Exchange’s trading system upon your request. This means that you can accept the quote (that is, agree to trade on that basis) within such 5 minutes, if it has not lapsed (see below).

However, it is important to be aware that even within those 5 minutes, the liquidity provider may need to adjust the bid and ask prices if the prevailing market circumstances or the price of the underlying asset changes. If that occurs, the liquidity provider will “refresh its quote” – that is, an adjusted quote will be posted on the Exchange’s trading system.

More importantly, if a liquidity provider’s quote is being traded by another investor within the 5 minute holding time and thus the quotation lapses, you need to submit another quote request if you wish to have a quote from the liquidity provider to trade.

The liquidity provider is not obliged to provide quote upon request in the following key situations:

(a)  during a pre-opening session or a closing auction session (if applicable);

(b)  during the first 5 minutes of each morning session or the first 5 minutes after trading commences for the first time on a trading day;

(c)  when the CBBC or any underlying asset is suspended from trading for any reason;

(d)  when there is no CBBC available for market making activities;

(e)  if the theoretical value of the CBBC is less than 0.01 unit of trading currency (e.g. RMB$0.01, HK$0.01 or US$0.01);

(f)  upon the occurrence of a mandatory call event;

(g)  where the underlying asset is an index, if there occurs or exists any suspension of, or limitation imposed on, trading of options or futures contracts relating to the index or if the index level is not calculated or published as scheduled for any reason;

(h)  when there are operational and technical problems beyond the control of the liquidity provider that hinder the liquidity provider’s ability to provide liquidity; or

(i)  if there is a “fast market” which materially affects the issuer’s hedging ability.

These circumstances are stated in the relevant listing documents. 

If trading in the underlying asset of a CBBC is suspended, trading in such CBBC will also be suspended until trading in the underlying asset resumes. Investors must understand and take into account the risks arising from a loss of time value during a suspension period.

If trading in the underlying asset remains suspended at the expiry of the CBBCs, the issuer will determine the settlement price in good faith and in a commercially reasonable manner. The cash settlement amount may be substantially less than the investor’s initial investment and may be zero.

“Fast market” refers to situations where the financial markets experience exceptional price movements and high volatility over relatively short periods of time, which can result in a sudden increase in risk and uncertainty, possibly affecting issuers’ hedging abilities.

For example, these situations may include:

(a)  financial uncertainty - exceptionally volatile market conditions linked to financial uncertainty, for example, the period following Lehman Brothers’ bankruptcy in September 2008 and the “flash crash” of 6 May 2010, when the Dow Jones Industrial Average suffered its worst intra-day point loss; and

(b)  underlying uncertainty - the occurrence of events causing the intraday market price of the underlying stock or index to experience significant fluctuations and/or a material reduction in liquidity of the underlying, for example, Japan’s earthquake on 11 March 2011 which resulted in a drastic fall in Nikkei index in the immediately following period and fluctuation in prices of the related CBBCs.

These are just possible examples of fast market events. Depending on circumstances, some market events may trigger a VCM which may possibly result in a fast market.

It is generally more difficult to provide quotes momentarily when the price of the underlying asset is changing rapidly within a short period of time.

VCM is a dynamic price limit model applied at the individual instrument level. Where the price deviates more than a predefined percentage within a specific time frame, the instrument will trade within band during a 5-minute cooling off period. This provides a window allowing market participants to reassess their strategies, if necessary. It also helps to re-establish an orderly market during volatile market situations.

System difficulties and failures can affect the ability of a liquidity provider to provide quotes within the service level set out in relevant listing documents or provide any quote at all.

A system failure will be notified to the market as soon as practicable and shall be fixed within the shortest possible time.

The issuer will commit to Quote Request obligations during the day, including during the cooling off period, unless an exemption set out below is obtained for Quote Request if there is a “fast market” which materially affects the issuer’s hedging ability.

VCM is a dynamic price limit model applied at the individual instrument level. Where the price deviates more than a predefined percentage within a specific time frame, the instrument will trade within band during a 5-minute cooling off period. This provides a window allowing market participants to reassess their strategies, if necessary. It also helps to re-establish an orderly market during volatile market situations.

Active quotes refer to the provision of liquidity where a liquidity provider actively inputs orders into the Exchange’s trading system. Issuers will, without any need for a request from an investor, provide active quotes on CBBCs as a service to investors. Active quotes save investors the inconvenience of having to request quotes and promote transparency.

For further information, please refer to “Liquidity Provision Requirements – Active quote” of the Product Sheets.

Generally speaking, yes. However, active quotes may not strictly be “continuous” because liquidity providers may need to pause the provision of active quotes for a reasonably short period of time to adjust quote parameters in response to market conditions or operational needs.

Roughly speaking, active quotes should be provided for at least 90% of the time of a trading day for CBBCs that meet the criteria for active quotes and each pause should not exceed 10 minutes.

No. Unlike quote request, there is no minimum holding time for active quotes.

Issuers are only required to provide active quotes during the “Qualified Period”. This means the period when:

(a)  the active quote criteria set out in “Liquidity Provision Requirements” of the Product Sheets are met; and

(b)  none of the exemptions set out in “Liquidity Provision Requirements” of the Product Sheets applies.

Issuers are only committed to providing active quotes for CBBCs that satisfy the following criteria (as measured on a real time basis):

(a)  an active underlying;

(b)  50% or less of their aggregate number outstanding in the market; and

(c)  the prevailing price of the underlying stock falls outside 2% of the call price or the prevailing level of the underlying index falls outside 1% of the call level. This qualified range” is derived by comparing the spot price or level of the underlying and the call price or level.

For further information, please refer to “Liquidity Provision Requirements – Active quote” of the Product Sheets.

A liquidity provider’s quotation for CBBCs must be based on the actual market conditions. There are three key considerations for an issuer when deciding if active quotes can be provided:

(a)  if the CBBC is suitable in terms of demand and risk management;

(b)  if the market conditions affecting the underlying asset, such as its liquidity and the availability of hedging, permit active quotations; and

(c)  the prevailing market conditions affecting the CBBC itself, such as supply and demand patterns.

An “active underlying” means local indices (such as the Hang Seng Index and Hang Seng China Enterprises Index) and stocks listed on the Exchange which are eligible for CBBC issuance. These represent stocks with the highest turnover in the market.

CBBC eligible list is generally updated on a quarterly basis and posted on HKEX’s website.

Investors should pay attention to the change in the eligible underlying and the effective date of the eligible list. An underlying previously eligible for CBBC issuance and is removed from the current eligible list will no longer be an “active underlying”. As a result, derivative warrants with that particular underlying will cease to be subject to active quotes commencing on the effective date of the eligible list.

On the other hand, a newly added eligible underlying will become an “active underlying” and will be subject to active quotes commencing on the effective date of the eligible list (assuming the criteria for active quotes set out in “Liquidity Provision Requirements – Active quote” of the Product Sheets are all met).

If you want to know whether a particular CBBC is eligible for active quotes at any particular time on a trading day, you may contact the issuer to ask if such CBBC meets the active quote criteria.

The list of CBBCs which were eligible for active quotes based on market data as of close of trading on a trading day will be included in each issuer’s daily trading summary published on the next trading day. If you wish to use such market data as a general reference point, please note that such data of CBBCs is historical.

Such information included in an issuer’s daily trading summary will only show historic data as of the close of trading on the previous trading day for general guidance only. You must not assume that such information is accurate, complete or up-to-date. You should not rely on such historic list as an indication that a CBBC listed in such daily trading summary actually meets the active quote criteria at any other time.

Active quotes may not be continuous because liquidity providers may need time to pause the provision of active quotes for a reasonably short period of time to adjust quote parameters in response to market conditions or operational needs.

Common causes of these short interruptions include the following:

(a)  a sudden or material change in the trading pattern of the CBBC, such as where a relatively inactive CBBC suddenly becomes active;

(b)  news is published that might have an impact on the market price of the underlying. For example, a change in forecast earnings or proposed dividends;

(c)  the underlying or the stock market experiences exceptional price movement or high volatility over a short period of time which materially affects the liquidity provider’s ability to source a hedge or unwind an existing hedge;

(d)  the underlying stock trades at a wider bid-ask spread than normal which causes the spread in the CBBC to exceed the maximum level specified in “Liquidity Provision Requirements – Active quote” of the Product Sheets;

(e)  the liquidity provider reasonably suspects any potential mispricing, system issue or error;

(f)  the liquidity provider reasonably suspects abnormal trading in respect of the underlying;

(g)  operational and technical problems such as computer network disconnection, loss of data feed, loss of connectivity with the Exchange or technical issues which arise in the issuer’s computer system; or

(h)  the liquidity provider will suffer, or expects to suffer, a financial risk due to frequency of trades and size of trades in relation to its CBBC.

An issuer may stop providing active quotes for a CBBC on a trading day if that CBBC no longer meets the active quote criteria stated in “Liquidity Provision Requirements – Active quote” of the Product Sheets. Individual issuers may voluntarily decide to keep providing active quotes, or may switch to providing liquidity on a quote request basis in accordance with the minimum liquidity service levels.

The bid and ask spreads for active quote are tighter than the maximum spreads prescribed for quote request. These tightened spreads are as follows:

Spreads for CBBCs are wider than those for derivative warrants because the price of CBBCs is generally more sensitive to movements in the value of the underlying asset, meaning that it is more costly for the issuer to hedge that underlying asset.

Investors should be aware that the standards for active quotes described in the Product Sheets are intended to apply to normal market conditions. Provision of active quotes may be affected where there are abnormal or exceptional market conditions.

Quotes provided by liquidity providers necessarily reflect the liquidity of the underlying securities or indices at any given time. If the liquidity of the underlying is impaired by conditions surrounding a VCM event, or by the VCM itself, the liquidity of the CBBC may be adversely affected in terms of quote size and spread relative to more normal market conditions.

During the 5-minute cooling off period after triggering of the VCM, where issuers’ hedging ability is materially affected due to the uncertainty in the underlying securities or index, it is possible that the minimum service level for active quotes will not be fulfilled, such as no bid-ask quotations, widening of bid-ask spread and reduction in quote size.

Similarly, after the 5-minute cooling off period, liquidity provision may still be affected if issuers continue to experience hedging difficulties. Under such circumstances, Liquidity Providers may not fulfil the minimum service level for active quotes as described in the Product Sheets.

However, issuers will use best efforts to meet quote request requirements.

VCM is a dynamic price limit model applied at the individual instrument level. Where the price deviates more than a predefined percentage within a specific time frame, the instrument will trade within band during a 5-minute cooling off period. This provides a window allowing market participants to reassess their strategies, if necessary. It also helps to re-establish an orderly market during volatile market situations.

When the underlying price or level approaches the call price or call level, the price of a CBBC may fluctuate more sharply. As a result, it may be more difficult for issuers to maintain quotes within the tightened spreads, especially when the underlying stock price is within 2% of the call price, or the underlying index level is within 1% of the call level.

Yes, unless the situation falls within any of the circumstances described in “Liquidity Provision Requirements – Quote request” of the Product Sheets.

Possibly, it depends on the circumstances.  The maximum response time for quote request has been capped at 10 minutes.  If the situation falls within any of the circumstances described in "Liquidity Provision Requirements – Quote request” of the Product Sheets, then the liquidity provider is not required to provide quotes within 10 minutes.

Not necessarily.  For example, the quote may have been taken by another market participant or one of the circumstances set out in "Liquidity Provision Requirements – Quote request” of the Product Sheets may have arisen.

The quote size offered by the liquidity provider is limited by the actual liquidity of the relevant hedging vehicle (e.g. the underlying asset or the listed or OTC options linked to the underlying asset). In this case, the liquidity provider may not be able to buy all 1,000 board lots of your bull CBBCs if the liquidity provider cannot unwind such hedging vehicle for all of the 1,000 board lots of your bull CBBCs (for example, because the relevant hedging vehicle is illiquid). The minimum quote size that a liquidity provider is committed to quote is 20 board lots. 

No. If an existing quote that complies with the minimum service levels is available, the liquidity provider will be deemed to have complied with its liquidity obligations.

The liquidity provider is only required to commit to the minimum service level. If your request for a bid-ask spread reduction is a tighter standard than the minimum service level, the liquidity provider is not obliged, and may not be able, to provide a tighter spread. It is because the bid-ask spread may change from time to time or even widen according to the prevailing market conditions affecting the underlying asset (such as hedging costs and liquidity, spread and volatility of the underlying).

If the liquidity provider has provided active quotes that comply with the spread requirement for active quotes as prescribed in the Product Sheets, it should not be necessary to make a separate quote request for such products as the bid and ask spreads for active quotes are tighter than the maximum spreads prescribed for quote request.

The liquidity provider is exempted from providing liquidity when there is a “fast market” which materially affects the issuer’s hedging ability. “Fast market” refers to situations where the financial markets experience exceptional price movements and high volatility over relatively short periods of time, which can result in a sudden increase in risk and uncertainty, possibly affecting issuers’ hedging abilities.

Issuers provide active quotes for bull CBBCs linked to stocks where the spot price of the underlying stock is above 2% of the call price.

Where the call price of a bull CBBC is HK$50, a spot price above HK$51 meets the percentage requirement for the bull CBBC. In this case, your CBBC should be eligible for active quotes (subject to it meeting the other criteria, such as the aggregate number outstanding in the market) since the spot price is above 2% of the call price. You should also note that the bull CBBC would be knocked out when the spot price reaches HK$50.

Issuers provide active quotes for bull CBBCs linked to an index where the spot level of the underlying index is above 1% of the call level.

Where the call level of a bull CBBC is 19000, a spot level above 19190 meets the percentage requirement for the bull CBBC. Your CBBC does not fulfil the active quote criteria because the spot level is less than 1% above the call level. You should also note that the bull CBBC would be knocked out when the spot level reaches 19000. In this case, you could contact the issuer to make a quote request. 

Active quotes will not be provided where one of the exemptions set out in under “Liquidity Provision Requirements” of the Product Sheets applies.  For example, the liquidity providers need not provide active quotes where:

(a)  the theoretical value is less than HK$0.01

(b)  there is a technical failure and operational problems beyond the control of the liquidity provider; or

(c)  the underlying asset or the stock market experiences exceptional price movement and high volatility over a short period of time which materially affects the liquidity provider’s hedging ability.

Remember that active quotes are not continuous. You could contact the liquidity provider if you have any questions about liquidity.

No. An issuer may, at its option, provide active quotes voluntarily. In those circumstances, the issuer is not bound by the specific spread requirements for active quotes as set out in the Product Sheets. However, in this case, the issuer will still need to comply with the spread requirement applicable to quote request in response to a quote request.

CBBCs have a “theoretical value” that may be very different from their traded (nominal) price. The theoretical value is the price of the CBBC calculated by reference to the issuer’s pricing model, taking into account all relevant market factors.

During the term of a CBBC, its price will be influenced by a number of factors, including:

(a)  its strike price or level and call price or level;

(b)  the likelihood of the occurrence of a mandatory call event;

(c)  the probable range of residual value (if any) upon the occurrence of a mandatory call event;

(d)  the funding cost;

(e)  time remaining to expiry;

(f)  the interim interest rates and expected dividend payments or other distributions on the underlying asset;

(g)  the liquidity of the underlying asset;

(h)  the availability of, and demand for, the CBBC;

(i)  the probable range of the cash settlement amount;

(j)  the issuer’s related hedging transaction costs;

(k)  the creditworthiness of the issuer and its guarantor, if applicable; and

(l)  in the case of index CBBCs, the price and liquidity of the futures contracts relating to such index.

The price of a CBBC tends to follow closely the price of the underlying asset. As a result, if the underlying asset increases in value, a “bull” CBBC with an entitlement ratio of 1 to 1 (i.e. one CBBC to one unit of the underlying asset) generally increases in value by approximately the same amount, whereas a “bear” CBBC with an entitlement ratio of 1 to 1 generally decreases in value by approximately the same amount.

However, when the underlying asset of a CBBC is trading at a price close to its call price, the value of CBBC may become more volatile (and less sensitive to movements in the price of the underlying asset due to the risk of occurrence of a mandatory call event) and the change in its value may be disproportionate to the change in the value of the underlying asset.

The funding cost of a CBBC is relevant to determining its price. A CBBC is generally traded at a price that represents:

(a)  for bull CBBC, (spot price or level of the underlying asset - strike price or level of the CBBC) + prevailing funding cost; and

(b)  for bear CBBC, (strike price or level of the CBBC - spot price or level of the underlying asset) + prevailing funding cost.

The funding cost is determined based on:

(a)  an issuer’s financing or stock borrowing costs, after adjustment for any expected ordinary dividends of the shares (if the underlying assets are dividend-paying shares); and

(b)  its profit margin.

These items fluctuate from time to time. The funding cost of a CBBC may be affected by its supply and demand. Furthermore, depending on the liquidity and volatility of the underlying asset at the time, the cost and risk of hedging may also cause a fluctuation in the issuer’s funding costs. This means that the issuer’s funding costs are not fixed throughout the term of the CBBC. In addition, the longer the duration of the CBBC, the higher the funding costs. The funding costs decline over time as the CBBC moves towards expiry.

“Outstanding quantity” means the quantity held by investors and is generally shown as a percentage. It is calculated by dividing the number of CBBCs held by the market on a particular day (after closing) by the total number of CBBCs issued. For example, if the number of certain CBBCs held after closing on a particular day is 90 million and the number of those CBBCs that had been issued is 100 million, then the outstanding quantity is 90%.

A product with a high outstanding quantity may be more vulnerable to the influence of the forces of market supply and demand. For example, when there is a selling pressure on a product, the price of that product may be squeezed (that is, brought down) by prevailing market forces. The price of the product may also be volatile due to short supply. As a result, its price may not follow the price of the underlying asset very closely.

Issuers are entitled to increase market supply of a CBBC where the outstanding quantity exceeds 50%, to prevent price fluctuations caused by short supply. The way this takes place is that the issuer applies to the Exchange for a further issuance of the CBBC.

The entitlement ratio for a CBBC is the number of such products required to be converted into a unit of the underlying asset at the strike price on the expiry date. Assuming all other factors affecting two different products are the same (underlying asset, strike price, expiry date, volatility etc.), their respective entitlement ratios would directly affect their respective values per unit. Generally, a CBBC with a higher entitlement ratio would have a relatively small value per unit. However, in theory, the entitlement ratio would not affect the performance of a particular product, as it has been calculated into the effective gearing.

The premium reflects the degree by which the price of the underlying asset needs to move before reaching the break-even price of a CBBC at expiry.

For example, if the premium of a bull CBBC is 10%, the underlying price should rise by 10% at expiry, in order to reach the break-even price.

You can calculate the premium based on the formula below (based on the payout formula at expiry):

These formulae can therefore be used as a reference to calculate the percentage by which the price of the underlying asset needs to move before reaching the break-even price of a CBBC at expiry.

These formulae can therefore be used as a reference to calculate the percentage by which the price of the underlying asset needs to move before reaching the break-even price of a CBBC at expiry.

In calculating the premium for a bull CBBC linked to the HSI based on the below formula, we need to determine the underlying price for the HSI. The spot level of the HSI may differ from its estimated future price, because the estimated future price of the HSI is calculated by reference to the sum of the cash value of the HSI (based on the HSI’s spot level) and interest rate, less the expected dividends. In most cases, as the expected dividends would be higher than the interest rate, such estimated future price of the HSI is therefore often lower than the cash value of the HSI’s spot level.

The premium calculated pursuant to the below formula may therefore be different depending on whether you apply (i) the spot level of the HSI as the underlying price, or (ii) the estimated future price of the HSI as the underlying price.

However, as the product price of a CBBC linked to the HSI is generally based on the estimated future price of the HSI futures expiring in 6 months (rather than the spot level of the HSI), such estimated future price should be adopted as the underlying price for calculating the premium of the CBBC. It is therefore likely that the premium calculated based on such lower estimated future price may result in a positive premium, whereas the premium calculated based on the spot level of the HSI may result in a negative premium, using the below formula.

Delta is the ratio of the change in the CBBC price (after adjusted by the entitlement ratio) to the change in the underlying asset’s price.

“Gearing” means the relationship that the cost of the underlying asset bears to the cost of a CBBC. For example, if the gearing for a particular CBBC is 10 times, then the investment cost of that CBBC is 1/10 of the underlying asset.

A number of other factors affecting the price of the CBBC may also change over time and, therefore, a mere rise in the underlying asset’s price may not necessarily lead to a corresponding increase to the extent of the effective gearing, or to any increase at all in the CBBC’s price.

When a listed company announces its financial results, it will also generally announce whether dividends will be paid.

Whether or not this affects the price of a related CBBC depends on whether or not dividends were expected and, if so, at what level and on what date. This is because the issuer considers past records of dividend distribution and the dividends expected by the market, when calculating the CBBC price.

Under normal circumstances, a CBBC linked to shares of a company will be adjusted if there is a capital adjustment of those underlying stocks (such as bonus issue, rights issue and restructuring event or spin-off / merger / consolidation). Specifically, an adjustment will be made to the call price, strike price and entitlement ratio according to terms specified in the relevant listing documents.

In the case of a merger/consolidation, an adjustment will be made to the call price, strike price and entitlement ratio of the CBBC of the company being merged or consolidated with. If the merger/consolidation results in an extinguishment of the current underlying, such underlying of the CBBC will change from the original underlying to a surviving/new underlying. Where there is a surviving company, no adjustment will be made to the CBBC of the surviving company.

It is possible that trading of shares of the entities undergoing a merger may be suspended for a period of time. The Listing Rules require suspension of CBBCs where the underlying stock is suspended. When this happens, the value of CBBCs may be adversely affected due to time decay during the suspension period. 

Under normal circumstances and for the purpose of calculating the value of the rights attached to the spin-off company, issuers will use volume-weighted average price (VWAP) of those auto-matched trades of that company on its first day of listing as the basis of adjustment. The adjustment will take effect from the day following the listing date. Investors should note that no adjustment will be made to those CBBCs that expire before the effective date of the adjustment.

Depending on circumstances of the case, CBBCs may be suspended from trading from the ex-entitlement date to the listing date of the spin-off company. In this case, the value of CBBCs may be adversely affected due to time decay during the suspension period.

Similarly, depending on circumstances of the case, the observation period for CBBCs may be suspended from the ex-entitlement date to the listing date of the spin-off company. Thus, no mandatory call event will occur during such period. 

In addition to the term of CBBC (i.e. underlying, expiry date, strike price and call price), the price of a CBBC also depends on a number of other factors which are based on different pricing assumptions adopted by individual issuers (e.g. different funding level, hedging cost, expected dividends, etc.). Accordingly, the prices of CBBCs with identical terms issued by different issuers may be different.

Assuming all other factors remain constant, it is likely that the bull CBBC price is affected by market force. The higher the outstanding amount, the greater the potential that the bull CBBC price is affected by market supply and demand, and as a result of which the bull CBBC price may drop due to the high selling pressure while the price of the underlying remained unchanged. 

HSI bull CBBCs are not solely priced based on HSI index. They are mainly priced based on HSI index, interest rate and expected dividend. Since HSI futures contract reflects the value of HSI index, interest rate and expected dividend, the pricing of the HSI bull CBBCs is generally priced based on HSI futures contracts.

The price of such CBBC is based on the estimated future price of the HSI futures expiring in 6 months against which the CBBC is hedged (rather than the spot level of the HSI or the future price of the front month HSI futures). The estimated future price of the HSI is calculated by reference to the sum of the cash value of the HSI (based on the HSI’s level) and interest rate, less the expected dividend. Assuming all other factors remain constant, it is likely that such increase in the spot level of the HSI was offset by the adjustment of expected dividend by the issuer, and hence the price of the CBBC remained unchanged. 

This is because the delta of the bull CBBC is not exactly equal to 1. Besides, there are a number of different factors which may affect the price of a CBBC other than underlying spot such as expected dividend and funding cost. 

When the underlying price is trading close to the call price, the price of the CBBC may become more volatile and the change in the price of the CBBC may be disproportionate to the change in the underlying price. Investors should also be aware of the number of outstanding CBBC in the market. The higher the outstanding number, the greater the selling pressure when the underlying price gets closer to the call price. This leads to a more volatile price behaviour.

A liquidity provider provides quotes for a particular CBBC by taking into consideration the prevailing market conditions such as hedging costs and the liquidity, spread and volatility of the relevant hedging vehicles. Normally, blue chip stocks have better liquidity which allows liquidity provider to provide a tighter quote than illiquid underlying.

Liquidity providers can provide bid and ask quotes at the pricing level they deem fair by reference to the theoretical price of the bull CBBC provided that they comply with the maximum spread requirements. The bid and ask spread may change from the time to time according to the prevailing market conditions affecting the underlying asset such as hedging costs and liquidity, spread and volatility of the relevant hedging vehicles.  Therefore it is possible that their quotes will not match your expected price levels due to the widening of the bid and ask spread.

For example, we assume that the theoretical price of the bull CBBC was initially HK$0.2 with a spread of HK$0.003 on each side, such that the bid and ask quotes were initially HK$0.197 and HK$0.203 respectively. The HSI then drops which leads to a corresponding drop in the theoretical price of the bull CBBC to HK$0.197. Notwithstanding the drop in the theoretical price of the bull CBBC, the spread may be widened to reflect the prevailing market conditions. For example, if the spread is then widened to HK$0.006 on each side. The new bid and ask quotes will become HK$0.191 and HK$0.203 respectively for the CBBC with a theoretical price of HK$0.197. In such case, the ask quote does not change but the bid quote is lowered due to the widened spread.

This could happen because:

1. some other pricing factors affected the bull CBBC price (e.g. expected dividend, time decay, etc.);
2. the market closing time of the bull CBBC and the underlying security was different. Being an eligible security under the closing auction session, it continued to trade in the closing auction session which ended at 4:10 p.m. while the trading in the bull CBBC ceased at 4:00 p.m. In this case, due to the 10 minutes closing time gap, direct comparison of closing price of the bull CBBC and the underlying security might not be appropriate and meaningful, or

    

3. the closing price of the bull CBBC might not reflect the quote price of the liquidity provider. In this case, quotes of the liquidity provider might have moved in line with the underlying but were not reflected in the closing price of the bull CBBC.  The closing price could be (1) calculated based on other exchange participants’ trades and quotes; or (2) carried forward from previous days.

CBBCs can be knocked out during the observation period which includes pre-opening session, continuous trading session and closing auction session. Even though the trading in the CBBC ceased at the end of the continuous trading session at 4:00 p.m., it could still be knocked out when the underlying stock hits the call price at the end of the closing auction session.

The entitlement and exercise price of the call warrant will be adjusted according to the following formula:

Adjusted entitlement = Adjustment factor * E

Adjusted exercise price = X / Adjustment factor

Adjusted call price = Y / Adjustment factor

Where

• Adjustment factor = 1 + N
• E:  Existing entitlement immediately prior to the bonus issue
• X:  Existing exercise price immediately prior to the bonus issue
• Y: Existing call price immediately prior to the bonus issue 
• N:  Number of additional shares received by a holder of existing shares for each share held prior to the bonus issue

In this case,

• Adjustment factor = 1+ 1/10 = 1.1
• Adjusted entitlement = 1 * 1.1 = 1.1 shares
• Adjusted exercise price = HK$12.28/1.1 = HK$11.164 (rounded to the nearest HK$0.001)
• Adjusted call price =HK$12.88/1.1=HK$11.709 (rounded to the nearest HK$0.001)

The purpose of the adjustment is to ensure that as far as possible, the theoretical price of the call warrant remains unchanged immediately before and immediately after the adjustment. Assuming all factors being equal, the theoretical price of the call warrant will remain unchanged.

Assuming all other factors remain unchanged, the bull CBBC price will drop upon declaration of dividend on 5 April.  It is because the actual ex-date (29 May) falls before the expiry date (14 June) and the dividend actually paid during the term of the bull CBBC is higher than expected (according to historical record it was expected that such dividend would only be paid after the expiry of the bull CBBC).  

A mandatory call event occurs when, at anytime during a trading day between the first trading day and the trading day immediately preceding the expiry date of the CBBC, the spot price or level of the underlying asset is:

• at or below the call price or level in respect of a bull CBBC; or
• at or above the call price or level in respect of a bear CBBC.

A trading day includes the pre-opening session and the closing auction session.

Generally, MCE time is posted on “MCE time” webpage under the Products Corner for Callable Bull/Bear Contract on HKEX website and such information is available within 45 minutes from the occurrence of a mandatory call event. Investors should refer to the announcement published by issuers on HKEXnews website for the official MCE time.

In addition, some issuers may post MCE time on their own websites.

For “Category N” CBBCs, the answer is no. If a mandatory call event occurs, you will lose all of your investment.

For “Category R” CBBCs, the answer is maybe. You may receive a residual value when a Category R CBBC is being called before expiry. The residual value is calculated generally in accordance with the following principles:

(a)  For a Category R “bull” CBBC – (The lowest spot price or level of the underlying asset in the MCE valuation period minus the strike price or level) divided by the entitlement ratio.

(b)  For a Category R “bear” CBBC – (The strike price or level minus the highest spot price or level of the underlying asset in the MCE valuation period) divided by the entitlement ratio.

For a CBBC, MCE valuation period is a period commencing from the time upon which a mandatory call event occurs in the trading session of the Exchange up to and including the end of the following trading session.

Pre-opening session and morning session are considered as one trading session. The afternoon session and the closing auction session are considered as another trading session. In the case of half day trading, the pre-opening session, the morning session and the closing auction session are considered as one trading session.

Please see the listing documents of the relevant CBBC for further details.

Mandatory call event may occur at any time during the trading day. If it occurs during the continuous trading session, no further trade can be concluded via auto-matching. In addition, all trades concluded manually after the mandatory call event will be cancelled.

Please note that since there may be a time gap between the mandatory call event and termination of trading of the CBBC, some CBBC trades concluded after the occurrence of the mandatory call event may be cancelled even though they have been confirmed by brokers.

Investors should therefore apply special caution when a CBBC is trading close to the call prices or levels.

No, the expiry day of a CBBC is not the same as the last trading day. Investors can only trade a CBBC on or before the last trading day:

The last trading day falls on the trading day immediately before its expiry date, subject to the occurrence of a mandatory call event following which the CBBC is terminated early and the trading of that CBBC ceases immediately.

All CBBCs currently traded on the Exchange are European style and are cash settled at expiry.

For cash-settled CBBCs that are in-the-money on the expiry date, the CBBC holders are then paid a positive cash settlement amount according to the terms and conditions as set out in the listing documents.

Investors will receive the cash settlement amount (if any) no later than the third settlement day following the expiry date. In general, Christmas Eve, New Year’s Eve and Lunar New Year’s Eve (being half trading days) will normally be prescribed by the Exchange as non-settlement day.

For CBBCs issued on a local stock traded on the Exchange, the settlement price at expiry is calculated based on the closing price of the underlying stock on the trading day before expiry of the CBBCs.

For CBBCs issued on a local index (such as HSI or HSCEI), the settlement price at expiry is based on the final settlement price of the corresponding index futures contract of the same expiry month as the CBBCs traded on the Hong Kong Futures Exchange on the second last business day of the contract month.

For more information about the settlement price at expiry for CBBCs on other underlying assets, please refer to the relevant listing documents.

The issuer may elect to early terminate the CBBCs. Holders of those CBBCs may receive an early termination amount which is determined by the issuer:

(a)  in good faith and a commercially reasonable manner; and

(b)  where applicable, by reference to the determination made by the Exchange in relation to the relevant listed options or futures over the underlying stock. In a past case, such early termination amount has been calculated based on the difference between the exercise price and the offer price of cancelling the underlying stock under the proposed privatisation, adjusted by the entitlement ratio. However, such determination may be different on a case by-case basis.

(a)  Trading suspension or absence of closing price on the original valuation date only - in that case, the closing price on the trading day following the original valuation date will be used as the settlement price at expiry.

(b)  Trading suspension or absence of closing price on the original valuation date and each of the three trading days immediately following the original valuation date - in that case, the closing price on the 4th trading day following the original valuation date will be used as the settlement price at expiry.

(c)  Trading suspension or absence of closing price on the original valuation date and each of the four trading days immediately following the original valuation date - in that case, the settlement price at expiry is determined based on the issuer’s good faith estimate made in accordance with the terms and conditions. Such determination will be made on a case-by-case basis by reference to the prevailing market conditions.

Trading suspension above means suspension of trading of the underlying stock during the last half hour before close of trading.

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.

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 “Liquidity Provision Requirements” of the Product Sheets.