Promotion and Activity. Download App. About Us. Help Center. All rights reserved. Verification Code. Login by Password. Price of underlying assets Bulls Bears Rises Drops. Mandatory call feature. Please select Rise Drop. There are so many CBBCs in the market, and the price differs with the product. Do you want to learn more? Although the potential return on warrants or CBBCs may be higher than that on the underlying assets, in the worst case the value of warrants or CBBCs may fall to zero and holders may lose their entire investment amount.
Unless the warrants or CBBCs are in-the-money, they become worthless when they expire. Therefore, without a strong view of the underlying assets, warrants or CBBCs should be viewed as a relatively short term investment product in comparison with an investment in the underlying assets. The price of a warrant or 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.
The more limited the secondary market, the more difficult it may be for you to realise the value in the warrant or CBBC before expiry. Even if the liquidity provider is able to provide liquidity in such circumstances, its performance on liquidity provision may be adversely affected. For example:. Adjustments may or may not be made to the terms of the warrants or CBBCs such as entitlement ratio, exercise price, etc. The total loss will be the original investment amount. What are the differences between CBBC and derivative warrants?
A comparison of the two products appears below. Some issuers may adjust for special dividends, some may not. Five days average closing price before expiry day if underlying assets are shares of a Hong Kong-listed company; Indexlevel for settling the correspondingindex future contract of the same expirymonth if the derivative warrant and futures contracthave the same expiry day if it is a derivative warrant on the Hang Seng index Refer to the listing documents for derivative warrants with other underlying assets.
Short position Bear contracts Put warrants Margin requirement None Underlying assets A range of underlying assets which is updated from time to time. What are the risk factors to be considered before investing in CBBC? Investors should take into account the following risk factors among others : Mandatory call CBBC are a type of leveraged investment. They may involve a higher degree of risk and are not suitable for all types of investors. Investors should consider their risk appetite prior to buying CBBC.
When Category R CBBC expire early the holder may receive a small residual value payment, but there may be no residual value payment in some situations. Dealers may charge their clients a service fee for the collection of the residual value payment from the respective issuers. 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.
Gearing effect Since a CBBC is a leveraged product, the percentage change in its price is greater compared with that of its underlying assets. Investors may suffer higher losses in percentage terms if they expect the price of the underlying assets to move one way but it moves in the opposite direction.
Limited life A CBBC has a limited lifespan, as denoted by the fixed expiry date, of three months to five years. The life of a CBBC may be shorter if called before the fixed expiry date. The price of a CBBC fluctuates with the changes in the price of the underlying assets. Moreover, the delta for a particular CBBC may not always be close to one, in particular when the price of the underlying assets is close to the Call Price.
In any case, investors should note that the funding costs of a CBBC after launch may vary during its life and the liquidity provider is not obliged to provide a quote for the CBBC based on the theoretical calculation of the funding costs for that CBBC at launch. CBBC may be called at any time and trading will terminate as a result.
Issuers will announce the exact call time within one hour after the trigger of the MCE, and the Exchange will send the list of Post MCE Trades to the relevant brokers who in turn will inform their clients accordingly.
If investors are not clear whether their trades are Post MCE Trades or if they have been cancelled, they should check with their brokers. Exchange rates between currencies are determined by supply and demand, which are affected by various factors.
In such cases, the CBBC 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 MCE. For Category R CBBC, valuation of the residual value will be determined on the valuation day according to the terms in the listing documents.
In general, stamp duty is not applicable to cash-settled CBBC, but investors are advised to refer to the listing documents for information regarding stamp duty. Will there be any adjustment to the terms of a CBBC if there is a capital adjustment of the underlying assets? Adjustment will be made to the Call Price, strike price and entitlement ratio according to terms specified in the listing documents. What if trading in the underlying shares of a CBBC is suspended? If trading in the underlying shares is suspended and the shares are listed on the Stock Exchange, trading in the related CBBC will also be suspended from until trading of the underlying shares resumes.
When is the last trading day of a CBBC? Each CBBC is assigned a unique expiry date at launch. The last trading day will be one trading day before the expiry day of the CBBC if it has not been called. Investors should note that this arrangement is different from the arrangement for derivative warrants, which have their last trading day four days before the expiry day. What does the short name of a CBBC tell?
How can investors differentiate a CBBC from derivative warrant by using the short names? Investors can learn some basic features of a CBBC from its stock short name. Below are the naming conventions for reference. Up to 5 characters representing name of the underlying asset. Expiry year and month. Serial number for additional issues by the same issuer on same underlying asset with same expiry year and month A, B, C Investors should note that the above naming conventions are applicable in most cases but not exclusive for all circumstances.
The short names of CBBCs indicate some basic information only. Investors should refer to the listing documents of issuers and consult their brokers or investment advisers before trading. What are the obligations of a liquidity provider? The listing document sets out the exact obligations of the liquidity provider.
In normal circumstances, liquidity providers should provide liquidity for CBBC issues through continuous quotes or in response to quote requests from five minutes after the market opens to until the market closes. The liquidity provider should provide liquidity for at least 10 board lots of the CBBC. An issuer must specify the maximum spread between the bid and offer prices for its CBBC and the maximum response time in the listing document.
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