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CBBC mandatory call events and expiry and settlement

6.1 What is a mandatory call event?

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.

Upon the occurrence of a mandatory call event, the CBBC will automatically expire early and trading in the CBBC will be terminated immediately.

6.2 Where can I find out the time at which a mandatory call event has occurred (MCE time)?

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.

6.3 Will I receive any payment if a mandatory call event occurs and how is MCE valuation period determined?

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:

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.
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.

6.4 I hold a CBBC and my broker confirmed that I had sold the CBBC. However, the broker later told me the trade was cancelled as a mandatory call event had occurred. What is that about?

Mandatory call event may occur at any time during trading hours. If it occurs, 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.

6.5 Can I trade in a structured product on the expiry date?

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

For a standard warrant or an inline warrant, there should be 3 settlement days between the last trading day and the expiry day. For example, if a warrant expires on Friday, 23 June, the last day of trading will be Monday, 19 June (assuming the 3 days between 19 and 23 June are settlement days); and
For a CBBC, 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 (see FAQ 1.9).

6.6 How and when are structured products settled?

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

For cash-settled structured products that are in-the-money (in the case of standard warrants and CBBCs) or in-the-range (in the case of inline warrants) on the expiry date, the structured product holders are then paid a positive cash settlement amount according to the terms and conditions as set out in the listing documents. For inline warrants that are out-of-the-range on the expiry date, holders will receive a cash settlement amount of $0.25 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.

6.7 How is the settlement price at expiry of a standard warrant or an inline warrant calculated?

For standard warrants or inline warrants issued on a single local stock traded on the Exchange, the settlement price at expiry is calculated based on the 5-day average closing price of the underlying stock prior to and excluding the expiry day.

For standard warrants or inline warrants issued on a local index, 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 standard warrants or inline warrants 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 standard warrants or inline warrants on other underlying assets, please refer to the relevant listing documents.

6.8 How is the settlement price at expiry of a CBBC calculated?

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.

6.9 An underlying stock will be delisted and cancelled for cash by way of privatisation. What will I get if I am holding structured products linked to that stock?

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

in good faith and a commercially reasonable manner; and
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 caseby-case basis.

6.10 What is the method of determining the 5-day average closing price of the underlying stocks when there is a trading suspension or no closing price on the following day(s)?

1. Trading suspension or absence of closing price on the 1st, 2nd, 3rd, or 4th valuation date only - in that case, the closing price on the next valuation date will be used as the closing price on such 1st, 2nd, 3rd, or 4th valuation date, so that there are 5 closing prices used to determine such 5-day average closing price.
2. Trading suspension or absence of closing price on each of the 3rd and 4th valuation dates only - in that case, the closing price on the 5th valuation date will be used as the closing price on each of the 3rd and 4th valuation dates, so that there are 5 closing prices used to determine such 5-day average closing price.
Trading suspension or absence of closing price on the 5th valuation date only (but not the expiry date) - in that case, the closing price on the 5th valuation date 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 based on prevailing market conditions. The closing price on the expiry date was used in most of the past cases.
Trading suspension or absence of closing price on each of the 5 valuation dates and the expiry date - in that case, the closing prices on each of the 5 valuation dates are 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. The last reported closing price was used in most of the past cases.

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

6.11 What is the method of determining the settlement price at expiry of a CBBC when there is a trading suspension or no closing price for the underlying stocks on the following day(s)?

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.
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.
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.

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