Non-Principal Protected Unlisted Equity Linked Investment Programme (Programme)

Transcription

1 Programme Memorandum dated 22 July 2011 C-45 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED C-1(a) (a company incorporated in Hong Kong with limited liability, a licensed bank regulated by the Hong Kong Monetary Authority and registered under the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) for Types 1, 2, 4, 5 and 6 regulated activities) as Issuer Non-Principal Protected Unlisted Equity Linked Investment Programme (Programme) Arranger to the Programme The Hongkong and Shanghai Banking Corporation Limited C-1(b) Our non-principal protected unlisted equity linked investments (ELIs) issued under this Programme are NOT equivalent to time deposits and are NOT principal protected. They are structured investment products embedded with derivatives. You may sustain a total loss in your investment. C-34(a) If you are in any doubt about any of the contents of the ELI offering documents, you should seek independent professional advice. The Securities and Futures Commission (SFC) has authorised the issue of this programme memorandum under Section 105(1) of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong). The SFC takes no responsibility as to the contents of this programme memorandum, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this programme memorandum. The SFC s authorisation does not imply SFC s endorsement or recommendation of our ELIs referred to in this programme memorandum. C-33

2 IMPORTANT Before you decide whether to invest in our ELIs, you should read this programme memorandum, the relevant product booklet (including any addendum to these documents as set out in the relevant term sheet) and the relevant term sheet and ensure that you fully understand and are willing to assume the risks associated with such an investment. If you are in any doubt about any of the contents of this programme memorandum, you should obtain independent professional advice. You are warned that the market value of our ELIs may fluctuate and you may sustain a total loss of your investment. You should therefore ensure that you understand the nature of our ELIs and carefully study the risk warnings set out in this programme memorandum and other ELI offering documents and, where necessary, seek independent professional advice, before you invest in our ELIs. Our ELI offering documents include particulars given in compliance with the Code on Unlisted Structured Investment Products issued by the SFC (the Code ) for the purpose of giving information with regard to The Hongkong and Shanghai Banking Corporation Limited ( HSBC ), our ELIs and our Programme. HSBC accepts full responsibility for the contents of, and the completeness and accuracy of the information contained in the ELI offering documents and confirms, having made all reasonable enquiries, that to the best of its knowledge and belief there is no untrue or misleading statement, or other facts the omission of which would make any statement herein untrue or misleading. HSBC also confirms that it meets the applicable eligibility requirements under the Code and the ELIs comply with the Code. C-34(a) C-34(b) Our ELIs constitute general, unsecured and unsubordinated contractual obligations of HSBC (as the issuer) and of no other person. If you invest in our ELIs, you are relying upon HSBC s creditworthiness and have no rights under the terms of the ELIs against the issuer(s) of the reference asset(s). A Chinese version of this programme memorandum is also available from the distributor(s) and/or from the offices of The Hongkong and Shanghai Banking Corporation Limited at Level 15, HSBC Main Building, 1 Queen s Road Central, Hong Kong. C-37 / ( 1 15 ) 2

3 IMPORTANT RISK WARNINGS The following risks should be read together with the other risks contained in the Risk Warnings section in the relevant product booklet and the Important Risk Warnings section in the relevant key facts statement and relevant term sheet. Structured Investment Product Our ELIs are NOT equivalent to time deposits. They are structured investment products which are embedded with derivatives. Not Principal Protected Our ELIs are not principal protected: you could lose all of your investment. No Collateral Our ELIs are not secured on any of our assets or any collateral. Limited Market Making Arrangements Our ELIs are designed to be held to their expiry date. We (as market agent) will provide limited market making arrangements on a bi-weekly basis for all our ELIs. If you try to sell your ELIs before expiry, you may receive an amount which is substantially less than the original amount invested. Not the Same as Investing in the Reference Asset(s) Investing in our ELIs is not the same as investing in the reference asset(s). Changes in the market price of the reference asset(s) may not lead to a corresponding change in the market value of, or your potential payout under, the ELIs. Not Covered by Investor Compensation Fund Our ELIs are not listed on any stock exchange and are not covered by the Investor Compensation Fund. Maximum Loss upon HSBC s Default or Insolvency Our ELIs constitute general, unsecured and unsubordinated contractual obligations of HSBC as issuer, and of no other person (including the ultimate holding company of our group, HSBC Holdings plc). When you buy our ELIs, you will be relying on HSBC s creditworthiness. If HSBC becomes insolvent or defaults on its obligations under the ELIs, in the worst case scenario, you could lose all of your investment. C-34(c) C-34(d) C-34(b) English version of the terms and conditions prevails over Chinese version For the purpose of lodgement with the relevant clearing system(s), the global certificate representing a series of ELIs and the terms and conditions of the ELIs are issued in the English language only. If there is any inconsistency between the Chinese version of the terms and conditions of our ELIs and the English version, the English version will prevail over the Chinese version. If you do not understand the English version, you should obtain independent professional advice. Conflicts of Interest You should note that potential and actual conflicts of interest may arise from the different roles played by us and our subsidiaries and affiliates in connection with our ELIs. You do not have direct contractual rights to enforce our ELIs You do not have direct contractual rights against us as the issuer to enforce our ELIs. To assert your rights as an investor in our ELIs, you will have to rely on your distributor (directly or indirectly via its custodian) to take action on your behalf. If your distributor fails to take action in accordance with your instructions or your distributor or its custodian becomes insolvent or defaults on its obligations, you will need to take action against your distributor in accordance with the terms of arrangement between you and your distributor. We as issuer cannot give you investment advice; you must decide for yourself, after seeking independent professional advice, whether our ELIs meet your investment needs. 3

4 CONTENTS Page OVERVIEW OF OUR PROGRAMME... 5 MAIN FEATURES OF OUR PROGRAMME... 8 HOW TO BUY OUR ELIs WHAT ARE OUR ELIs TAXATION OTHER INFORMATION ABOUT OUR PROGRAMME INFORMATION ABOUT THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED APPENDIX A CONSOLIDATED FINANCIAL STATEMENTS OF THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED AS AT AND FOR THE YEARS ENDED 31 DECEMBER 2009 AND 31 DECEMBER APPENDIX B RISK MANAGEMENT SYSTEM APPENDIX C FURTHER INFORMATION ON CREDIT RATINGS

5 OVERVIEW OF OUR PROGRAMME C-2(a) We have set up our Programme so that we can issue our ELIs to the public in Hong Kong frequently and easily. This is an overview of the main features of our Programme. Issuer: The Hongkong and Shanghai Banking Corporation Limited Issuer s current credit ratings: The key responsibility of the Issuer is to issue the ELIs. Credit ratings (as at the date of this programme memorandum): C-25(a) Standard & Poor s Moody s Investors Services, Inc. AA (Outlook: Negative)* (being among the top 3 major credit rating categories and the third highest within the ten investment-grade ratings including + or - sub-grades) Aa1 (Outlook: Stable)* (being among the top 3 major credit rating categories and the second highest within the ten investment-grade ratings including + or - sub-grades) * The above ratings and ratings outlook relate to the Issuer s senior long-term debt ratings. The above credit ratings are provided for your reference only and do not imply the rating agency s endorsement or recommendation of our ELIs. C-25(c) Rating agencies usually receive a fee from the issuers that they rate: there may therefore be potential conflict of interests. A credit rating is an assessment by a credit rating agency of a company s overall financial capacity to pay its debts. The focus is on the company s capacity to pay its debts as they become due. The rating does not necessarily apply to any specific obligation. When evaluating our creditworthiness, you should not solely rely on our credit ratings because: a credit rating is not a recommendation to buy, sell or hold the ELIs; credit ratings of companies may involve difficult-to-quantify factors such as market competition, the success or failure of new products and markets and managerial competence; and a credit rating is not necessarily an indication of liquidity or volatility and a high rating is not necessarily an indication of low risk. 5

6 There can be no assurance that any rating will remain in effect for any given period or that any rating will not be revised by the relevant rating agency in the future. You may find our latest credit rating on our website: Our credit ratings as of the date of this programme memorandum are provided for reference only. You should also note that any downgrade of our rating by any credit rating agency could result in a reduction in the market value of our ELIs. You should make your own assessment of our ability to meet our obligations under the ELIs and consult your investment adviser(s) if necessary. Please see Appendix C for further information on credit ratings. C-25(b) Ratings of our ELIs: Description of Programme: Nature of ELIs: Our ELIs are not rated by any credit rating agencies. Non-principal protected unlisted equity linked investment programme. ELIs are structured investment products embedded with derivatives. Derivatives are financial instruments whose value and return would depend on the performance of their reference asset(s). The type of derivative embedded in an ELI will be described in the relevant product booklet. The potential return of an investment in an ELI is linked to the performance of a specific asset or assets (such as a share or a unit of a fund, being a real estate investment trust or an exchange traded fund) listed in Hong Kong or elsewhere as specified in the relevant product booklet and term sheet. You have no rights in the reference asset(s) unless and until the physical settlement amount (if applicable) is determined on the expiry date to be deliverable to you on the settlement date under the terms and conditions of the ELIs. Our ELIs are contracts under which, upon certain conditions being met, you may receive payment of a certain cash amount or physical delivery of the relevant reference asset(s) at a specified future date. We will issue a product booklet for each type of ELIs that we issue. The general terms and conditions that apply to each type of ELI that we can issue under our Programme will be set out in the relevant product booklet. How we issue: Our ELIs will be offered in series. Each series of ELIs will have specific terms and conditions that are applicable to that series only. Each series of our ELIs will be represented by a global certificate representing the entire issue size of such series. You can buy our ELIs through the distributors specified in the relevant term sheet. Currencies: We may issue ELIs in HK dollars, US dollars or other currencies. We will specify the currency of our ELIs in the relevant term sheet. Our ELIs will be issued and settled in the same type of currency. If the settlement currency of the ELIs is different from the currency in which any of the reference asset(s) trades, we will convert one currency into another at the exchange rate as specified in the relevant term sheet in making calculations under the ELIs. Ranking of our ELIs: Our ELIs rank as our general, unsecured and unsubordinated contractual obligations, and are not secured on any assets or collateral. 6

7 Arranger: Minimum investment amount: Governing law: Listing: The Hongkong and Shanghai Banking Corporation Limited arranges the establishment of our Programme and performs administrative functions such as assisting us (as the issuer) with the appointment of the agent and the registrar. The Hongkong and Shanghai Banking Corporation Limited is registered under the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) for Types 1, 2, 4, 5 and 6 regulated activities. The Hongkong and Shanghai Banking Corporation Limited is the Product Arranger for the purposes of the Code. We will specify the minimum investment amount for each series of our ELIs in the relevant term sheet. Hong Kong law governs our ELIs and our Programme. Our ELIs will not be listed on any stock exchange. C-1(b) 7

8 MAIN FEATURES OF OUR PROGRAMME Our ELIs will be issued and sold under our Programme. Our Programme was authorised and approved by resolutions of our board of directors on 11 August The main features of our Programme are set out in this section. Offering documents for our ELIs C-46 The following documents constitute the offering documents of our ELIs. You should read all of these documents (including any addendum to this programme memorandum or the relevant product booklet as specified in the relevant term sheet) before deciding whether to invest in our ELIs: This programme memorandum gives you an overview of our Programme and our ELIs and provides corporate and financial information about HSBC as issuer and arranger. The product booklet for each type of ELI issued by us will set out the key facts statement(s) for each type of ELIs offered, the general terms and conditions, the product features, risk factors, scenario analysis and the standard form of term sheet and the standard form of pricing supplement applicable to that type of ELI. The term sheet that we prepare for each series of ELI will contain the specific commercial terms that are applicable to that series of ELIs. The offer of each series of ELI is made only on the basis of this programme memorandum, the relevant product booklet (together with any addendum to each document as specified in the relevant term sheet) and the relevant term sheet. Terms and conditions of our ELIs The following documents set out the legally binding terms and conditions of our ELIs: (i) (ii) General terms and conditions: the general terms and conditions that are applicable to the relevant type of ELI will be set out in the relevant product booklet. These general terms and conditions may be amended and supplemented by the specific terms that are applicable to a series of ELIs, as set out in the relevant pricing supplement. Pricing Supplement: for each series of ELIs, we will prepare a pricing supplement. A global certificate representing such series of ELIs incorporating by reference the general terms and conditions, as amended and supplemented by the applicable pricing supplement relating to the relevant series of ELIs, will be lodged with the relevant clearing system(s). The pricing supplement will set out the specific commercial terms that are applicable to a particular series of ELIs. The commercial terms contained in the pricing supplement of a series of ELIs will reflect the same commercial terms as set out in the relevant term sheet for that series. The pricing supplement (in both English and Chinese) for each series of ELIs will be available for inspection at the offices of the arranger and the relevant distributors on or after the relevant issue date. When read together, the general terms and conditions in the relevant product booklet and the relevant pricing supplement will constitute the legally binding terms and conditions applicable to the relevant series of ELI. A contract note prepared by your distributor containing all the finalised commercial terms that apply to your ELIs will be sent to you by your distributor within two Hong Kong business days after the trade date. We will not issue individual certificates. Our ELIs must be held through a distributor Each series of our ELIs will be represented by a single global certificate in registered form. 8

9 If the relevant term sheet specifies that the clearing system for the relevant series of our ELIs is the Central Clearing and Settlement System (CCASS) operated by the Hong Kong Securities Clearing Company Limited, a global certificate representing the entire issue size for such series of ELIs will, upon issuance, be registered in the name of HKSCC Nominees Limited. Our ELIs will then be credited to the Clearing Participant or Custodian Participant accounts of the relevant distributors (or its custodian) with CCASS in accordance with the arrangements between such distributor (or its custodian) and CCASS. Please ask your distributor for further details. Although individual investors may, in certain circumstances, open a personal account as an individual Investor Participant account with CCASS, the relevant distributors have agreed that they will not allot our ELIs to any Investor Participant account with CCASS. If the relevant term sheet specifies that the clearing system(s) for the relevant series of our ELIs is Euroclear and/or Clearstream, Luxembourg, which are international securities clearing systems, a global certificate representing the entire issue size for such series of ELIs will, upon issuance, be registered in the name of a nominee for Euroclear and/or Clearstream, Luxembourg. Our ELIs will then be credited to the accounts of the relevant distributors (or its custodian) with Euroclear and/or Clearstream, Luxembourg. Individual investors cannot open a personal account at Euroclear and/or Clearstream, Luxembourg. As we will not issue individual certificates for our ELIs, you must arrange for your distributor to hold the ELIs in your securities or investment account with your distributor. Your distributor will hold the ELIs for you, directly or through its custodian, in accounts at Euroclear or Clearstream, Luxembourg, or CCASS. Such distributor or custodian having an account at Euroclear or Clearstream, Luxembourg or CCASS in which your ELIs are held are referred to as the Accountholder in this programme memorandum. As an individual investor, you will not be an Accountholder. Unless you already have one, you will have to open a securities or investment account with a distributor before you can buy our ELIs. Securities or investment accounts and other services will be supplied by your distributor subject to its standard terms and conditions. We, as the issuer, are not responsible for the way your distributor handles your account. (This does not of course affect your position where we also act as your distributor.) You should ensure that you are familiar with the standard terms and conditions, including fees, which your distributor will apply to your account. Ask your distributor to explain if you are not familiar with these arrangements. You should note that your potential return or loss on an investment in our ELIs will be affected by charges levied by your distributor. In the unlikely event that the securities clearing system(s) close down, we will issue individual certificates for our ELIs, but we will not issue individual certificates otherwise. The registrar s and structured product agency agreement provides in detail for the arrangements which will apply in the unlikely event that individual certificates have to be issued. You can read a copy of the registrar s and structured product agency agreement by going to the offices of the arranger please refer to page 11 of this programme memorandum for further details. If we need to issue individual certificates for our ELIs, we will give a notice to the distributors summarising the arrangements as soon as practicable and the distributors will in turn inform you. When issued, our ELIs have the benefit of a deed of covenant executed by us on 19 December 2003 in favour of the Accountholders in the relevant clearing system(s) which have been credited with interests in the global certificate. The deed of covenant entitles such Accountholders to take action against us directly to enforce their rights under the ELIs if the global certificate becomes void (for example, where no individual certificates are issued after the clearing system(s) close down or in the event we, as the issuer, become insolvent or default on our obligations under our ELIs). C-2(n) As your distributor or its custodian, as the case may be, will be the Accountholder of the ELIs that you invested in and only the Accountholders have the benefit of the deed of covenant, in order therefore to assert your rights as an investor in our ELIs, you will have to rely on your distributor to take action (directly or indirectly via its custodian) on your behalf. If your distributor fails to enforce any rights against us on your behalf, or if your distributor becomes insolvent or defaults on its obligations, you will not have any direct contractual rights against us and will need to take action against your distributor in accordance with the terms of arrangement between you and your distributor. 9

10 If any of your distributor s custodian(s) fails to take action against us in accordance with the instructions of your distributor or becomes insolvent or defaults on its obligations, you will have no contractual rights against us or such custodian and will have to rely on your distributor to take action against such custodian. It is therefore important that you familiarise yourself with, and ensure you understand your relationship with your distributor in relation to the holding arrangements of our ELIs and the arrangements with your distributor regarding taking action against your distributor, your distributor s custodian (if applicable) or against us upon a default of our obligations under the ELIs. (This does not of course affect your position where we also act as your distributor). If you do not understand such arrangements with your distributor or you would like to know the steps to enforce your rights under the ELIs, you should obtain independent professional advice. We will make payments, deliver securities or other assets and send notices through the clearing system(s) Individual investors cannot open a personal account at Euroclear or Clearstream, Luxembourg or CCASS for the purposes of holding our ELIs. Your distributor will hold your ELIs for you, directly or through its custodian, in an account at Euroclear or Clearstream, Luxembourg or CCASS. We, as the issuer, will make payments and deliver securities due under our ELIs through the clearing system(s) We, as the issuer, will make any payments and deliver securities due under our ELIs to the relevant clearing systems(s): you will have to rely (i) on the clearing system(s) to credit the accounts of the distributors (or its custodian) with the relevant payment and/or delivery; and (ii) on your distributor to ensure that such payment and/or delivery due under your ELIs is credited through your account with your distributor. We may make payments and deliver securities due under our ELIs through separate clearing system(s) if physical settlement is applicable, we will deliver the relevant reference asset due under our ELIs through the applicable clearing system through which transfers of the reference asset are customarily settled (being CCASS if the reference asset is listed on the Hong Kong Stock Exchange) and we will make cash payments due under our ELIs through the relevant clearing system of the ELIs (which may be Euroclear and/or Clearstream, Luxembourg or CCASS as specified in the relevant term sheet). Once we, as the issuer, have made any payment and/or delivery in this way to the clearing system(s), you will have no further rights against us (as issuer) for that payment and/or delivery, even if Euroclear and/or Clearstream, Luxembourg or CCASS or your distributor or its custodian fails to transmit to you your share of the payment and/or delivery or transmits it late. This is because, as far as we, as the issuer, are concerned, we have made the payment and/or delivery to the relevant holder of our ELI as appearing on the register of holders, being HKSCC Nominees Limited (if the relevant clearing system is CCASS) or the common nominee for Euroclear and Clearstream, Luxembourg (if the relevant clearing system(s) is Euroclear and/or Clearstream, Luxembourg) (each an ELI-holder ), as the case may be. The relevant clearing system will be responsible for forwarding any payment and/or delivery to the relevant Accountholders. We, as the issuer, have no control over, or knowledge of, the terms of the custody arrangements through which you as an investor hold our ELIs. (This does not of course affect your right against HSBC in its capacity as a distributor where HSBC is acting as your distributor for the relevant ELIs.) If physical settlement is applicable, we will make a cash payment equal to the cash equivalent of the physical settlement amount to the ELI-holder. Pursuant to the relevant terms and conditions of the ELIs, the ELI-holder would have appointed us (as issuer), or our agent, to use the cash equivalent of the physical settlement amount to purchase (on behalf of the ELI-holder) the reference asset which forms the physical settlement amount and deliver such reference asset to the ELI-holder via the applicable clearing system through which transfers of the reference asset are customarily settled (being CCASS if the reference asset is listed on the Hong Kong Stock Exchange), who will instruct such clearing system to deliver the same to the distributor(s) (directly or indirectly via its custodian) by way of electronic settlement through such clearing system. You should refer to the relevant product booklet and term sheet for your ELIs for further details. Notices will also be sent through the clearing system(s) Any notices we give after the ELIs are issued will be given via the relevant clearing system(s): we, as the issuer, will arrange for the notice to be sent to Euroclear and/or Clearstream, Luxembourg or CCASS and you will have to rely on the relevant clearing system(s) to forward the notice to the Accountholders and onto your distributor to ensure that the notice is forwarded to you. 10

11 Any payments or notices to us, as the issuer, will have to be made or sent through your distributor You will have to rely on your distributor to forward any payments or notices to be made or delivered to us, as the issuer. We, as the issuer, will make determinations and exercise discretion under the terms and conditions of our ELIs We, as the issuer, have the sole and absolute discretion in making certain determinations and exercising certain discretion under the terms and conditions of our ELIs. Any decision we, as the issuer, make will be made in good faith and in a commercially reasonable manner and is final and binding on you and on us. We have appointed an agent and a registrar for administrative functions Administrative matters relating to all our ELIs are dealt with in the registrar s and structured product agency agreement dated 19 December 2003, pursuant to which The Hongkong and Shanghai Banking Corporation Limited has agreed to act in the capacity of the issuer s agent and The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch is appointed as our registrar. This registrar s and structured product agency agreement sets out the arrangements between us (in our capacity as the issuer and the issuer s agent respectively) and our registrar for: making any payments and delivery of securities due under our ELIs giving notices to the ELI-holder issuing individual certificates for ELIs, in the unlikely event that we ever need to do so keeping the register of the ELI-holder and dealing with other administrative matters. HSBC (in its capacity as the issuer s agent) and our registrar owe no duties to you as investors in our ELIs. Each offer of ELI is arranged under distributor appointment agreements We may act as a distributor and sell our ELIs to you as a principal or we may enter into distributor appointment agreements with the distributors appointed for each series of our ELIs for the offering of the ELIs to the retail public in Hong Kong. Such distributors may: (i) purchase the ELIs from us as principal and on sell such ELIs to you as principal (i.e. you are buying the ELIs from your distributor), in which case, if your distributor fails to fulfil its obligation to sell the ELIs to you for any reason in accordance with the agreement between you and your distributor, you will have to take action against your distributor; or (ii) purchase the ELIs from us acting as your agent (i.e. your distributor is buying the ELIs from us on your behalf), in which case, if we fail to fulfil our obligation to sell the ELIs to your distributor (acting as your agent), you will have to take action against us directly in respect of our obligation to sell the ELIs. Your relationship with your distributor is governed by the customer agreement you sign with the relevant distributor and is not controlled by us as the issuer or by anything in this programme memorandum, any product booklet or term sheet. With such arrangement, you have to rely on your distributor to distribute notices, deliver securities and make payments due under the ELIs to you and take action against us (as issuer). We (as issuer) will not be responsible for any failure or delay on the part of the distributor in doing so, and we (as issuer) will not be responsible for your loss and will not be providing any indemnity to you if the relevant distributor defaults or becomes insolvent. Ask your distributor to explain if you are not familiar with these arrangements. The distributor appointment agreements record the detailed arrangements between us and the distributors involved in offering our ELIs. If the distributor appointment agreements, as they apply to any particular offering of our ELIs, contain information which is relevant to you as investors in the ELIs, we will disclose it in the relevant product booklet or the relevant term sheet. 11

12 HOW TO BUY OUR ELIS Our ELIs are available from the distributors specified in the term sheet for a particular series. You cannot purchase our ELIs directly from us (in our capacity as issuer). If you wish to purchase any of our ELIs, you must contact one of the distributors. The names and contact details of the distributors are specified in the relevant term sheet and are available upon request from the offices of the arranger at Level 15, HSBC Main Building, 1 Queen s Road Central, Hong Kong. Our ELIs are not available to US persons. Do I need an application form? No, we will not issue an application form for our ELIs. The distributor with which you place your order may ask you to fill in their order form. Do I have to make any confirmations? At the time you buy our ELIs, you may be required to give a number of confirmations and acknowledgements. Your distributor is required to ensure that you understand and are able to give these confirmations. Ask your distributors for details of what confirmations and acknowledgements you may have to make and when you may need to make them. What is the relationship between me and my distributor? Your relationship with your distributor is governed by the customer agreement you signed with your distributor and is not controlled by us (unless we are acting as your distributor) or by anything in this programme memorandum, any product booklet or term sheet. Ask your distributor to clarify if you are concerned about this. Your distributor should be able to explain to you how our ELIs work and to answer your questions. How will applications be processed? After you have placed your purchase order with your distributor, your distributor will notify us of your purchase order, aggregating any other purchase orders it received from other investors. Ask your distributor how and when the issue price for the ELIs is payable by you. We, as the issuer, may choose to close or extend the offer period for any series of ELIs or withdraw invitations made under a term sheet at any time. We, as the issuer, may also reject a purchase order (or part of an order) from a distributor in our sole and absolute discretion. Ask your distributor how and when the applicable issue price will be refunded to you if your purchase order is rejected and the issue price has already been paid. We will confirm with your distributor the total order size for each series of ELIs on the trade date. Once your ELI purchase order is executed on the trade date, we will confirm the final terms applicable to that relevant series with your distributor on the trade date. A contract note prepared by your distributor containing all the finalised commercial terms that apply to your ELIs will be sent to you by your distributor within two Hong Kong business days after the trade date. Our confirmation may aggregate applications made on behalf of a number of investors by a distributor. We (as the issuer) will not provide any confirmation directly to you. Ask your distributor for details of how it will apportion among investors any ELIs allocated to it, how your order will be confirmed by it, how you can check your holdings in the ELIs from time to time and how you can find out the final terms for the relevant series of ELIs you have purchased. 12

13 Does post-sale cooling-off period apply? Post-sale cooling off period is only available for our ELIs with an investment period (i.e. the period from (and including) the trade date to (and including) the expiry date) of more than one year, in which case you may cancel or unwind (as the case may be) your ELI purchase order (in whole but not in part) during the period from (and including) the date you place your purchase order to (and including) the 5th Hong Kong business day after such date. Please refer to the relevant product booklet for more information. Are ELIs available only from the distributors? We may make arrangements for our ELIs to be sold through other channels, whether in Hong Kong or abroad, which are not set out in a term sheet. Offers of ELIs made through other channels could be made at a lower purchase price or on terms other than those that are available to investors who buy ELIs through a distributor specified in a term sheet. 13

14 WHAT ARE OUR ELIS What are ELIs? ELIs are structured investment products embedded with derivatives. Derivatives are financial instruments whose value and return would depend on the performance of their reference asset(s). The type of derivative which an ELI relates to will be described in the relevant product booklet. The potential return of an investment in an ELI is linked to the performance of a share or a unit of a fund, being a real estate investment trust or an exchange traded fund listed in Hong Kong or other stock exchanges as specified in the relevant product booklet and the relevant term sheet. You have no rights in the reference asset(s) unless and until the physical settlement amount (if applicable) is determined on the expiry date to be deliverable to you on the settlement date under the terms and conditions of the ELIs. Our ELIs are contracts under which, upon certain conditions being met, you may receive payment of a certain cash amount or physical delivery of the relevant reference asset at a specified future date. You should note that while your investments in ELIs may give you higher returns which in certain circumstances may exceed the returns available from conventional cash deposits, you must be prepared to take higher risks. You may lose some or all of the money that you invested in the ELI. What are the key elements of an ELI? Generally, the key elements of an ELI are: the reference asset(s) to which an ELI is linked the type of derivative embedded in an ELI the potential payout, which is either: a cash settlement amount (this relates to the payment of a cash amount which you will be entitled to receive upon termination of the ELIs upon certain conditions being met under the terms of the relevant ELIs. Any charges and expenses arising from termination of the ELIs will be deducted from the cash settlement amount. Currently there are no such charges or expenses. If any cash settlement expenses are payable in the future, we will inform the distributor(s) as soon as practicable and the distributor(s) will in turn inform you.); or a physical settlement amount (this relates to the physical delivery of an amount of the relevant reference asset (such as shares or units of a fund) which you will be obliged to buy from us at a pre-determined price upon certain conditions being met under the terms of the relevant ELIs. You will be required to pay the buyer s portion of the charges and expenses arising from the transfer and receipt of the relevant reference asset, including any transferee s stamp duty and registration charges.) the issue price (the amount you have to pay for each ELI after you have placed an order for the ELIs) the exercise price (a pre-determined price of the relevant reference asset(s) which can be viewed as a benchmark against which the closing price of the relevant reference asset(s) on the expiry date will be compared to determine the payout of your investment) the scheduled tenor of the ELI (the period from (and including) the issue date to (and including) the settlement date) the investment period of the ELI (the period between the date on which all the terms of the ELI you wish to buy are determined (i.e. the trade date) and the date on which the settlement at expiry is determined (i.e. the expiry date)). The relevant product booklet will explain how a particular type of ELI works. 14

15 Investors of our ELIs rank for payment equally with our other unsecured creditors Our ELIs are NOT equivalent to time deposits with us. Our ELIs constitute our general, unsecured and unsubordinated contractual obligations. This means that if we become insolvent or default on our obligations under the ELIs, investors of our ELIs will rank for payment equally with all our other creditors whose claims are not: preferred by law; secured on our assets; or subordinated, which means that they rank after the claims of other creditors. We or our group companies may buy and sell our ELIs We or our group companies may at any time and at any price buy our ELIs. Any ELIs that we or our group companies purchased may be held or resold or cancelled and this may have an adverse impact on the market value of the existing ELIs (where, for example, the reference asset of the existing ELIs is highly illiquid). You do not have direct contractual rights to enforce our ELIs Our ELIs will be represented by a single global certificate in registered form (that will be registered in the name of the nominee for the relevant clearing system). As a result, the legal holder of our ELIs will be the relevant nominee of the relevant clearing system. If the relevant term sheet specifies that the clearing system for the relevant series of our ELIs is CCASS, the legal holder of our ELIs will be HKSCC Nominees Limited. If the relevant term sheet specifies that the clearing system(s) for the relevant series of our ELIs is Euroclear and/or Clearstream, Luxembourg, the legal holder of our ELIs will be the nominee for Euroclear and/or Clearstream, Luxembourg. Your distributor or its custodian (if it is a Clearing Participant or Custodian Participant of CCASS or an accountholder in Euroclear and/or Clearstream, Luxembourg), being the Accountholder will be given direct contractual rights of enforcement against us, as the issuer, under a deed of covenant executed by us on 19 December 2003 if we, as the issuer, fail to pay any cash amount or deliver the reference asset when due in accordance with the terms and conditions of our ELIs. The deed of covenant will be kept on display in the offices of the arranger during the offer period for every series of our ELIs and while any of our ELIs are in issue. Please refer to the section headed OTHER INFORMATION ABOUT OUR PROGRAMME in this programme memorandum for details. However, if your distributor or its custodian fails to enforce any rights against us, as the issuer, on your behalf, or if your distributor or its custodian becomes insolvent or defaults on its obligations, you will not have any direct contractual rights against us, as the issuer. It is therefore important that you familiarise yourself with, and ensure your understand your relationship with your distributor in relation to the holding arrangements of our ELIs and the arrangements with your distributor regarding taking action against us upon any default of our obligations under our ELIs. If you do not understand such arrangements with your distributor or you would like to know the steps to enforce your rights under the ELIs, you should obtain independent professional advice. Our Programme is governed by Hong Kong law All our Programme documentation, including the terms and conditions of our ELIs, is governed by Hong Kong law. The terms and conditions of our ELIs provide that the courts of Hong Kong have non-exclusive jurisdiction to settle any disputes in connection with our ELIs. 15

16 Use of proceeds The proceeds of our ELIs will be used for HSBC and HSBC s group companies general business purposes, including, without limitation, to enter into transactions to hedge our exposure under the ELIs. C-21 Such hedging will not affect any amount payable or securities deliverable under our ELIs. 16

17 TAXATION C-36 We have based this summary of Hong Kong tax on current law and practice. It is intended to give you an overview of what Hong Kong tax you might have to pay if you hold our ELIs. This summary is not complete and we are not giving you any tax advice. You should consult your own tax adviser about the tax consequences of investing in our ELIs, particularly if you are subject to special tax rules (for example, if you are a bank, dealer, insurance company or a tax-exempt entity under Hong Kong law). HONG KONG Withholding tax We are not required under current law to make any withholding on account of Hong Kong tax from payments in respect of our ELIs. Capital Gains Tax No capital gains tax is payable in Hong Kong on any capital gains arising from a resale of the ELIs. Profits Tax No Hong Kong profits tax is payable in respect of dividends of any company or distributions of any fund or in respect of any gains arising from the sale of the reference asset(s) or our ELIs, except that Hong Kong profits tax may be chargeable on any such gains where the sale or disposal is or forms part of a trade, profession or business carried on in Hong Kong. Stamp Duty Our ELIs are not expected to be subject to Hong Kong stamp duty or bearer instrument duty either when issued or on any subsequent transfer. If there is stamp duty payable on a series of ELIs, we will specify that in the relevant product booklet or an addendum to the product booklet or term sheet. However, if shares or units of a fund are delivered under our ELIs, currently there will be stamp duty payable on the delivery of shares or units of a fund at 0.2% of the amount or value of the consideration for the sale and purchase of such shares or units. Unless a product booklet or an addendum to the product booklet or term sheet specifies otherwise, you are liable to pay the transferee s stamp duty (i.e. 0.1% of the amount or value of the consideration for the sale and purchase of such shares or units) arising from any transfer and receipt of such shares or units of such fund. 17

18 OTHER INFORMATION ABOUT OUR PROGRAMME WE TAKE RESPONSIBILITY FOR THIS PROGRAMME MEMORANDUM This document includes particulars given in compliance with the Code issued by the SFC for the purpose of giving information with regard to HSBC, our ELIs and our Programme. HSBC accepts full responsibility for the contents of, and the completeness and accuracy of the information contained in this document and confirms, having made all reasonable enquiries, that to the best of its knowledge and belief there is no untrue or misleading statement or other facts the omission of which would make any statement herein untrue or misleading. C-34(b) Information included on the website(s) referred to in this programme memorandum does not form part of this programme memorandum. None of the distributors which sell our ELIs are responsible in any way to ensure the accuracy of our programme memorandum, any product booklet or term sheet. WE WILL UPDATE THIS PROGRAMME MEMORANDUM WHENEVER WE OFFER ELIS, IF NECESSARY This programme memorandum is accurate as at the date of this programme memorandum. You must not assume, however, that information in this programme memorandum is accurate at any time after the date of this programme memorandum. If the information in this programme memorandum needs to be updated at the time we issue a term sheet for a series of ELI, we will either put the updated information in the relevant term sheet or, if we prefer, we may put it into an addendum to this programme memorandum. The relevant term sheet will tell you if an addendum has been published. We publish our audited annual report and accounts following the end of each of our financial years, i.e. 31 December and our unaudited interim financial reports following the end of each of our semi-annual interim financial periods, i.e. the end of June each year. KPMG, certified public accountants (as stated in their report) whose registered address is at 8th Floor, Prince s Building, 10 Chater Road, Central, Hong Kong, is our independent auditor and have given and have not withdrawn their written consent to the inclusion of their report dated 28 February 2011 in this document in the form and context in which it is included. The report was not prepared for incorporation in this document. C-27 C-28(a) C-35(a)-(c) We intend to publish an updated programme memorandum and/or an addendum to the programme memorandum as soon as practicable after the release of an updated report and accounts, and the updated programme memorandum and/or an addendum to the programme memorandum will supersede the relevant financial information contained in the previous programme memorandum and any relevant addendum relating to it. If an updated programme memorandum and/or addendum to the programme memorandum is published during an offer period for a series of ELIs, we will, as soon as practicable, notify the distributors who will in turn notify those investors who have placed an order for that series of ELIs. Those investors will be given the opportunity to cancel their purchase order within a limited period of time as notified to them by their distributors. We will not charge you any fees for such cancellation but your distributor may charge you a handling fee. Please check with your distributor for further details. In any event, where you have purchased our ELIs with an investment period of more than one year, you will also have a post-sale cooling-off right whereby you may cancel or unwind (as the case may be) your ELI purchase orders during the post-sale cooling-off period. Please refer to the relevant product booklet and the relevant term sheet for details. The relevant term sheet will also tell you whether an addendum to this programme memorandum and/or the relevant product booklet has been published. Whenever an addendum is published, you should read this programme memorandum, the relevant product booklet and the relevant term sheet as including the addendum, starting from the date of the addendum, wherever we refer to such documents. This programme memorandum is also available in Chinese version if you prefer. 18

19 ONGOING DISCLOSURE C-38 HSBC, as the issuer and product arranger, will keep the SFC and the distributor(s) informed as soon as reasonably practicable if (i) HSBC (as issuer) ceases to meet any core requirements in Appendix A to the Code; (ii) HSBC (as product arranger) ceases to meet any eligibility requirements in 4.2 of the Code; and (iii) to the extent permitted by any applicable law, there are changes in our financial condition or other circumstances which could reasonably be expected to have a material adverse effect on our ability (as issuer) to fulfil our commitment in connection with our ELIs. Your distributor will in turn inform you. Please contact your distributor for further details. DIRECTOR S ADDRESS FOR SERVICE OF PROCESS The usual business addresses of our Directors listed on page 20 of this programme memorandum are the addresses for service of process of the respective Directors. WHERE YOU CAN READ COPIES OF OUR LEGAL DOCUMENTATION FOR OUR PROGRAMME C-1(a) Note 1(a) C-41 This programme memorandum contains only a summary description of our Programme. To find out more, you can read copies of the documents set out below free of charge by going to the offices of the arranger at Level 15, HSBC Main Building, 1 Queen s Road Central, Hong Kong. These offices are open only during normal business hours and not on Saturdays, Sundays or public holidays. These are the documents, copies of which will be kept on display during an offer period for our ELIs and while any of our ELI is in issue (unless otherwise specified, the document is only available in English): C-42 a certified true copy of our articles of association; our current programme memorandum and any updating addendum (in English and Chinese); the relevant product booklet (in English and Chinese) which contains the general terms and conditions of the relevant type of ELIs; the relevant indicative (and where available, the final) term sheet in respect of a series of ELI (in English and Chinese); a certified true copy of the registrar s and structured product agency agreement; a certified true copy of the deed of covenant; a certified true copy of the relevant pricing supplement (in English and Chinese) which, together with the general terms and conditions set out in the relevant product booklet, constitute the legally binding terms and conditions applicable to the relevant series of ELI; our most recently published audited annual report and accounts and unaudited interim financial reports (in English and Chinese); any notices given by us under the conditions of our ELIs (in English and Chinese); and a certified true copy of a letter from our auditor, KPMG, consenting to the reproduction of their report in this programme memorandum. A reasonable fee will be charged if you want to take photocopies of any of the documents whilst they are on display. THE ELI OFFERING DOCUMENTS DO NOT CONSTITUTE A PROSPECTUS None of this programme memorandum, nor any product booklet, (including any addendum to these documents), nor any term sheet constitutes a prospectus under the Companies Ordinance (Cap. 32, Laws of Hong Kong). None of these documents will be lodged or registered under the securities laws of any jurisdiction outside Hong Kong and these documents will not be registered with or approved by any regulatory authority outside Hong Kong. You should observe any applicable restrictions in the relevant jurisdiction in making an investment in our ELIs. 19