Non-collateralized Nature of Structured Products
Call price is an important characteristic of CBBC. When the price of the underlying asset reaches or lower than the Call price in a Bull Contract in any trading day during the trading session (reaches or higher than the Call price in a Bear contract), this contract will be immediately called before expiry. Take Category R CBBC as an example, the CBBC holder may receive a small amount of cash payment (residual value), (which is the difference between the price of underlying asset and the strike price) upon the occurrence of an MCE but in the worst case, no residual value will be paid.
Suppose the investor expects the HSI (Hang Seng Index) to rise and buy a HSI Bull contract. However, if the price of HSI adjusts during this trading session and reaches the call price, this bull contract will then be called before expiry. Therefore even if the HSI rebounds as expected later on, because the CBBC has already been called and the trade has been terminated , the investor will not be benefited by any subsequent rebounce in the underlying price later.
MCE is a weakness as well as a strength in CBBC. When a CBBC is being knocked out before expiry, the investor may lose some or all of his investment, but in another point of view, it helps to rigidly limit the loss and the amount of loss can be foreseen. Also, the risk level of Mandatory Call depends on whether the trend of underlying price meets with the expectations, and the difference between the call price and the underlying price. If the call price is close to the underlying price, the price of a CBBC may be more volatile and the bid-ask spread may be widen and the risk of CBBC being called before expiry is higher, but the amount of investment can be reduced; and the gearing effect will be relatively higher.
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Non-collateralized Nature of Structured Products
Macquarie Capital Limited (CE No. AAC 534) ("MCL") provides the information in good faith and derived from sources believed to be reliable, MCL does not represent or warrant the completeness, reliability, accuracy, timeliness or fitness for any purpose of any of the material and it accepts no responsibility for the accuracy, completeness or timeliness of the information.
This internet site is produced by MCL, a licensed corporation with the Securities and Futures Commission of Hong Kong. MCL is the market maker and/or liquidity provider of warrants and/or Callable Bull/Bear Contracts (“CBBCs”) issued by Macquarie Bank Limited (ABN 46 008 583 542) (“MBL”) and/or exchange traded options, which relate to the securities of the listed corporation(s) referred to herein. The information on this internet site is directed and available to residents of Hong Kong only, and is not directed to residents of any U.S. persons or other countries. Any materials provided on this internet site, including any indicative terms are provided for information purposes only and do not constitute an offer, a solicitation of an offer, or any advice or recommendation to conclude or participate in any transaction, or provide any investment advice or service. The price of structured products may go down as well as up, and under certain circumstances investors may sustain some or a total loss of investment. An investor should read the full details of the warrants and CBBCs, including the risk factors, which are set out in the listing documents. An investor should make an appraisal of the risks involved in investing in these products and should consult their own legal, financial, tax, accounting and other professional advisors, to ensure that any decision made is suitable with regards to that investor's circumstances and financial position.
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Please also note that CBBCs have a mandatory call feature and may therefore be subject to early termination, upon which (i) investors in category N CBBCs will lose all of their investments in the CBBCs; and (ii) the residual value of category R CBBCs may be zero.
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