Call and Settlement Time for HK CBBCs

This article details the call mechanism of Hong Kong Callable Bull/Bear Contracts (CBBCs), using examples to explain the settlement methods for bull and bear contracts (Category R) under different scenarios, as well as how residual value is settled after a CBBC expires or is called.

1. Call mechanism of CBBCs

From the listing date until the trading day before expiry, if the price of the underlying asset touches the call price on any day, the mandatory call mechanism is triggered, and the trading of that CBBC ceases immediately.

When the call price is triggered:

Category R	Strike price ≠ Call price. The settlement price of the CBBC is calculated based on the lowest price (for bull certificates) or highest price (for bear certificates) of the underlying asset from the time of mandatory call to the end of the next trading session. If the lowest price (bull) or the highest price (bear) is at or exceeds the strike price, the CBBC may have no residual value.

2. Settlement method for bull certificates (example)

Example

Scenario 1: call price not triggered
Amount you can receive:
= (Underlying security settlement price – Bull certificate strike price)/Conversion ratio
= (USD 132–USD 125)/100
= USD 0.07all price not triggered
Scenario 2: call price triggered
Amount you can receive:
= (Lowest price of the underlying security – Bull certificate strike price)/Conversion ratio
= (USD 126–USD 125)/100
= USD 0.01

Generally, the settlement price for CBBCs is the closing price of the underlying stock on the last trading day before expiration. For index-based CBBCs, the settlement level is the futures settlement level of the expiration month. You can refer to the listing documents for specific details on settlement prices.

The lowest price is the spot lowest price from the time of mandatory call until the end of the next trading session. If called in the morning, valuation continues until the afternoon session; if called in the afternoon, valuation continues until the noon session of the next trading day. In the worst case, if the lowest price is at or below the bull certificate strike price, you may receive no residual value.

3. Settlement method for bear certificates (Category R) (example)

Scenario 1: call price not triggered
Amount you can receive:
= (Bear certificate strike price – Underlying security settlement price)/Conversion ratio
= (USD 135–USD 128)/100
= USD 0.07
Scenario 2: call price triggeredAmount you can receive:
= (Bear certificate strike price – Highest price of underlying security)/Conversion ratio
= (USD 135–USD 131)/100
= USD 0.04

The highest price is the spot highest price from the time of mandatory call until the end of the next trading session. If called in the morning, valuation continues until the afternoon session; if called in the afternoon, valuation continues until the noon session of the next trading day. In the worst case, if the highest price is at or above the bear certificate strike price, you may receive no residual value.

4. Settlement of residual value after CBBC expiration or call

No additional action is required from you after a CBBC expires or is called. It is recommended to check the daily statement for details.

If there is residual value, it will be automatically deposited into your account by Longbridge within one week after the issuer completes the settlement. The corresponding CBBC is expected to disappear from the holdings within one week. Please refer to the issuer's announcement for details. You may check the residual value of warrants/CBBCs via the following link: https://warrants.ubs.com/en/cbbc/residual-value-of-cbbc.

Disclosures

This article is for reference only and does not constitute any investment advice.