At Expiry, how to calculate Settlement Value for US CBBC?
As long as there is no mandatory call event occured on or before the last trading date of the CBBC, investors can hold the CBBC till expiry, and the settlement amount is calculated. The valuation method of US CBBC is almost the same as HSI CBBC, and is cash settled.
The final settlement price is referred to the E-mini index futures contract that is expired at the month the expiry date of the CBBC falls into. The expiry date of the index futures contract usually falls to the third Friday of the month, which is different from that of HSI futures contract. However, the valuation of the settlement value remains the same, by comparing the strike level and the futures settlement level. On top of them, the currency exchange rate is included in the calculation.
Formula
Settlement value for a series of US Index Bull = (Closing Level - Strike Level) × one Board Lot × Index Currency Amount / Parity Ratio
Settlement value for a series of US Index Bear = (Strike Level - Closing Level) × one Board Lot × Index Currency Amount / Parity Ratio
Both are converted into the settlement currency at the Exchange Rate.
The Exchange Rate refers to the rate of exchange between United States dollars (“US$”) and Hong Kong dollars (“HK$”) (expressed as the number of units of HK$ per 1 unit of US$) (i) at or about 10:00 a.m. New York time on the Valuation Date, as determined by the Issuer by reference to the mid quote as per the rate “USDHKD” on Bloomberg page BFIX. If such screen rate is not available for any reasons at such time on such date, the Issuer shall determine the exchange rate in a commercially reasonable manner
If the CBBC is in the money at expiry, there will be residual value. However, if the CBBC is at the money or out the money, the settlement value will be 0.
Example
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SPX Bull C
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SPX Bear D
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Index strike level
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3,500 points
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4,000 points
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Parity Ratio
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15,600:1
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15,600:1
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Exchange
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7.8
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7.8
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SPX E-mini futures settlement price
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4,000 points
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4,000 points
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The settlement value of SPX Bull C = (4000 - 3500) x 1 x 7.8 / 15,600 = 0.25 HKD
The settlement value of SPX Bear D = 0, because the settlement price of the SPX futures contract is equal or above the strike level of the bear
