What are the additional risks in trading warrants or CBBCs with overseas underlying assets?
(a) Exchange rate risk Investors trading in warrants or CBBCs with overseas underlying assets may be exposed to an exchange rate risk during the term of the warrants or CBBCs when the price and cash settlement amount of such warrants or CBBCs are converted from a foreign currency in which the overseas underlying asset is priced into Hong Kong dollars.
(b) Different trading hours between the underlying exchange on which the overseas underlying assets are traded and the Exchange If trading in the overseas underlying assets is suspended on the underlying exchange, trading in the warrants or CBBCs will be suspended for a similar period.
The trading hours of the underlying exchange (based on Hong Kong time) are likely to be different from the trading hours of the Exchange. Trading in the overseas underlying assets on the underlying exchange may be suspended during non-trading hours of the Exchange. Such suspension may be lifted, and trading may resume, during non-trading hours of the Exchange.
If trading in the overseas underlying assets on the underlying exchange is suspended, trading in the warrants or CBBCs on the Exchange will not be automatically suspended – in such case, the market price of the warrants or CBBCs may fluctuate significantly until trading in the warrants or CBBCs on the Exchange is suspended. If trading in the overseas underlying assets on the underlying exchange resumes following a suspension, trading in the warrants or CBBCs on the Exchange will not be resumed automatically and you will not be able to trade the warrants or CBBCs until trading in the warrants or CBBCs on the Exchange is resumed.
In addition, the trading price of the overseas underlying assets is calculated and published during the trading hours of the underlying exchange. You should be aware of the time zone difference between Hong Kong and the location in which the underlying exchange is situated in assessing the trading price of the overseas underlying assets. The trading prices of the overseas underlying assets may be volatile in response to the movements on the underlying exchange during which the Exchange is not open for trading of the warrants or CBBCs.
(c) Less public information about the overseas underlying assets and such information may not be available in English or Chinese
There may be less publicly available information about the overseas underlying assets than those about Hong Kong underlying assets and some of that information may not be available in English or Chinese. If you do not understand any such information, you should obtain independent advice.
(d) Political and economic risk
The trading prices of the overseas underlying assets may be subject to political, economic, financial and social factors that apply in those geographical regions, which may differ favourably or unfavourably from those factors that apply to Hong Kong. Moreover, foreign economies may also differ favourably or unfavourably from the Hong Kong economy in important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
(e) Occurrence of mandatory call event for CBBCs outside trading hours
CBBCs linked to overseas underlying assets may be called outside the Exchange’s trading hours. In such cases, the CBBCs will be suspended from trading on the Exchange in the next trading session or soon after the issuer has notified the Exchange about the occurrence of the mandatory call event. There will be no automatic suspension of the CBBCs by the trading systems of the HKEX’s securities market upon the occurrence of a mandatory call event. For Category R CBBCs, valuation of the residual value will be determined on the valuation day according to the terms and conditions as set out in the listing documents.
