Non-collateralized Nature of Structured Products

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CBBCs Guidebook

What is Callable Bull / Bear Contracts (CBBC)?

There are 2 types of CBBCs : Bull contract and Bear contract. The delta of CBBC is generally close to or equal to one. The bull contract represents optimistic and the Bear contract represents pessimistic on a particular underlying. CBBC regards stock, index, foreign currency or commodity as underlying assets. Suppose other factors remain constant, CBBC price moves according to the underlying assets. The investor can enjoy the gearing effect of changes in underlying price through a small amount of investment.

One great characteristic of CBBC is that apart from the strike price, it has a call price and a Mandatory Call Feature. If the underlying asset's price reaches the call price at any time prior to expiry, the CBBC will expire early and the trading of the CBBC will be terminated immediately.

CBBC is mainly divided into Category N and Category R. The strike price and call price of Category N are of the same level. When Category N CBBC is called before expiry, there will not be any residual value. For Category R, the strike price and the call price of Category R are different. When Category R is called before expiry, there is possible residual value upon the occurrence of an Mandatory Call Event ("MCE") but in the worst case, no residual value will be paid. The CBBCs in Hong Kong are mostly Category R.