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Equity Linked Instruments _ELI_ by niusheng

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									Equity
Linked
Instruments (ELI)
A New Way to Invest

           Bear



Range




                      Bull
Equity Linked
Instruments on HKEx
Listed Equity Linked Instruments (ELI) are
a new investment product available on
Hong Kong Exchanges and Clearing Limited
(HKEx). They are listed on the securities
market and traded via AMS/3, the third
generation Automatic Order Matching and
Execution System, subject to HKEx's rules
and regulations.

ELI are a structured product issued by
banks and financial institutions in many
financial markets worldwide. They are
marketed to retail and institutional investors
who want to earn a higher interest rate than
the rate on an ordinary time deposit and
accept the risk of repayment in the form of
the underlying shares or losing some or all
of their investment. Similar to other
investments, ELI investors should familiarise
themselves with the product before making
any investment decision.

When an investor purchases an ELI, he is
indirectly writing an option on the underlying
stock. If the market moves as the investor
expected, he earns a fixed return from his
investment which is derived mainly from the
premium received on writing the option. If
the market moves against the investor's
view, he may lose some or all of his investment
or receive shares that may worth less than
the initial investment.



Types of ELI
To match their directional view on the
underlying securities, investors may choose
from 3 different types of ELI listed on HKEx
- Bull, Bear and Range. Other types of ELI
may be traded on HKEx in future.
                    Bull ELI
              Investors taking a bullish view on the underlying
              security may consider a Bull ELI. This offers two
              possible forms of payback on expiry*:

          )   If on the expiry date the closing price of the
              underlying security is AT or ABOVE the strike price,
              investors will receive a cash payment at the total par
              value of the ELI (total investment plus interest).

          *   If on the expiry date the closing price of the underlying
              security is BELOW the strike price, investors will
              receive a predetermined quantity of the underlying
              security at the strike price (total par value/strike price).
              If the ELI is cash settled in lieu of share delivery,
              investors will receive a cash payment based on the
              closing price of the underlying security.



                Total Investment for One
EXAMPLE




                                                       $32,800
                Board Lot of Bull ELI

                Underlying Security                    Stock A (400 shares)

                Strike Price
                (Underlying Security)                  $85

                No. of Outstanding Days                100 days

                Potential Yield                        13.35 per cent p.a.

                                                       $34,000
                Payback if Stock A closes              ($32,800 x (1 +13.35%
                at or above $85 on Expiry Date         x 100/365))

                Payback if Stock A closes
                below $85 on Expiry Date               400 Stock A shares




                 COMPARISON OF PAYBACK POSSIBILITIES

                 Closing Price        $75             $85          $95
                 of Stock A on
                 Expiry Date


                 Payback              400 Stock       $34,000      $34,000
                                      A shares


                 Profit / Loss        -$2,800         $1,200       $1,200
                                      (assuming the
                                      shares are
                                      sold at $75)
                   Bear ELI
              Investors who are bearish on the underlying
              security may consider a Bear ELI, which offers
              two possible forms of payback on expiry*:

          )   If on the expiry date the closing price of the underlying
              security is BELOW the strike price, investors will
              receive a cash payment at the total par value of the ELI
              (total investment plus interest).

          *   If on the expiry date the closing price of the underlying
              security is AT or ABOVE the strike price, investors will
              receive a cash payment from the issuer according to
              the following formula: Par value per board lot of the ELI
              - [number of underlying shares at strike price per board
              lot of ELI x (closing price - strike price)] where the number
              of underlying shares at strike price equals to the total
              par value divided by strike price. The cash payment will
              never be negative and the amount will be zero if the
              closing price is 2 times or more than the strike price.


                Total Investment for One
                                                        $34,300
EXAMPLE




                Board Lot of Bear ELI

                Underlying Security                     Stock A (400 shares)

                Strike Price
                (Underlying Security)                   $89

                No. of Outstanding Days                 100 days

                Potential Yield                         13.83 per cent p.a.

                                                        $35,600
                Payback if Stock A closes
                                                        ($34,300 x (1 + 13.83%
                below $89 on Expiry Date
                                                        x 100/365))

                Payback if Stock A closes at            $31,600
                or above $89 (e.g. $99) on              ($35,600 - [400 x ($99 -
                Expiry Date                             $89)])



                 COMPARISON OF PAYBACK POSSIBILITIES

                Closing Price     $79          $89            $99       $178
                of Stock A on
                Expiry Date


                Payback           $35,600      $35,600        $31,600    $0


                Profit / Loss     $1,300       $1,300         -$2,700   -$34,300
                   Range ELI
              Investors foreseeing a neutral view on the
              underlying security may consider a Range ELI,
              which offers three possible forms of payback on
              expiry*:


          )   If on the expiry date the closing price of the underlying
              security is WITHIN the range of the two strike prices
              (AT or ABOVE the lower strike price and BELOW the
              upper strike price), investors will receive a cash payment
              at the total par value of the ELI ( total investment plus
              interest).

          *   If on the expiry date the closing price of the underlying
              security is AT or ABOVE the upper strike price,
              investors will receive a cash payment from the issuer
              according to the following formula: Par value per board
              lot of the ELI - [number of underlying shares at lower
              strike price per board lot of ELI x (closing price - upper
              strike price)] where the number of underlying shares at
              lower strike price is equal to the total par value divided
              by lower strike price. The cash payment will never be
              negative and the amount will be zero if the closing
              price equals or exceeds the sum of the lower and
              upper strike prices.

          +   If on the expiry date the closing price of the underlying
              security is BELOW the lower strike price, investors will
              receive a predetermined quantity of the underlying
              security at the lower strike price (total par value of ELI/
              lower strike price). If the ELI is cash settled in lieu of
              share delivery, investors will receive a cash payment
              based on the closing price of the underlying security.



                Total Investment for One Board
EXAMPLE




                                                  $32,400
                Lot of Range ELI

                Underlying Security               Stock A (400 shares)

                Upper Strike Price
                (Underlying Security)             $89

                Lower Strike Price
                (Underlying Security)             $85

                No. of Outstanding Days           100 days

                Potential Yield                   18.02 per cent p.a.
            Payback if Stock A closes at          $34,000
EXAMPLE

            or above $85 and below                ($32,400 x (1 +
            $89 on Expiry Date                    18.02% x 100/365))

            Payback if Stock A closes at          $30,800
            or above $89 (e.g. $97) on            ($34,000 - [400 x ($97
            Expiry Date                           - $89)])

            Payback if Stock A closes
            below $85 on Expiry Date              400 stock A shares




             COMPARISON OF PAYBACK POSSIBILITIES

           Closing Price    $79             $87       $97        $174
           of Stock A on
           Expiry Date


           Payback          400 Stock       $34,000   $30,800      $0
                            A shares


           Profit / Loss    -$800           $1,600    -$1,600    -$32,400
                            (assuming the
                            shares are
                            sold at $79)


          * Investors should refer to their brokers or the listing document
            for the exact payback.




          Benefits of Investing
          in Listed ELI
          Regulated Market

          ELI issuers are regulated by HKEx and must
          satisfy the stringent listing requirements of the Stock
          Exchange of Hong Kong, a wholly-owned subsidiary
          of HKEx. The trading and settlement of ELI are
          conducted on HKEx's established systems and
          are also regulated by the Securities and Futures
          Commission.
Transparency

ELI offered by issuers are traded on HKEx and their
potential yields and other pertinent information are
shown on all major information systems. Investors
may browse and compare all ELI potential yields,
payment dates, strike prices and market prices of
the underlying securities, and consult their brokers
on their ELI investment decisions. ELI price
quotations are disseminated during trading hours.


Convenience

Investors may buy and sell ELI available on HKEx
through brokers anytime during trading hours and
ELI are settled in the same way as ordinary stocks.


Liquidity

In general, ELI available on HKEx can be bought
and sold at any time on or before the last trading
day. ELI are a buy and hold product and issuers
have appointed liquidity providers to provide liquidity
by way of continuous quotation or quote requests.
Liquidity providers may act as counterparties for
investors to buy and sell ELI. Investors can also sell
their ELI to other investors.


Low Entry Barrier

The HKEx ELI market is for the participation of retail
and high net worth investors. ELI are purchased in
board lot sizes and the minimum investment
amount is similar to equities.


Flexibility

The three types of ELI give investors flexibility to
choose an investment that matches their market view.
Points to Note
When Investing in ELI
Exposure to Equity Market

Investors are exposed to price movements in the
underlying security and the stock market and
investors must be prepared to accept the risk of
receiving the underlying shares or a payment less
than their original investment. Investors may lose part
or all of their investment if the price of the underlying
security moves against their investment view.


Potential High Yield but Limited Gain

While most ELI offer a yield that is potentially higher
than the interest on fixed deposits and traditional
bonds, the return on investment is limited to the
potential yield of the ELI.


Dividends and Corporate Actions

Any dividend payment on the underlying security
may affect its price and the payback of the ELI at
expiry due to ex-dividend pricing. Investors should
also be aware that issuers may make adjustments
to the ELI due to corporate actions on the
underlying security.


Potential Yield

Investors should consult their brokers on fees and
charges related to the purchase and sale of ELI
and payment/delivery at expiry. The potential
yields disseminated by HKEx have not taken fees
and charges into consideration.
                                       1   Where can I buy and sell ELI?
                                           You can buy or sell ELI traded on HKEx
Frequently Asked Questions about ELI
                                           through your broker in the same way as
                                           you buy and sell stocks. There is no need
                                           to open separate trading accounts for ELI.


                                       2   What is the minimum
                                           investment amount?
                                           ELI are traded in board lots. The minimum
                                           investment amount is usually similar to equities.


                                       3   What transaction fees do I need
                                           to pay when I buy or sell ELI?
                                           Like buying and selling stocks, you need to
                                           pay brokerage commission, transaction
                                           levy, trading fee and, if applicable, stamp
                                           duty. For stamp duty on ELI transactions,
                                           investors should refer to the issuers' listing
                                           documents. Investors would need to pay
                                           stamp duty if they hold the ELI until expiry
                                           and there is physical delivery of the
                                           underlying shares on the payment date.


                                       4   What happens at expiry?
                                           When ELI are issued, issuers will indicate in
                                           the listing document and launch
                                           announcement whether the ELI is to be
                                           settled by a cash payment or physical
                                           delivery upon expiry. Once listed, neither
                                           the issuers nor the holders are allowed
                                           to opt for an alternative settlement
                                           method at expiry.

                                           Depending on the type of ELI purchased
                                           and the closing price of the underlying
                                           security on the expiry date in relation to the
                                           strike price, you will receive a cash payment
                                           or physical shares on the payment date. In
                                           case of physical settlement, the underlying
                                           securities will be delivered in board lots to
                                           ELI holders; any fractional shares and odd
                                           lots will be paid in cash, subject to rounding,
                                           at the value of those shares at the closing
                                           price on the expiry date.
5   Will I get a certificate for the ELI that
    I have purchased?
    ELI are sold without physical certificates. Your brokers
    and custodian banks may act as custodians to hold the
    ELI for you, or you may hold the ELI in an Investor
    Account with Hong Kong Clearing. If you have maintained
    a Stock Segregated Account, your statements will show
    your ELI holdings and movements in the account.


6   How do I obtain basic information on ELI?
    Investors can get the basic information on an ELI from its
    stock short name. The first two characters will represent
    the abbreviation of the issuer's name, followed by the
    short name of the underlying security, the settlement
    method upon expiry ( * for physical settlement and @ for
    cash settlement when closing price on expiry is below
    strike or lower strike price), ELI type (U for Bull, E for Bear
    and R for Range), the expiry year and the expiry month.

    In addition, investors can also obtain information about
    the issuers and the terms and conditions of an ELI from
    the listing document. Most information vendors also carry
    additional information such as potential yield, expiry and
    payment dates, provided by HKEx.


7   How can I calculate the potential yield of
    an ELI?
    The potential yield of an ELI can be calculated by using
    the par value, the ask price and the number of outstanding
    days (which can be obtained from the Listed ELI Financial
    Information Pages on HKEx trading terminals or equivalent
    pages on vendors' terminals) according to the following
    formula:

       Par Value - Ask Price                365
                               X                             X 100%
            Ask Price              No. of Outstanding Days


    where
      No. of Outstanding Days is the number of days from
      the Settlement Date to the Payment Date of the ELI.

    It should be noted that the potential yield calculated in this
    way is on an annualised basis and does not take into
    account any transaction costs that may arise from trading
    and settling the ELI trade as well as settlement at expiry.
8    What are the similarities and differences
     in trading and settlement arrangement
     between ELI and stock?

                       Stock                         ELI
       Trading         Traded on HKEx during         Same
                       trading hours


       Trading Unit    Stocks are traded in          ELI on HKEx are traded in
                       shares. Purchase and sale     ELI units that are similar
                       of shares are in board lots   to shares for stocks.
                       or multiples except in the    Purchase and sale of ELI
                       odd lot market.               are in board lots or
                                                     multiples. No odd lots are
                                                     allowed.


       Transaction     Brokerage commission,         Same
       fees            transaction levy, trading
                       fee, and, if applicable,
                       stamp duty


       Accessibility   Any broker                    Same

       Settlement      T+2                           Same

       Underlying      Nil                           Individual stock

       Liquidity       Normally not available
       Provider                                      Normally available


       Last trading    N/A                           One trading day before
       day                                           the expiry date

                                                     Usually within 28 days to
       Duration        No expiration date            two years, as specified
                                                     by the issuer




9    Why is turnover low for ELI listed on HKEx?
     Turnover reflects the buying and selling activities of a
     security. The turnover of ELI is relatively low because ELI is
     a buy and hold product. It should be noted that turnover
     for ELI is a rough measure on the quantity or value sold.
     Liquidity Providers appointed by ELI issuers will provide
     liquidity to ELI listed on HKEx.


10   Why is liquidity low for ELI listed on HKEx?
     Unlike stocks, ELI are not a trading product. Investors tend
     to hold ELI until expiry to earn the interest (potential yield),
     like fixed deposit. Liquidity Providers are appointed by the
     issuer to provide liquidity, and investors can, via their
     brokers, buy from and sell to the Liquidity Provider directly
     or to other investors.
Financial Information on Listed ELI
                                                 L I S T E D            E Q U I T Y    L I N K E D        I N S T R U M E N T S       F I N A N C I A L   I N F O R M A T I O N
                                                                                                                                                U P D A T E   T I M E :   1 0 : 4   5
C U R R E N C Y :   H K D       T Y P E :     B U L   L               U N D E R L   Y I N G :   H S   B C     H O L D I N G S          (        5 )
< _ _ _ _ _ _ _ E L I _ _ _ _ _ _ _ _ _ > U   N D E   R L   Y   I N   G   A T   U   P D A T E < _ _   _ _ _   E L I   A T   U   P D   A T E _ _ _ _ _ _ >   O / S     P A Y M E N   T
C O D E     S H O R T   N A M E               S T R   I K   E     N   O M I N A L   / S P O T     B   I D                 A S   K           Y I E L D   %   D A Y S       D A T E
  1 7 0 1   A A – H S B C   @U 0 2 0 9 A          8   5 .   0   0       8 9 . 0 0                 7   . 8 0     *         8 .   2 0      *      1 3 . 3 5     1 0 0   0 4 S E P 0   2
                                          –   4 s     2 2   .   8 1   / – 2 s   1   8 . 0 2   + 2 s       8   . 8 0 / + 4 s       4   . 3 5
  1 7 0 2   B B – H S B C   @U 0 2 0 9 A          8   6 .   0   0       8 9 . 0 0                 7   . 7 5     *         8 .   1 5      *      1 7 . 6 8     1 1 4   1 8 S E P 0   2
                                          –   4 s     2 6   .   1 8   / – 2 s   2   1 . 8 8   + 2 s     1 3   . 5 8 / + 4 s       9   . 5 9
  1 7 0 3   C C – H S B C   @U 0 2 1 0 A          8   7 .   0   0       8 9 . 0 0                 7   . 7 0     *         8 .   1 0      *      1 9 . 7 4     1 3 7   1 1 O C T 0   2
                                          –   4 s     2 6   .   9 8   / – 2 s   2   3 . 3 1   + 2 s     1 6   . 2 5 / + 4 s     1 2   . 8 4
  1 7 0 4   D D – H S B C   @U 0 2 1 0 A          8   8 .   0   0       8 9 . 0 0                 7   . 6 5     *         8 .   0 5      *      2 2 . 6 7     1 5 0   2 4 O C T 0   2
                                          –   4 s     2 9   .   4 5   / – 2 s   2   6 . 0 2   + 2 s     1 9   . 4 1 / + 4 s     1 6   . 2 2




N O T E :   L a s t   L i n e   o f   e a c h    E L I          s h o w s     i t s    Y I E L D      %    a t    + / – 2 & 4     s p r e a d s    o n   A S K   a t   u p d a t e




                                                Financial
                                                Information Page
                                                The financial information pages display the
                                                strike price, nominal/spot price of the underlying
                                                security, bid and ask prices of ELI, annualised
                                                yield at the ask price and at ± 2 and 4 spreads
                                                of the ask price, number of outstanding days
                                                (between the trade settlement date and
                                                payment date) and payment date, at update
                                                time for reference. The yields at ± 2 and 4
                                                spreads away from the ask price at update time
                                                serve as a reference if the then current ask price
                                                on the stock page has moved. The financial
                                                information pages are updated on a periodic
                                                basis. Investors should consult their brokers for
                                                the latest yield and price prior to making their
                                                investment decision.

                                                The ELI displayed on the financial information
                                                pages are arranged by Type (in the order of Bull,
                                                Bear and Range), then in ascending order of the
                                                Underlying Stock Code, the Strike Price and then
                                                the Potential Yield (based on previous closing).


                                                Stock Page
                                                The par value of each ELI and its current bid
                                                and ask prices can be found on their stock
                                                pages. The number of underlying shares per ELI
                                                (also called the entitlement ratio) is equal to the
                                                par value divided by the (lower) strike price and
                                                should be in multiples or subdivisions of 10.

                                                Hong Kong Exchanges and Clearing Limited
                                                12/F, One International Finance Centre
                                                1 Harbour View Street, Central, Hong Kong
                                                Tel: (852) 2522 1122
                                                Fax: (852) 2295 3106
                                                Email: info@hkex.com.hk
                                                Website: www.hkex.com.hk
  Glossary of Terms
  Entitlement ratio                                  The conversion rate for one share of
                                                     the underlying security.

  Expiry date                                        The date on which the closing price of
                                                     the underlying security is compared
                                                     with the strike price to determine the
                                                     result of the ELI investment.

                                                     (Note: In general, the closing price of the
                                                     underlying security as published by the
                                                     Stock Exchange on the expiry date
                                                     irrespective of whether the underlying
                                                     security is trading cum-all or ex-
                                                     entitlement shall be used for the
                                                     determination of the payback for all three
                                                     types of ELI.)


  Outstanding days                                   Number of days from the Settlement
                                                     Date of an ELI transaction (whether
                                                     sale or purchase) to the Payment Date
                                                     of the ELI.


  Par value                                          The denomination of the ELI.

  Payment date                                       The date when the redemption of the
                                                     ELI becomes due. The payment date
                                                     is the third settlement day after the
                                                     last trading date. For example, if the
                                                     last trading date falls on Monday,
                                                     payment date will be on Thursday,
                                                     given Tuesday and Wednesday being
                                                     settlement days.

  Spot price                                         The current nominal price of the
                                                     underlying security.


  Strike price                                       The pre-determined price of the
                                                     underlying security which, depends on
                                                     the type of ELI, determines whether
                                                     the investors will receive the par value,
                                                     the underlying security or a reduced
                                                     amount of the par value upon expiry of
                                                     the ELI.


  Yield                                              The potential percentage return on an
                                                     investment relative to the amount
                                                     invested, expressed on an annualised
                                                     basis.




The information contained herein is solely applicable to the listed ELI market on HKEx.

Disclaimer: The material contained herein is for general information only and does not constitute an invitation or offer
to acquire, purchase or subscribe for securities. Investors should read the listing document from the issuers carefully,
ensure that they understand the nature of this product, and where necessary consult their own financial advisers as to
the suitability of this product in light of their particular financial circumstances prior to any investment decision.

								
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