Your
investment in the notes will involve certain risks. We urge you to
read the section “Risk Factors” beginning on page S-3 of the prospectus
supplement dated April 9, 2009, in the relevant free writing prospectus or
pricing supplement and in the relevant product supplement, if any, in addition
to the following risk factors relevant to your notes. Investing in
the notes is not equivalent to investing directly in any of the stocks or other
securities comprising the relevant index. You should understand the
risks of investing in the notes and should reach an investment decision only
after careful consideration, with your advisers, of the suitability of the notes
in light of your particular financial circumstances and the information set
forth in this underlying supplement, any other relevant underlying supplement or
product supplement, and the accompanying prospectus supplement and
prospectus.
You will
be subject to significant risks not associated with conventional fixed-rate or
floating-rate debt securities. You should consider carefully the
following discussion of risks before you decide that an investment in the notes
is suitable for you.
Risks
relating to the Reference Asset
If
the Reference Asset is or includes the Russell 2000
®
Index:
|
·
|
THERE
ARE RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS
— The stocks
that constitute the Russell 2000
®
Index are issued by companies with relatively small market
capitalization. The stock prices of smaller companies may be
more volatile than stock prices of large capitalization
companies. Small capitalization companies may be less able to
withstand adverse economic, market, trade and competitive conditions
relative to larger companies. These companies tend to be less
well-established than large market capitalization
companies. Small capitalization companies are less likely to
pay dividends on their stocks, and the presence of a dividend payment
could be a factor that limits downward stock price pressure under adverse
market conditions.
|
If
the Reference Asset is or includes the Hang Seng China Enterprises Index
®
, the
Hang Seng
®
Index,
the Korea Stock Price Index 200, the MSCI Singapore Index
SM
, the
MSCI Taiwan Index
SM
, the
EURO STOXX 50
®
Index,
the TOPIX
®
Index,
the S&P BRIC 40 Index, the Nikkei 225 Index, the FTSE™ 100 Index, the MSCI
EAFE
®
Index or
the MSCI Emerging Markets Index:
|
·
|
SECURITIES
PRICES GENERALLY ARE SUBJECT
TO POLITICAL, ECONOMIC, FINANCIAL AND SOCIAL FACTORS THAT APPLY TO THE
MARKETS IN WHICH THEY TRADE AND, TO A LESSER EXTENT, FOREIGN
MARKETS
—
Foreign securities markets may be
more volatile than
U.S.
or other securities markets and
may be affected by market developments in different ways than
U.S.
or other securities
markets. Also, there generally may be less publicly available
information about
companies
in foreign securities markets
than about
U.S.
companies, and companies in
foreign securities markets are subject to accounting, auditing and
financial reporting standards and requirements that differ from those
applicable to
U.S.
companies.
|
In
addition,
securities
prices
outside the United States are subject to political, economic, financial and
social factors that apply in foreign countries. These factors, which
could negatively affect foreign securities markets, include the possibility of
changes in a foreign government’s economic and fiscal policies, the possible
imposition of, or changes in, currency exchange laws or other laws or
restrictions applicable to foreign companies or investments in foreign equity
securities and the possibility of fluctuations in the rate of exchange between
currencies. Moreover, foreign economies may differ favorably or
unfavorably from the United States economy in important respects such as growth
of gross national product, rate of inflation, capital reinvestment, resources
and self-sufficiency.
The
economies of emerging market countries in particular face several concerns,
including the relatively unstable governments which may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and which may have less protection
of property rights than more developed countries. These economies may
also be based on only a few industries, be highly vulnerable to changes in local
and global trade conditions and may suffer from extreme and volatile debt
burdens or inflation rates. In addition, local securities markets may
trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times. The risks of the economies
of emerging market countries are relevant for notes where the securities
comprising or held by the Reference Asset or any basket component are based
traded in one or more emerging market countries.
The
impact of any of the factors set forth above may enhance or offset some or all
of any change resulting from another factor or factors.
If
the Reference Asset is or includes the EURO STOXX 50
®
Index,
the Hang Seng China Enterprises Index
®
, the
Hang Seng
®
Index,
the Korea Stock Price Index 200, the MSCI Singapore Index
SM
, the
MSCI Taiwan Index
SM
, the
TOPIX
®
Index,
the Nikkei 225 Index or the FTSE™ 100 Index:
|
·
|
THE
NOTES WILL NOT BE ADJUSTED FOR CHANGES IN EXCHANGE RATES
—
Although the
equity securities composing the relevant index are traded in currencies
other than U.S. dollars, and the notes are denominated in
U.S. dollars, such index and the amount payable on the notes at
maturity, if any, will not be adjusted for changes in the exchange rate
between the U.S. dollar and each of the currencies in which the
equity securities composing such index are denominated. Changes
in exchange rates, however, may reflect changes in various
non-U.S. economies that in turn may affect the value of such index,
and therefore the notes. The amount we pay in respect of the
notes on the maturity date, if any, will be determined solely in
accordance with the procedures described in the relevant free writing
prospectus or pricing supplement.
|
If
the Reference Asset is or includes the S&P BRIC 40 Index, the MSCI EAFE
®
Index or
the MSCI Emerging Markets Index:
|
·
|
THE NOTES ARE SUBJECT TO
CURRENCY EXCHANGE RISK
— Unless otherwise specified in the relevant
free writing prospectus or pricing supplement, the prices of the component
securities that compose the relevant index are converted into
U.S. dollars for purposes of calculating the value of such index, and
your notes will be exposed to currency exchange rate risk with respect to
each of the currencies in which the component securities of such index
trade. Your net exposure will depend on the extent to which
such currencies strengthen or weaken against the U.S. dollar and the
relative weight of the component securities in such index denominated in
each such currency. If, taking into account such weighting, the
U.S. dollar strengthens against such currencies, the value of such
index will be adversely affected and, depending on the terms of your
notes, the payment at maturity, if any, may be
reduced.
|
Of
particular importance to potential currency exchange risk are:
|
•
|
the
volatility of the exchange rate between the U.S. dollar and relevant
currencies in which the stocks or other securities that make up the
relevant index are denominated;
|
|
•
|
existing
and expected rates of inflation;
|
|
•
|
existing
and expected interest rate levels;
|
|
•
|
the
balance of payments in the relative countries and between each country and
its major trading partners; and
|
|
•
|
the
extent of governmental surpluses or deficits in the component countries
and the United States.
|
All of
these factors are in turn sensitive to the monetary, fiscal and trade policies
pursued by the governments of various component countries and the United States
and other countries important to international trade and finance.
If
the Reference Asset is or includes the PHLX Housing Sector
SM
Index:
|
·
|
THERE
ARE RISKS ASSOCIATED WITH THE U.S. HOUSING CONSTRUCTION MARKET WILL
AFFECT THE VALUE OF THE NOTES
— The
U.S. housing construction market is significantly affected by
national and international factors in general and local economic
conditions and real estate markets as well as by weather conditions,
natural disasters and geopolitical events, any of which could affect the
ability of the companies the stocks of which are included in the PHLX
Housing Sector
SM
Index to conduct their businesses profitably. The
U.S. housing construction market is cyclical and has from time to
time experienced significant difficulties. The prices of the
stocks or other securities included in the PHLX Housing Sector
SM
Index and, in turn, the level of the PHLX Housing Sector
SM
Index, will be affected by a number of factors that may either offset or
magnify each other, including:
|
|
•
|
a
decline in the value of real
estate;
|
|
•
|
employment
levels and job growth;
|
|
•
|
the
availability of financing for home
buyers;
|
|
•
|
the
availability of suitable undeveloped
land;
|
|
•
|
raw
material and labor shortages and price
fluctuations;
|
|
•
|
federal,
state and local laws and regulations concerning the development of land,
homebuilding, home sales, consumer financing and environmental
protection;
|
|
•
|
competition
among companies which engage in the homebuilding business;
and
|
|
•
|
the
supply of homes and other housing
alternatives.
|
In
addition, weather conditions and natural disasters such as hurricanes,
tornadoes, earthquakes, floods and fires can harm the homebuilding
business. In addition, geopolitical events, such as the outbreak or
aftermath of war, and related market disruptions could also have a significant
impact on the U.S. housing construction market.
The
difficulties described above could affect the U.S. housing industry
generally or regionally and could cause the price of the stocks or other
securities included in the PHLX Housing Sector
SM
Index,
and thus the level of the PHLX Housing Sector
SM
Index,
to decline or remain flat during the term of the notes.
|
·
|
THERE
WILL BE NO DIRECT CORRELATION BETWEEN THE VALUE OF THE NOTES OR THE LEVEL
OF THE PHLX HOUSING SECTOR
SM
INDEX AND RESIDENTIAL HOUSING PRICES
— There is no direct linkage
between the level of the PHLX Housing Sector
SM
Index and residential housing prices in specific regions or residential
housing prices in general. While residential housing prices may
be one factor that could affect the prices of the stocks or other
securities included in the PHLX Housing Sector
SM
Index, and consequently the level of the PHLX Housing Sector
SM
Index, neither the level of the PHLX Housing Sector
SM
Index nor the notes are directly linked to movements of residential
housing prices and may be affected by factors unrelated to such
movements.
|
If
the Reference Asset is or includes the Hang Seng
®
Index,
the Hang Seng China Enterprises Index
®
, the
Korea Stock Price Index 200, the MSCI Taiwan Index
SM
, the
S&P BRIC 40 Index or the MSCI Emerging Markets Index:
|
·
|
THERE
ARE RISKS ASSOCIATED WITH EMERGING MARKETS
— An investment in the
notes will involve risks not generally associated with investments which
have no emerging market component. In particular, many emerging
nations are undergoing rapid change, involving the restructuring of
economic, political, financial and legal systems. Regulatory
and tax environments may be subject to change without review or
appeal. Many emerging markets suffer from underdevelopment of
capital markets and tax regulation. The risk of expropriation
and nationalization remains a threat. Guarding against such
risks is made more difficult by low levels of corporate disclosure and
unreliability of economic and financial
data.
|
THE
S&P 500
®
INDEX
The
disclosure relating to the S&P 500
®
Index
contained on pages US3-4 through US3-7 relates only to the offering of notes
linked to a Reference Asset that is or includes the S&P 500
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the S&P 500
®
Index or
any of the stocks or other securities comprising the S&P 500
®
Index. All disclosures contained in this underlying supplement
regarding the S&P 500
®
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
S&P 500
®
Index or
any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the S&P 500
®
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
We have
derived all information relating to the S&P 500
®
Index
(the “SPX”), including, without limitation, its make-up, performance, method of
calculation and changes in its components, from publicly available
sources. That information reflects the policies of and is subject to
change by, Standard & Poor’s Financial Services
llc
(“S&P”). S&P is under no obligation to continue to publish,
and may discontinue or suspend the publication of the SPX at any
time.
S&P
publishes the SPX.
The Index
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the SPX, discussed below in
further detail, is based on the relative value of the aggregate Market Value (as
defined below) of the common stocks of 500 companies as of a particular time
compared to the aggregate average Market Value of the common stocks of 500
similar companies during the base period of the years 1941 through
1943. S&P chooses companies for inclusion in the SPX with the aim
of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the Standard
& Poor’s Stock Guide Database, which S&P uses as an assumed model for
the composition of the total market. S&P may from time to time in
its sole discretion, add companies to or delete companies from, the SPX to
achieve these objectives.
Relevant
criteria employed by S&P include the viability of the particular company,
the extent to which that company represents the industry group to which it is
assigned, the extent to which the market price of that company’s common stock is
generally responsive to changes in the affairs of the respective industry and
the market value and trading activity of the common stock of that
company. Ten main industry groups comprise the
SPX: Information Technology, Financials, Consumer Staples, Health
Care, Energy, Industrials, Consumer Discretionary, Utilities, Materials and
Telecommunication Services. Changes in the SPX are reported daily in
the financial pages of many major newspapers, on Bloomberg Professional
®
service
under the symbol “SPX” and on the S&P website. Information
contained in the S&P website is not incorporated by reference in, and should
not be considered a part of, this document.
The Index
does not reflect the payment of dividends on the stocks included in the SPX and
therefore the payment on the notes will not produce the same return you would
receive if you were able to purchase such underlying stocks and hold them until
the Stated Maturity Date.
Computation
of the SPX
Prior to
March 2005, the Market Value of a component stock was calculated as the product
of the market price per share and the total number of outstanding shares of the
component stock. In March 2004, S&P announced that it would
transition the SPX to float adjusted market capitalization
weights. The transition began in March 2005 and was completed in
September 2005. S&P’s criteria for selecting stock for the SPX
was not changed by the shift to float adjustment. However, the
adjustment affects each company’s weight in the SPX (i.e., its Market
Value). Currently, S&P calculates the SPX based on the total
float-adjusted market capitalization of each component stock, where each stock’s
weight in the SPX is proportional to its float-adjusted Market
Value.
Under
float adjustment, the share counts used in calculating the SPX reflect only
those shares that are available to investors, not all of a company’s outstanding
shares. S&P defines three groups of shareholders whose holdings
are subject to float adjustment:
|
•
|
holdings
by other publicly traded corporations, venture capital firms, private
equity firms, strategic partners, or leveraged buyout
groups;
|
|
•
|
holdings
by government entities, including all levels of government in the
U.S. or foreign countries; and
|
|
•
|
holdings
by current or former officers and directors of the company, founders of
the company, or family trusts of officers, directors, or founders, as well
as holdings of trusts, foundations, pension funds, employee stock
ownership plans or other investment vehicles associated with and
controlled by the company.
|
However,
treasury stock, stock options, restricted shares, equity participation units,
warrants, preferred stock, convertible stock, and rights are not part of the
float. In cases where holdings in a group exceed 10% of the
outstanding shares of a company, the holdings of that group are excluded from
the float adjusted count of shares to be used in the index
calculation. Mutual funds, investment advisory firms, pension funds,
or foundations not associated with the company and investment funds in insurance
companies, shares of a U.S. company traded in Canada as “exchangeable
shares,” shares that trust beneficiaries may buy or sell without difficulty or
significant additional expense beyond typical brokerage fees, and, if a company
has multiple classes of stock outstanding, shares in an unlisted or non-traded
class if such shares are convertible by shareholders without undue delay and
cost, are also part of the float.
For each
stock, an investable weight factor (“IWF”) is calculated by dividing the
available float shares, defined as the total shares outstanding less shares held
in one or more of the three groups listed above where the group holdings exceed
10% of the outstanding shares, by the total shares outstanding. The
float-adjusted index is then calculated by dividing the sum of the IWF
multiplied by both the price and the total shares outstanding for each stock by
an Index divisor (the “Divisor”). For companies with multiple classes
of stock, S&P calculates the weighted average IWF for each stock using the
proportion of the total company market capitalization of each share class as
weights.
As of the
date of this underwriting supplement, the SPX is also calculated using a
base-weighted aggregate methodology: the level of the SPX reflects
the total Market Value of all the component stocks relative to the SPX base
period of 1941-43. The daily calculation of the SPX is computed by
dividing the Market Value of the SPX component stocks by a Divisor, which is
adjusted from time to time as discussed below.
The
simplest capitalization weighted index can be thought of as a portfolio
consisting of all available shares of the stocks in the index. While
this might track this portfolio’s value in dollar terms, it would probably yield
an unwieldy number in the trillions. Therefore, the actual number
used in the SPX is scaled to a more easily handled number, currently in the
thousands, by dividing the portfolio Market Value by the Divisor.
Ongoing
maintenance of the SPX includes monitoring and completing the adjustments for
additions and deletions of the constituent companies, share changes, stock
splits, stock dividends and stock price adjustments due to company
restructurings or spin-offs. Continuity in the level of the SPX is
maintained by adjusting the Divisor for all changes in the SPX constituents’
share capital after the base period of 1941-43 with the level of the SPX as of
the base period set at 10. Some corporate actions, such as stock
splits and stock dividends do not require Divisor adjustments because following
a stock split or stock dividend, both the stock price and number of shares
outstanding are adjusted by S&P so that there is no change in the Market
Value of the component stock. All stock split and dividend
adjustments are made after the close of trading on the day before the
ex-date.
To
prevent the level of the SPX from changing due to corporate actions, all
corporate actions which affect the total Market Value of the SPX also require a
Divisor adjustment. By adjusting the Divisor for the change in total
Market Value, the level of the SPX remains constant. This helps
maintain the level of the SPX as an accurate barometer of stock market
performance and ensures that the movement of the SPX does not reflect the
corporate actions of individual companies in the SPX. All Divisor
adjustments are made after the close of trading and after the calculation of the
closing levels of the SPX. As noted in the
preceding paragraph, some corporate actions, such as stock splits and
stock dividends, require simple changes in the common shares outstanding and the
stock prices of the companies in the SPX and do not require Divisor
adjustments.
The table
below summarizes the types of Index maintenance adjustments and indicates
whether or not a Divisor adjustment is required.
|
|
|
|
|
|
|
|
|
|
Company
added/deleted
|
|
Net
change in market value determines Divisor adjustment.
|
|
Yes
|
|
|
|
|
|
Change
in shares outstanding
|
|
Any
combination of secondary issuance, share repurchase or buy back—share
counts revised to reflect change.
|
|
Yes
|
|
|
|
|
|
Stock
split
|
|
Share
count revised to reflect new count. Divisor adjustment is not
required since the share count and price changes are
offsetting.
|
|
No
|
|
|
|
|
|
Spin-off
|
|
If
spun-off company is not being added to the index, the divisor adjustment
reflects the decline in Index Market Value (i.e., the value of the
spun-off unit).
|
|
Yes
|
|
|
|
|
|
Spin-off
|
|
Spun-off
company added to the SPX, no company removed from the SPX.
|
|
No
|
|
|
|
|
|
|
|
|
|
|
Spin-off
|
|
Spun-off
company added to the SPX, another company removed to keep number of names
fixed. Divisor adjustment reflects deletion.
|
|
Yes
|
|
|
|
|
|
Change
in IWF
|
|
Increasing
(decreasing) the IWF increases (decreases) the total market value of the
index. The Divisor change reflects the change in market value
caused by the change to an IWF.
|
|
Yes
|
|
|
|
|
|
Special
dividend
|
|
When
a company pays a special dividend the share price is assumed to drop by
the amount of the dividend; the divisor adjustment reflects this drop in
Index Market Value.
|
|
Yes
|
|
|
|
|
|
Rights
offering
|
|
Each
shareholder receives the right to buy a proportional number of additional
shares at a set (often discounted) price. The calculation
assumes that the offering is fully subscribed. Divisor
adjustment reflects increase in market cap measured as the shares issued
multiplied by the price paid.
|
|
Yes
|
Each of
the corporate events exemplified in the table requiring an adjustment to the
Divisor has the effect of altering the Market Value of the component stock and
consequently of altering the aggregate Market Value of the SPX component stocks
(the “Post-Event Aggregate Market Value”). In order that the level of
the SPX (the “Pre-Event Index Value”) not be affected by the altered Market
Value (whether increase or decrease) of the affected component stock, a new
Divisor (“New Divisor”) is derived as follows:
Post-Event
Aggregate Market Value
|
=
|
Pre-Event
Index Value
|
New
Divisor
|
|
|
|
New
Divisor
|
=
|
Post-Event
Aggregate Market Value
|
Pre-Event
Index Value
|
Another
large part of the SPX maintenance process involves tracking the changes in the
number of shares outstanding of each of the companies whose stocks are included
in the SPX. Four times a year, on a Friday close to the end of each
calendar quarter, the share totals of companies in the SPX are updated as
required by any changes in the number of shares outstanding and then the SPX
Divisor is adjusted accordingly. In addition, changes in a company’s
shares outstanding of 5% or more due to mergers, acquisitions, public offerings,
private placements, tender offers, Dutch auctions or exchange offers are made as
soon as reasonably possible. Other changes of 5% or more (due to, for
example, company stock repurchases, redemptions, exercise of options, warrants,
conversion of preferred stock, notes, debt, equity participations or other
recapitalizations) are made weekly, and are announced on Wednesdays for
implementation after the close of trading on the following
Wednesday. If a 5% or more change causes a company’s IWF to change by
5 percentage points or more (for example from 0.80 to 0.85), the IWF will be
updated at the same time as the share change, except IWF changes resulting from
partial tender offers will be considered on a case-by-case
basis. Changes to an IWF of less than 5 percentage points are
implemented at the next IWF review, which occurs annually. In the
case of certain rights issuances, in which the number of rights issued and/or
terms of their exercise are deemed substantial, a price adjustment and share
increase may be implemented immediately.
License
Agreement with S&P:
HSBC has
entered into a nonexclusive license agreement providing for the license to it,
in exchange for a fee, of the right to use indices owned and published by
S&P in connection with some products, including the notes.
The notes
are not sponsored, endorsed, sold or promoted by S&P or its third party
licensors. Neither S&P nor its third party licensors makes any
representation or warranty, express or implied, to the owners of the notes or
any member of the public regarding the advisability of investing in securities
generally or in the notes particularly or the ability of the SPX to track
general stock market performance. S&P’s and its third party
licensor’s only relationship to HSBC USA Inc. is the licensing of certain
trademarks and trade names of S&P and the third party licensors and of the
SPX which is determined, composed and calculated by S&P or its third party
licensors without regard to HSBC USA Inc. or the notes. S&P and
its third party licensors have no obligation to take the needs of HSBC USA Inc.
or the owners of the notes into consideration in determining, composing or
calculating the SPX. Neither S&P nor its third party licensors is
responsible for and has not participated in the determination of the prices and
amount of the notes or the timing of the issuance or sale of the notes or in the
determination or calculation of the
equation
by which the notes are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the notes.
NEITHER
STANDARD & POOR’S, ITS AFFILIATES NOR THEIR THIRD PARTY LICENSORS GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDEX OR ANY DATA
INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT
THERETO. STANDARD & POOR’S, ITS AFFILIATES AND THEIR THIRD PARTY
LICENSORS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS OR DELAYS THEREIN. STANDARD & POOR’S MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MARKS, THE INDEX
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT WHATSOEVER SHALL STANDARD & POOR’S, ITS AFFILIATES OR THEIR
THIRD PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE
OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING
LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR
OTHERWISE.
“Standard
& Poor’s
®
”,
“S&P
®
” and
“S&P 500
®
” are
trademarks of Standard and Poor’s and have been licensed for use by HSBC USA
Inc.
THE
RUSSELL 2000
®
INDEX
The
disclosure relating to the Russell 2000
®
Index
contained on pages US3-8 through US3-10 relates only to the offering of notes
linked to a Reference Asset that is or includes the Russell 2000
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Russell 2000
®
Index or
any of the stocks or other securities comprising the Russell 2000
®
Index. All disclosures contained in this underlying supplement
regarding the Russell 2000
®
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
Russell 2000
®
Index or
any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the Russell 2000
®
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Russell 2000
®
Index
We have
derived all information relating to the Russell 2000
®
Index
(the “RTY”), including, without limitation, its make-up, performance, method of
calculation and changes in its components, from publicly available
sources. That information reflects the policies of and is subject to
change by, Russell Investment Group. Russell Investment Group is
under no obligation to continue to publish, and may discontinue or suspend the
publication of the RTY at any time.
Russell
Investment Group publishes the RTY
RTY is an
index calculated, published, and disseminated by the Russell Investment Group
(“Russell”), and measures the composite price performance of stocks of 2,000
companies determined by Russell to be part of the U.S. equity
market. All 2,000 stocks are traded on a major U.S. exchange,
and form a part of the Russell 3000
®
Index. The Russell 3000
®
Index is
composed of the 3,000 largest United States companies as determined by market
capitalization and represents approximately 98.00% of the United States equity
market.
RTY
consists of the smallest 2,000 companies included in the Russell 3000
®
Index. RTY is designed to track the performance of the small
capitalization segment of the United States equity market.
Only
stocks belonging to companies domiciled in the U.S. are allowed into
RTY. Preferred and convertible preferred stock, redeemable shares,
warrants, participating preferred stock, trust receipts, rights, pink sheets,
OTC Bulletin Board companies and closed-end mutual funds are excluded from
RTY. Real Estate Investment Trusts and Beneficial Trusts however, are
eligible for inclusion.
In
general, only one class of securities of a company is allowed in RTY, although
exceptions to this general rule have been made where the Russell Investment
Group has determined that each class of securities acts independently of the
other. Stocks must trade at or above $1.00 on May 31 of each
year to be eligible for inclusion in RTY. However, if a stock falls
below $1.00 intra-year, it will not be removed until the next reconstitution if
it is still trading below $1.00.
The
primary criterion used to determine the initial list of securities eligible for
the Russell 3000
®
Index is
total market capitalization, which is defined as the price of a company’s shares
times the total number of available shares, as described below. Based
on closing values on May 31 of each year, the Russell Investment Group
reconstitutes the composition of the Russell 3000
®
Index
using the then existing market capitalizations of eligible
companies. As of the last Friday in June of each year, the Russell
Index is adjusted to reflect the reconstitution of the Russell 3000
®
Index
for that year. Real-time dissemination of RTY began on
January 1, 1987.
Computation
of RTY
RTY is a
capitalization-weighted index. RTY reflects changes in the market
value (i.e. capitalization) of the component stocks relevant to their market
value on a base date. RTY is determined by adding the market values
of the component stocks, which are gotten by multiplying the price of each stock
by the number of available shares, to get the total market capitalization of the
2,000 stocks. The total market capitalization is then divided by a
divisor, which gives the adjusted capitalization of RTY on the base date of
December 31, 1986. The most recently traded price for a security
will be used in determining RTY. If a component security is not open
for trading, the most recently traded price for that stock will be
used. The divisor is adjusted to reflect certain events in order to
provide consistency for RTY. The events include changes in the number
of common shares outstanding for component stocks, company additions or
deletions, corporate restructurings, and other changes. Available
shares are considered to be available for trading. Exclusion of
market value held by other listed companies and large holdings by private
investors (10% or more) is based on information recorded in Securities and
Exchange Commission filings.
Annual
reconstitution is the process by which RTY is completely
rebuilt. Reconstitution is a vital part of the creation of a
benchmark which accurately represents a particular market
segment. Companies may get bigger or smaller over time, or change in
style characteristics. Reconstitution ensures that the correct
companies are represented in RTY.
Available
shares are assumed to be shares available for trading. Exclusion of
capitalization held by other listed companies and large holdings of private
investors (10.00% or more) is based on information recorded in Securities and
Exchange Commission filings. Other sources are used in cases of
missing or questionable data.
The
following types of shares considered unavailable for the purposes of
capitalization determinations:
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ESOP
or LESOP shares – shares of corporations that have Employee Stock
Ownership Plans (“ESOP”) or Leveraged Employee Stock Ownership Plans
(“LESOP”) that comprise 10.00% or more of the shares outstanding are
adjusted;
|
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|
|
|
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Corporate
cross-owned shares – when shares of a company in RTY are held by another
company also in RTY, this is considered corporate
cross-ownership. Any percentage held in this class will be
adjusted;
|
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|
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Large
private and corporate shares – when an individual, a group of individuals
acting together, or a corporation not in the index owns 10.00% or more of
the shares outstanding. However, institutional holdings
(investment companies, partnerships, insurance companies, mutual funds,
banks, or venture capital companies) are not included in this class;
and
|
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Unlisted
share classes – classes of common stock that are not traded on a United
States securities exchange or
NASDAQ.
|
The
following summarizes the types of RTY maintenance adjustments and indicates
whether or not an index adjustment is required.
|
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|
|
|
“No
Replacement” Rule – Securities that leave RTY for any reason (e.g.
mergers, acquisitions, or other similar corporate activity) are not
replaced. Therefore, the number of securities in RTY will
fluctuate according to corporate activity.
|
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Rule
for Corporate Action-Driven Changes – When a stock is acquired, delisted,
or moves to the pink sheets or bulletin boards on the floor of a United
States securities exchange, the stock is deleted from RTY at the open of
trading on the ex-date using the previous day’s closing
prices.
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When
acquisitions or mergers take place within RTY, the stock’s capitalization
moves to the acquiring stock; as a result, mergers have no effect on the
total capitalization of RTY. Shares are updated for the
acquiring stock at the time the transaction is final. Prior to
April 1, 2000, if the acquiring stock was a member of a different
index (i.e. the Russell 3000
®
Index or the Russell 1000
®
Index), the shares for the acquiring stock were not adjusted until month
end.
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Deleted
Stocks – When deleting stocks from RTY as a result of exchange delisting
or reconstitution, the price used is the market price on the day of
deletion, including potentially the over-the-counter (“OTC”) Bulletin
Board price. Previously, prices used to reflect delisted stocks
were the last traded price on the Primary Exchange. There may
be corporate events, like mergers or acquisitions that result in the lack
of a current market price for the deleted security and in such an instance
the latest Primary Exchange closing price available will be
used.
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Additions
for Spin-Offs – Spin-off companies are added to the parent company’s index
and capitalization tier of membership, if the spin-off is large
enough. To be eligible, the spun-off company’s total market
capitalization must be greater than the market-adjusted total market
capitalization of the smallest security in RTY at the latest
reconstitution.
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Quarterly
IPO Additions – Eligible companies that have recently completed an initial
public offering (“IPO”) are added to RTY at the end of each calendar
quarter based on total market capitalization ranking within the
market-adjusted capitalization breaks established during the most recent
reconstitution. Market adjustments will be made using the
returns of the Russell 3000
®
Index. Eligible companies will be added to RTY using their
industry’s average style probability established at the latest
constitution.
|
In order
for a company to be added to RTY in a quarter (outside of reconstitution), the
IPO company must meet all Russell U.S. Index eligibility
requirements. Also, the IPO company must meet the following criteria
on the final trading day of the month prior to
quarter-end: (i) price/trade; (ii) rank larger in total
market capitalization than the market-adjusted smallest company in RTY as of the
latest June reconstitution; and (iii) meet criteria (i) and
(ii) during an initial offering period.
Each
month, RTY is updated for changes to shares outstanding as companies report
changes in share capital to the Securities and Exchange
Commission. Only cumulative changes to shares outstanding greater
than 5.00% are reflected in RTY. This does not affect treatment of
major corporate events, which are effective on the ex-date.
License
Agreement with Russell Investment Group
The notes
are not sponsored, endorsed, sold or promoted by Frank Russell Company
(“Russell”). Russell makes no representation or warranty, express or
implied, to the owners of the notes or any member of the public regarding the
advisability of investing in securities, generally or in the notes particularly
or the ability of the Russell 2000
®
Index to
track general stock market performance or a segment of the
same. Russell’s publication of the Russell 2000
®
Index in
no way suggests or implies an opinion by Russell as to the advisability of
investment in any or all of the securities upon which the Russell 2000
®
Index is
based. Russell’s only relationship to HSBC USA Inc. is the licensing
of certain trademarks and trade names of Russell and of the Russell 2000
®
Index
which is determined, composed and calculated by Russell without regard to the
HSBC USA Inc. or the notes. Russell is not responsible for and has
not reviewed the notes nor any associated literature or publications and Russell
makes no representation or warranty express or implied as to their accuracy or
completeness, or otherwise. Russell reserves the right, at any time
and without notice, to alter, amend, terminate or in any way change the
notes. Russell has no obligation or liability in connection with the
administration, marketing or trading of the notes:
RUSSELL
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL 2000
®
INDEX OR
ANY DATA INCLUDED THEREIN AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO THE OBTAINED BY HSBC USA INC., INVESTORS,
OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL
2000
®
INDEX OR
ANY DATA INCLUDED THEREIN. RUSSELL MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 2000
®
INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT,
OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The
Russell 2000
®
Index is
a trademark of Frank Russell Company and has been licensed for use by HSBC USA
Inc. The notes are not sponsored, endorsed, sold or promoted by Frank
Russell Company and Frank Russell Company makes no representation regarding the
advisability of investing in the notes.
THE
DOW JONES INDUSTRIAL AVERAGE
SM
The
disclosure relating to the Dow Jones Industrial Average
SM
contained on pages US3-11 through US3-12 relates only to the offering of notes
linked to a Reference Asset that is or includes the Dow Jones Industrial
Average
SM
.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Dow Jones Industrial Average
SM
or any
of the stocks or other securities comprising the Dow Jones Industrial
Average
SM
. All
disclosures contained in this underlying supplement regarding the Dow Jones
Industrial Average
SM
,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the Dow
Jones Industrial Average
SM
or any
other constituent included in any Reference Asset contained in this underlying
supplement. You should make your own investigation into the Dow Jones
Industrial Average
SM
.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Dow Jones Industrial Average
SM
We have
derived all information relating to the Dow Jones Industrial Average
SM
(the
“DJIA”), including, without limitation, its make-up, performance, method of
calculation and changes in its components, from publicly available
sources. That information reflects the policies of and is subject to
change by, Dow Jones & Company, Inc. (“Dow Jones”). Dow Jones is
under no obligation to continue to publish, and may discontinue or suspend the
publication of the DJIA at any time.
On
March 18, 2010, CME Group Inc. and Dow Jones announced the launch of a new
joint venture company, CME Group Index Services
llc
(“CME Group”). CME Group Inc. has a 90% ownership interest and Dow
Jones has a 10% ownership interest in CME Group, which continues to do business
as Dow Jones Indexes and includes the Dow Jones Industrial Average.
Dow
Jones publishes the DJIA
The DJIA
is a price-weighted index of 30 blue-chip stocks that represent nine economic
sectors.
According
to Dow Jones, the composition of the DJIA is determined by the Averages
Committee, comprised of the managing editor of
The Wall Street Journal
, the
head of Dow Jones Indexes research and the head of CME Group Inc.
research. There are no pre-determined criteria except that components
should be established U.S. companies that are leaders in their respective
industries. In selecting a company’s stock to be included in the
DJIA, the editors look for a leading industrial company with a successful
history of growth and a wide interest among investors. The inclusion
of any particular company in the DJIA does not constitute a prediction as to the
company’s future results of operations or stock market
performance. For the sake of continuity, changes to the composition
of the DJIA are rare, and generally occur only after corporate acquisitions or
other dramatic shifts in a component’s core business. When such an
event necessitates that one component be replaced, the entire DJIA is reviewed
by the editors of
The Wall
Street Journal
. As a result, multiple component changes are
often implemented simultaneously.
The DJIA
does not reflect the payment of dividends on the stocks included in the
DJIA.
Computation
of the DJIA
The DJIA
is a price-weighted index rather than market capitalization-weighted
index. In essence, the DJIA consists of one share of each of the 30
stocks included in the DJIA. Thus, the weightings of the components
of the DJIA are affected only by changes in their prices, while the weightings
of stocks in other indices are affected by price changes and changes in shares
outstanding.
The DJIA
is calculated by adding up the prices of the 30 constituent stocks and dividing
the total by a divisor. The divisor is adjusted to ensure the
continuity of the DJIA. The divisor is now an arbitrary number that
reflects adjustments over time resulting from spin-offs, stock splits, stock
dividends and other corporate actions, as well as additions to and deletions
from the DJIA. Accordingly, the divisor is no longer equal to the
number of components in the DJIA.
The
formula for calculating a divisor change is as follows:
D
t+1
=D
t
* Σ C
a
t
/ Σ C
t
Where:
D
t+1
is the
divisor to be effective on trading session t+1
D
t
is the
divisor on trading session t
C
a
t
is the components’ adjusted closing prices for stock dividends, splits,
spin-offs and other applicable corporate actions on trading session
t
C
t
is the
components’ closing prices on trading session t
While Dow
Jones currently employs the above methodology to calculate the DJIA, no
assurance can be given that Dow Jones will not modify or change this methodology
in a manner that may affect the performance of the DJIA.
License
Agreement with Dow Jones
HSBC or
one of its affiliates has entered into a nonexclusive license agreement
providing for the license to HSBC or to one of its affiliates, in exchange for a
fee, of the right to use indices owned and published by Dow Jones in connection
with certain securities and certificates of deposit, including the
securities.
The
securities are not sponsored, endorsed, sold or promoted by Dow
Jones. Dow Jones makes no representation or warranty, express or
implied, to the holders of the securities or any member of the public
regarding the advisability of investing in securities generally or in the
securities particularly or the ability of the Dow Jones Industrial Average
SM
to
track general stock market performance. Dow Jones’s only relationship
to HSBC (other than transactions entered into in the ordinary course of
business) is the licensing of certain service marks and trade names of Dow Jones
and of the Dow Jones Industrial Average
SM
which
is determined, composed and calculated by Dow Jones without regard to
HSBC or the securities. Dow Jones has no obligation to take the needs
of HSBC or the holders of the securities into consideration in determining,
composing or calculating the Dow Jones Industrial Average
SM
. Dow
Jones is not responsible for and has not participated in the determination of
the timing of the sale of the securities, prices at which the securities are to
initially be sold, or quantities of the securities to be issued or in the
determination or calculation of the equation by which the securities are to be
converted into cash. Dow Jones has no obligation or liability in
connection with the administration, marketing or trading of the
securities.
THE
HANG SENG CHINA ENTERPRISES INDEX
®
The
disclosure relating to the Hang Seng China Enterprises Index
®
contained on pages US3-15 through US3-16 relates only to the offering of notes
linked to a Reference Asset that is or includes the Hang Seng China Enterprises
Index
®
.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Hang Seng China Enterprises Index
®
or any
of the stocks or other securities comprising the Hang Seng China Enterprises
Index
®
. All
disclosures contained in this underlying supplement regarding the Hang Seng
China Enterprises Index
®
,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the Hang
Seng China Enterprises Index
®
or any
other constituent included in any Reference Asset contained in this underlying
supplement. You should make your own investigation into the Hang Seng
China Enterprises Index
®
.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Hang Seng China Enterprises Index
®
We have
derived all information contained in this underlying supplement regarding the
Hang Seng China Enterprises Index
®
(the
“HSCEI”), including, without limitation, its make-up, method of calculation and
changes in its components, from publicly available information. Such
information reflects the policies of, and is subject to change by, Hang Seng
Indexes Company Limited (“HSIL”), a wholly owned subsidiary of Hang Seng
Bank. We make no representation or warranty as to the accuracy or
completeness of such information. The HSCEI is calculated, maintained
and published by HSIL. HSIL has no obligation to continue to publish,
and may discontinue publication of, the HSCEI.
HSIL
publishes the HSCEI
The HSCEI
is compiled, published and managed by HSIL, a wholly-owned subsidiary of the
Hang Seng Bank. HSCEI is a free float-adjusted market capitalization
weighted index. Launched on August 8, 1994, the HSCEI is
comprised of H-shares, Hong Kong listed shares of Chinese state-owned
enterprises (“H-share companies”). The HSCEI had a base value of
1,000 at launch, but was re-based as of January 3, 2000 with a value of
2,000 to align with the Hang Seng Composite Index Series, which launched on
October 3, 2001.
The HSCEI
is reviewed quarterly.
Only
companies with a primary listing on the main board of the stock exchange of Hong
Kong (“SEHK”) are eligible as constituents of the HSCEI. A component
stock is selected or removed from the H-Shares Index in the quarterly review
process based on the following selection criteria:
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•
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Listing history
requirement
. Stocks should be listed for at least one
month prior to the review cut-off
date.
|
|
•
|
Turnover
screening
. Stocks must have 0.1% turnover velocity for
at least 10 out of the latest 12 months to maintain their inclusion
or to be newly included in the H-Shares Index. New entrants
must also have 0.1% turnover velocity in each of the latest three
months. Turnover velocity for a given month is calculated as
the median of shares traded daily over that month divided by the total
free float-adjusted issued shares at month
end.
|
|
•
|
Ranking by combined market
capitalization
. Of the stocks satisfying the listing
history requirement and turnover screening test, the 40 eligible stocks
with the highest combined market capitalization will be selected as
constituents of the H-Shares Index. Combined market
capitalization is calculated for each stock by adding 50% of full market
capitalization to 50% of free float-adjusted market
capitalization.
|
Calculation
methodology
. The H-Shares Index is calculated using a free
float-adjusted market capitalization weighting. Under this
calculation methodology, shares held by any entities (excluding custodians,
trustees, mutual funds and investment companies) which control more than 5% of
shares are excluded for index calculation:
|
•
|
Strategic holdings
(governments and affiliated entities or any other entities which hold
substantial shares in the company would be considered as non-freefloat
unless otherwise proved);
|
|
•
|
Directors’ and management
holdings
(directors, members of the board committee, principal
officers or founding members);
|
|
•
|
Corporate cross
holdings
(publicly traded companies or private firms /
institutions); and
|
|
•
|
Lock-up shares
(shareholdings with a publicly disclosed lock-up
arrangement.
|
A free
float-adjusted factor, representing the proportion of shares that is free
floated as a percentage of the issued shares, is rounded up to the nearest 1%
where the free float is below 10% and otherwise rounded up to the nearest 5% for
the calculation of the H-Shares Index and is updated quarterly.
A cap of
10% on individual stock weightings is applied and a cap factor calculated
quarterly to ensure no individual constituent is weighted in excess of the cap
on a given index capping date.
License
Agreement with Hang Seng Indexes Company Limited
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
Hang Seng Indexes Company Limited and Hang Seng Data Services Limited whereby
HSBC or one of its affiliates, in exchange for a fee, is permitted to use the
Hang Seng Index in connection with certain securities, including the
notes.
The Hang
Seng China Enterprises Index
®
(the
“Index”) is published and compiled by HSI Services Limited pursuant to a license
from Hang Seng Data Services Limited. The mark and name Hang Seng
China Enterprises Index
®
are
proprietary to Hang Seng Data Services Limited. HSI Services Limited
and Hang Seng Data Services Limited have agreed to the use of, and reference to,
the Index(es) by HSBC USA Inc. in connection with the notes (the “Product”),
BUT NEITHER HSI SERVICES
LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES
TO ANY BROKER OR HOLDER OF THE PRODUCT OR ANY OTHER PERSON (i) THE ACCURACY
OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED
THERETO; OR (ii) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR
ANY COMPONENT OR DATA COMPRISED IN IT; OR (iii) THE RESULTS WHICH MAY BE
OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA
COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE
OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE
IMPLIED
. The process and basis of computation and compilation
of the Index and any of the related formula or formulae, constituent stocks and
factors may at any time be changed or altered by HSI Services Limited without
notice.
TO THE
EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED
BY HSI SERVICES LIMITED OR HANG SENG DATA SERVICES LIMITED (i) IN RESPECT
OF THE USE OF AND/OR REFERENCE TO THE INDEX BY HSBC USA INC. IN CONNECTION WITH
THE PRODUCT; OR (ii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF
HSI SERVICES LIMITED IN THE COMPUTATION OF THE INDEX; OR (iii) FOR ANY
INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION
USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY
OTHER PERSON; OR (iv) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY
OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE PRODUCT OR ANY OTHER
PERSON DEALING WITH THE PRODUCT AS A RESULT OF ANY OF THE AFORESAID, AND NO
CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT AGAINST HSI SERVICES LIMITED
AND/OR HANG SENG DATA SERVICES LIMITED
in connection with the Product in
any manner whatsoever by any broker, holder or other person dealing with the
Product. Any broker, holder or other person dealing with the Product
does so therefore in full knowledge of this disclaimer and can place no reliance
whatsoever on HIS Services Limited and Hang Seng Data Services
Limited. For the avoidance of doubt, this disclaimer does not create
any contractual or quasi-contractual relationship between any broker, holder or
other person and HIS Services Limited and/or Hang Seng Data Services Limited and
must not be construed to have created such relationship.
THE
HANG SENG
®
INDEX
The
disclosure relating to the Hang Seng
®
Index
contained on pages US3-13 through US3-14 relates only to the offering of notes
linked to a Reference Asset that is or includes the Hang Seng
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Hang Seng
®
Index or
any of the stocks or other securities comprising the Hang Seng
®
Index. All disclosures contained in this underlying supplement
regarding the Hang Seng
®
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the Hang
Seng
®
Index or
any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the Hang Seng
®
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Hang Seng
®
Index
We have
derived all information contained in this pricing supplement regarding the Hang
Seng
®
Index
(the “HSI”), including, without limitation, its make-up, method of calculation
and changes in its components, from publicly available
information. Such information reflects the policies of, and is
subject to change by, Hang Seng Indexes Company Limited (“HSIL”), a wholly owned
subsidiary of Hang Seng Bank. We make no representation or warranty
as to the accuracy or completeness of such information. The HSI is
calculated, maintained and published by HSIL. HSIL has no obligation
to continue to publish, and may discontinue publication of, the
HSI.
HSIL publishes
the HSI
The HSI
is calculated, maintained and published by HSIL and was first developed,
calculated and published on November 24, 1969. The HSI is a free
float-adjusted market capitalization weighted stock market index in the Stock
Exchange of Hong Kong Limited (the “SEHK”) and purports to be an indicator of
the performance of the Hong Kong stock market.
Only
companies with a primary listing on the main board of the SEHK are eligible as
constituents of the HSI. Mainland China enterprises that have an
H-share listing in Hong Kong are eligible for inclusion in the HSI when they
meet any one of the following conditions: (1) the H-share
company has 100% of its ordinary share capital in the form of H-shares which are
listed on the SEHK; (2) the H-share company has completed the process of
share reform, with the result that there is no unlisted share capital in the
company; or (3) for new H-share initial public offerings, the company has
no unlisted share capital. For any H-share company included in the
HSI, only the H-share portion of the share capital of the company will be used
for index calculation, subject to free float adjustment. H-shares are
shares of mainland China companies listed on the SEHK.
To be
eligible for selection, a company: (1) must be among those that
constitute the top 90% of the total market capitalization of all primary listed
shares on the SEHK (market capitalization is expressed as an average of the past
12 months); (2) must be among those that constitute the top 90% of the
total turnover of all primary listed shares on the SEHK (turnover is aggregated
and individually assessed for eight quarterly sub-periods for the past
24 months); and (3) should normally have a listing history of
24 months. From the many eligible candidates, final selections
are based on the following: (1) the market capitalization and
turnover rankings of the companies; (2) the representation of the
sub-sectors within the HIS directly reflecting that of the market; and
(3) the financial performance of the companies.
Calculation
of the HSI
The
calculation methodology of the HIS is a free float-adjusted market
capitalization weighting. Under this calculation methodology, the
following shareholdings are viewed as strategic in nature and excluded for index
calculation:
• Strategic
holdings. Shares held by strategic shareholders who individually or
collectively control more than 30% of the shareholdings;
• Directors’
holdings. Shares held by directors who individually control more than
5% of the shareholdings;
• Cross-holdings. Shares
held by a Hong Kong-listed company which controls more than 5% of the
shareholdings as investments; and
• Lock-up
shares. Shares held by shareholders who individually or collectively
represent more than 5% of the shareholdings in the company and with a publicly
disclosed lock-up arrangement.
A free
float-adjusted factor representing the proportion of shares that is free floated
as a percentage of the issued shares, is rounded up to the nearest multiple of
5% for the calculation of the Hang Seng Index and is updated
half-yearly.
A cap of 15% on individual stock weightings is
applied. A cap factor is calculated half-yearly to coincide with the
regular update of the free float-adjusted factor. Additional
re-capping is performed upon constituent changes.
License
Agreement with Hang Seng Indexes Company Limited
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
Hang Seng Indexes Company Limited and Hang Seng Data Services Limited whereby
HSBC or one of its affiliates, in exchange for a fee, is permitted to use the
Hang Seng Index in connection with certain securities, including the
notes. HSBC is not affiliated with Hang Seng Indexes Company Limited;
the only relationship between Hang Seng Indexes Company Limited and HSBC is any
licensing of the use of Hang Seng Indexes Company Limited’s indices and
trademarks related to them.
The Hang
Seng Index
®
(the
“Index”) is published and compiled by HSI Services Limited pursuant to a license
from Hang Seng Data Services Limited. The mark and name Hang Seng
China Enterprises Index
®
are
proprietary to Hang Seng Data Services Limited. HSI Services Limited
and Hang Seng Data Services Limited have agreed to the use of, and reference to,
the Index(es) by HSBC USA Inc. in connection with the notes (the “Product”),
BUT NEITHER HSI SERVICES
LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES
TO ANY BROKER OR HOLDER OF THE PRODUCT OR ANY OTHER PERSON (i) THE ACCURACY
OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED
THERETO; OR (ii) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR
ANY COMPONENT OR DATA COMPRISED IN IT; OR (iii) THE RESULTS WHICH MAY BE
OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA
COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE
OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE
IMPLIED
. The process and basis of computation and compilation
of the Index and any of the related formula or formulae, constituent stocks and
factors may at any time be changed or altered by HSI Services Limited without
notice.
TO THE
EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED
BY HSI SERVICES LIMITED OR HANG SENG DATA SERVICES LIMITED (i) IN RESPECT
OF THE USE OF AND/OR REFERENCE TO THE INDEX BY HSBC USA INC. IN CONNECTION WITH
THE PRODUCT; OR (ii) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF
HSI SERVICES LIMITED IN THE COMPUTATION OF THE INDEX; OR (iii) FOR ANY
INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION
USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY
OTHER PERSON; OR (iv) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY
OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE PRODUCT OR ANY OTHER
PERSON DEALING WITH THE PRODUCT AS A RESULT OF ANY OF THE AFORESAID, AND NO
CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT AGAINST HSI SERVICES LIMITED
AND/OR HANG SENG DATA SERVICES LIMITED
in connection with the Product in
any manner whatsoever by any broker, holder or other person dealing with the
Product. Any broker, holder or other person dealing with the Product
does so therefore in full knowledge of this disclaimer and can place no reliance
whatsoever on HIS Services Limited and Hang Seng Data Services
Limited. For the avoidance of doubt, this disclaimer does not create
any contractual or quasi-contractual relationship between any broker, holder or
other person and HIS Services Limited and/or Hang Seng Data Services Limited and
must not be construed to have created such relationship.
THE
KOREA STOCK PRICE INDEX 200
The
disclosure relating to the Korea Stock Price Index 200 contained on pages US3-17
through US3-19 relates only to the offering of notes linked to a Reference Asset
that is or includes the Korea Stock Price Index 200.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Korea Stock Price Index 200 or any of the stocks or other
securities comprising the Korea Stock Price Index 200. All
disclosures contained in this underlying supplement regarding the Korea Stock
Price Index 200, including its make-up, performance, method of calculation and
changes in its components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the Korea
Stock Price Index 200 or any other constituent included in any Reference Asset
contained in this underlying supplement. You should make your own
investigation into the Korea Stock Price Index 200.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Korea Stock Price Index 200
The Korea
Stock Price Index 200 (the “KOSPI2”) is a capitalization-weighted index of 200
Korean blue-chip stocks which make up a large majority of the total market value
of the Korea Exchange (“KSE”). The constituent stocks are selected on
the basis of the market value of the individual stocks, liquidity and their
relative positions in their respective industry groups.
Selection
Criteria
All
common stocks listed on the KSE as of the periodic realignment date will be
included in the selection process, except for the stocks which fall into one of
the following categories:
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stocks
initially listed or relisted after May 1 of the year preceding the
year of a regular realignment review date (as described below), subject to
certain exceptions;
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stocks
issued by securities investment
companies;
|
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·
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stocks
designated as administrative
issues;
|
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·
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stocks
issued during a liquidation sale;
and
|
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·
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stocks
otherwise deemed unsuitable to be constituents of the
index.
|
However,
if the market capitalization of any newly issued stock of a company that belongs
to one of the industry sectors indicated below exceeds 1% of the total market
capitalization of the KRX, the stock will be included in the KOSPI 200 universe
even if one year has not elapsed since listing.
The
companies listed on the KOSPI2 are classified into the following industry
groups: (i) fisheries, (ii) mining,
(iii) manufacturing, (iv) construction, (v) electricity and gas,
(vi) services, (vii) post and communication and
(viii) finance. The constituents of the KOSPI2 are selected
first from the non-manufacturing industry cluster, and then from the
manufacturing industry cluster. The constituents from the
non-manufacturing industry cluster are selected in accordance with the
following:
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·
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Selection
is made in descending order of market capitalization, from large to small,
in the same industry group, while ensuring the accumulated market
capitalization of the concerned industry group is within 70% of that of
all industry groups.
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·
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Notwithstanding
the above, the stocks whose ranking of trading volume in descending order
is below 85% of the stocks included in deliberation within the same
industry group are excluded. In such case, the excluded stock
is replaced by a stock that is next in ranking in market capitalization,
but satisfies the trading volume
criteria.
|
The
constituents from the manufacturing industry cluster are selected in descending
order of market capitalization, while excluding stocks whose ranking of trading
volume in descending order is below 85% of the stocks included in the process
within the same industry group.
Notwithstanding
anything above, if a stock whose market capitalization is within the top 50 in
terms of market capitalization, such stock may be included in the constituents
of the KOSPI2, by taking into consideration the influence that the industry
group has on the KOSPI2, as well as the liquidity of the concerned
stock.
KOSPI2
Calculation
The
KOSPI2 is computed by multiplying (i) the market capitalization as of the
calculation time divided by the market capitalization as of the base date, by
(ii) 100. The base date of the KOSPI2 is January 3, 1990
with a base index of 100. Market capitalization is obtained by
multiplying the number of listed common shares of the constituents by the price
of the concerned common share.
If the
number of listed shares increases due to rights offering, bonus offering and
stock dividend, which accompany ex-right or ex-dividend, such increase is
included in the number of listed shares on the ex-right date or ex-dividend
date. Share prices refer to the market price established during the
regular trading session. If no trading took place on such day,
quotation price is used and if no quotation price is available, the closing
price of the most recent trading day is used.
Free
float adjustments
As of
December 14, 2007, the calculation of the KOSPI 200 has been based on a
fully implemented free float methodology. Under the free float
methodology, the following shareholdings are viewed as “non-free” and excluded
for calculation:
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shares
owned by the government when the holding is greater than or equal to 5% of
total shares;
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·
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shares
owned by the largest shareholders and affiliated
persons;
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·
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shares
owned by employees (
i.e.
, through the
employees’ stock ownership plan);
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·
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shares
construed as non-free float by KRX.
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Stock
Revision
The
constituents of the KOSPI2 are realigned once a year while observing each of the
following:
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An
existing constituent will not be removed if the ranking of the market
capitalization of such stock is within 100/110 of the ranking of the
KOSPI2 constituents of the same industry
group;
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·
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In
order to be included in the constituents of the KOSPI2, the ranking of the
market capitalization of a stock must be within 90/100 of the ranking of
the KOSPI2 constituents of the same industry
group;
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·
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If
the ranking of the market capitalization of an existing constituent falls
below 100/110 of the ranking of the KOSPI2 constituents of the same
industry group, but there is no stock satisfying the requirement specified
in the preceding clause, the existing constituent will not be removed;
and
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·
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When
removing the existing constituents, a constituent whose ranking of market
capitalization within the same industry group is the lowest will be
removed first. The periodic realignment date is the trading day
following the last trading day of June contracts in the KOSPI2 index
futures and index options. With respect to any component
security in the KOSPI2, if any of the following events occur, such
component security shall be removed from the KOSPI2 and the removal date
is as follows:
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Delisting: the
trading day following the delisting
date;
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·
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Designation
as administrative issue: the designation
date;
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·
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Merger: the
day of trading halt; and
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·
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It
is determined that the stock is unsuitable as a component security of the
KOSPI2: the trading day following the day of such
determination, which is the last trading day of the nearest month
contracts of both the index futures and index options, after the date of
such decision.
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When
realigning the component securities of the KOSPI2, the replacement stocks are
chosen from the replacement list in accordance with the rank
order. In the case of an industry group that has no stock listed on
the replacement list, a replacement stock is chosen from the replacement list of
manufacturing industry cluster.
The
Korea Exchange
The KSE’s
predecessor, the Daehan Stock Exchange, was established in 1956. The
KSE is a typical order-driven market, where buy and sell orders compete for best
prices. The KSE seeks to maintain a fair and orderly market for
trading and regulates and supervises its member firms. Throughout the
trading hours, orders are matched at a price satisfactory to both buy and sell
sides, according to price and time priorities. The opening and
closing prices, however, are determined by call auctions; at the market opening
and closing, orders received for a certain period of time are pooled and matched
at the price at which the most number of shares can be executed. The
KSE uses electronic trading procedures, from order placement to trade
confirmation. The KSE is open from 9:00 a.m. to 3:00 p.m.,
Korean time, during weekdays. Investors can submit their orders from
8:00 a.m., one hour before the market opening. Orders delivered
to the market during the period from 8:00 a.m. to 9:00 a.m. are queued
in the order book and matched by call auction method at 9:00 a.m. to
determine opening prices. After opening prices are determined, the
trades are conducted by continuous auctions until 2:50 p.m. (10 minutes
before the market closing).
Besides the regular session, the KSE conducts pre-hours and
after-hours sessions for block trading and basket trading. During
pre-hours sessions from 7:30 to 8:30 a.m., orders are matched at the
previous day’s respective closing prices. After-hours
sessions
are open for 50 minutes from 3:10 p.m. to 4:00 p.m. During after-hours
sessions, orders are matched at the closing prices of the day.
On
January 26, 2004, the KSE introduced the random-end system at the opening
and closing call auctions. The stated purpose of the random-end
system is to prevent any distortion in the price discovery function of the KSE
caused by “fake” orders placed with an intention of misleading other
investors. In cases where the highest or lowest indicative price of a
stock set during the last 5 minutes before the closing time of the opening (or
closing) call session, 8:55-9:00 a.m. (or 2:55-3:00 p.m.), deviates
from the provisional opening (or closing) price by 5% or more, the KSE delays
the determination of the opening (or closing) price of the stock up to five
minutes. The official opening (or closing) price of such stock is
determined at a randomly chosen time within five minutes after the regular
opening (or closing) time. The KSE makes public the indicative prices
during the opening (or closing) call trading sessions. Pooling
together all bids and offers placed during the order receiving hours for the
opening (or closing) session, 8:10-9:00 a.m. (or 2:50-3:00 p.m.), the
indicative opening (or closing) prices of all stocks are released to the public
on a real-time basis.
The KSE
sets a limit on the range that the price of individual stocks can change during
a day. In addition, when the price and/or trading activities of a
stock are expected to show an abnormal movement in response to an unidentified
rumor or news, or when an abnormal movement is observed in the market, the KSE
may halt the trading of the stock. In such cases, the KSE requests
the company concerned to make a disclosure regarding the matter. Once
the company makes an official announcement regarding the matter, trading can
resume within an hour; however, if the KSE deems that the situation was not
fully resolved by the disclosure, trading resumption may be
delayed. The KSE introduced circuit breakers in December
1998. The trading in the equity markets is halted for 20 minutes when
the KOSPI2 falls by 10% or more from the previous day’s closing and the
situation lasts for one minute or longer. The trading resumes by call
auction where the orders submitted during the 10 minutes after the trading halt
ended are matched at a single price.
License
Agreement with the Korea Exchange
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
KSE, whereby HSBC or one of its affiliates and subsidiary companies, in exchange
for a fee, will be permitted to use the KOSPI2, which is owned and published by
KSE, in connection with certain products, including the notes.
The notes
are not sponsored, endorsed, sold or promoted by the KSE. KSE not
passed on the legality or appropriateness of, or the accuracy or adequacy of
descriptions and disclosures relating to the notes. KSE makes no
representation or warranty, express or implied to the owners of the notes or any
member of the public regarding the advisability of investing in securities
generally or in the notes particularly, or the ability of the KOSPI2 to track
general stock market performance. KSE has no relationship to HSBC
other than the licensing of the KOSPI2 and the related trademarks for use in
connection with the Notes, which index is determined, composed and calculated by
KSE without regard to HSBC or the notes. KSE has no obligation to
take the needs of HSBC or the owners of the notes into consideration in
determining, composing or calculating the KOSPI2. KSE is not
responsible for and has not participated in the determination of the timing of,
prices at, or quantities of the notes to be issued or in the determination or
calculation of the equation by which the notes are to be converted into
cash. KSE has no liability in connection with the administration,
marketing or trading of the notes.
KSE is
under no obligation to continue the calculation and dissemination of the KOSPI2
and the method by which the KOSPI2 is calculated and the name “KOSPI 200 Index”
or “KOSPI2” may be changed at the discretion of KSE. No inference
should be drawn from the information contained in this pricing supplement that
KSE makes any representation or warranty, implied or express, to you or any
member of the public regarding the advisability of investing in securities
generally or in the notes in particular or the ability of the KOSPI2 to track
general stock market performance. KSE has no obligation to take into
account your interest, or that of anyone else having an interest in determining,
composing or calculating the KOSPI2. KSE is not responsible for, and
has not participated in the determination of the timing of, prices for or
quantities of, the notes or in the determination or calculation of the equation
by which the notes are to be settled in cash. KSE has no obligation
or liability in connection with the administration, marketing or trading of the
notes. The use of and reference to the KOSPI2 in connection with the
notes have been consented to by KSE.
KSE
disclaims all responsibility for any inaccuracies in the data on which the
KOSPI2 is based, or any mistakes or errors or omissions in the calculation or
dissemination of the KOSPI2.
The Korea
Stock Price Index 200 is a service mark of the Korea Exchange licensed for use
by HSBC USA Inc.
MSCI
INDICES
The
disclosure relating to the MSCI Indices contained on pages US3-20 through US3-23
relates only to the offering of notes linked to a Reference Asset that is or
includes the MSCI Indices.
We may
offer notes linked to one or more indices that are part of the “MSCI Global
Investable Market Indices” calculated and maintained by MSCI, Inc. (“MSCI”) (the
“MSCI Indices”), including the MSCI Singapore Index, the MSCI Taiwan Index, the
MSCI EAFE Index and the MSCI Emerging Markets Index (the “MSCI EM
Index”).
The MSCI
Indices were founded in 1969 by Capital International as the first international
performance benchmarks constructed to facilitate accurate comparison of world
markets. Morgan Stanley acquired the rights to license the MSCI
Indices in 1986. In November 1998, Morgan Stanley transferred all
rights to the MSCI Indices to MSCI, a Delaware corporation of which Morgan
Stanley is the controlling shareholder. In 2004, MSCI acquired Barra,
Inc., a provider of risk analytics, performance measurement and attribution
systems and services to managers of portfolio and firm-wide investment risk and
merged this with MSCI. The MSCI single country standard equity
indices have covered the world’s developed markets since 1969, and in 1988, MSCI
commenced coverage of the emerging markets.
All
information regarding the MSCI Indices contained in this underlying supplement
reflects the policies of, and is subject to change by,
MSCI.
Description
of the indices
MSCI
Singapore Index
The MSCI
Singapore Index offers a representation of the Singaporean market by targeting
all companies with a market capitalization within the top 85% of the Singaporean
investable equity universe, subject to a global minimum size
requirement. It is based on the Global Investable Market Indices
methodology. The MSCI Singapore Free Price Index in SGD is reported
by Bloomberg under the ticker symbol “MXSG <Index>”, and the MSCI
Singapore Free USD Index is reported by Bloomberg under the ticker symbol
“NDDUSGF <Index>”.
MSCI
Taiwan Index
The MSCI
Taiwan Index offers a representation of the Taiwanese market by targeting all
companies with a market capitalization within the top 85% of the Taiwanese
investable equity universe, subject to a global minimum size
requirement. It is based on the Global Investable Market Indices
methodology. The MSCI Taiwan Price Index in TWD is reported by
Bloomberg under the ticker symbol “MXTW <Index>”, and the MSCI EM Net
Taiwan USD is reported by Bloomberg under the ticker symbol “NDEUSTW
<Index>”.
MSCI
EAFE Index
The MSCI
EAFE Index offers a representation of developed markets (Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy,
Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom) by targeting all companies with a market
capitalization within the top 85% of their investable equity universe, subject
to a global minimum size requirement (each, an “MSCI EAFE Constituent Country
Index”). It is based on the Global Investable Market Indices
methodology.
The MSCI
EAFE Price Index in USD is reported by Bloomberg under the ticker symbol
“MXEA<Index>”, and the MSCI Net EAFE USD is reported by Bloomberg under
the ticker symbol “NDDUEAFE<Index>”.
MSCI
EM Index
The MSCI
EM Index offers a representation of emerging markets (Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia,
Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan,
Thailand, Turkey) by targeting all companies with a market capitalization within
the top 85% of their investable equity universe, subject to a global minimum
size requirement (each, an “MSCI EM Constituent Country Index”). It
is based on the Global Investable Market Indices methodology.
The MSCI
EM Price Index in USD is reported by Bloomberg under the ticker symbol
“MXEF<Index>”, and the MSCI Daily TR Net Emerging Mkts USD Index is
reported by Bloomberg under the ticker symbol
“NDUEEGF<Index>”.
The
Country Indices
The MSCI
Singapore Index, MSCI Taiwan Index, each MSCI EAFE Constituent Country Index and
each MSCI EM Constituent Country Index are referred to individually as a
“Country Index” and collectively as the “Country Indices”. Under the
MSCI methodology, each Country Index is an “MSCI Global Standard
Index”.
The
components of each Country Index used to be selected by MSCI from among the
universe of securities eligible for inclusion in the Country Index so as to
target an 85% free float-adjusted market representation level within each of a
number of industry groups, subject to adjustments to (i) provide for
sufficient liquidity, (ii) reflect foreign investment restrictions (only
those securities that can be held by non-residents of the country corresponding
to the relevant Country Index are included) and (iii) meet certain other
investability criteria. Following a change in MSCI’s methodology implemented in
May 2008, the 85% target is now measured at the level of the country universe of
eligible securities rather than the industry group level—so each Country Index
will seek to include the securities that represent 85% of the free
float-adjusted market capitalization of all securities eligible for
inclusion—but will still be subject to liquidity, foreign investment
restrictions and other investability adjustments. MSCI defines “free
float” as total shares excluding shares held by strategic investors such as
governments, corporations, controlling shareholders and management, and shares
subject to foreign ownership restrictions.
Calculation
of the indices
Calculation
of the Country Indices
Each
Country Index is a free float-adjusted market capitalization index that is
designed to measure the market performance, including price performance of the
equity securities in that country (such equity securities are referred to
individually as an “Index Component” and collectively as “Index
Components”). Each Country Index is calculated in the relevant local
currency as well as in U.S. dollars, with price, gross and net
returns.
MSCI’s
“price indices” measure market performance, including price performance, whereas
MSCI’s “total return indices” measure market performance, including price
performance, as well as income from dividend payments.
Each
Index Component is included in the relevant Country Index at a weight that
reflects the ratio of its free float-adjusted market capitalization (
i.e.
, free public float
multiplied by price) to the free float-adjusted market capitalization of all the
Index Components in that Country Index.
Calculation
of the MSCI EA FE Index and MSCI EM Index
The
performance of the MSCI EAFE Index on any given day represents the weighted
performance of all of the Index Components included in all of the MSCI EAFE
Constituent Country Indices. Each Index Component in the MSCI EAFE
Index is included at a weight that reflects the ratio of its free float-adjusted
market capitalization (L e., free public float multiplied by price) to the free
float-adjusted market capitalization of all the Index Components included in all
of the MSCI EAFE Constituent Country Indices.
Similarly,
the performance of the MSCI EM Index on any given day represents the weighted
performance of all of the Index Components included in all of the MSCI EM
Constituent Country Indices. Each Index Component in the MSCI EM
Index is included at a weight that reflects the ratio of its free float-adjusted
market capitalization (L e., free public float multiplied by price) to the free
float-adjusted market capitalization of all the Index Components included in all
of the MSCI EM Constituent Country Indices.
Maintenance
of and changes to the MSCI Indices
MSCI
maintains the MSCI Indices with the objective of reflecting, on a timely basis,
the evolution of the underlying equity markets and segments. In
maintaining the MSCI Indices, emphasis is also placed on continuity, continuous
investability of constituents, replicability, index stability and minimizing
turnover in the indices.
As part
of the changes to MSCI’s methodology which became effective in May 2008,
maintenance of the indices falls into three broad categories:
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·
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semi-annual
reviews, which will occur each May and November and will involve a
comprehensive reevaluation of the market, the universe of eligible
securities and other factors involved in composing the
indices;
|
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·
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quarterly
reviews, which will occur each February and August and will focus on
significant changes in the market since the last semi-annual review;
and
|
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·
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ongoing
event-related changes, which will generally be reflected in the indices at
the time of the event and will include changes resulting from mergers,
acquisitions, spin-offs, bankruptcies, reorganizations, issuances and
other extraordinary transactions, corporate actions and
events.
|
Based on
these reviews, additional components may be added, and current components may be
removed, at any time. MSCI generally announces all changes resulting
from semi-annual reviews, quarterly reviews and ongoing events in advance of
their implementation, although in exceptional cases they may be announced during
market hours for same or next day implementation.
Prices
and exchange rates
Prices
The
prices used to calculate the MSCI Indices are the official exchange closing
prices or those figures accepted as such. MSCI reserves the right to
use an alternative pricing source on any given day.
Exchange
rates
MSCI uses
the foreign exchange rates published by WM / Reuters at 4:00 p.m., London
time. MSCI uses WM / Reuters rates for all developed and emerging
markets.
In case
WM/Reuters does not provide rates for specific markets on given days (for
example Christmas Day and New Year Day), the previous business day’s rates are
normally used.
MSCI
continues to monitor exchange rates independently and may, under exceptional
circumstances, elect to use an alternative exchange rate if the WM / Reuters
rates are not available, or if MSCI determines that the WM / Reuters rates are
not reflective of market circumstances for a given currency on a particular
day. In such circumstances, an announcement would be sent to clients
with the related information. If appropriate, MSCI may conduct a
consultation with the investment community to gather feedback on the most
relevant exchange rate.
License
Agreement
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
MSCI whereby HSBC and certain of its affiliates, in exchange for a fee, are
permitted to use the MSCI Indices in connection with certain securities,
including the notes. We are not affiliated with MSCI, the only
relationship between MSCI and us is any licensing of the use of MSCI’s indices
and trademarks relating to them.
The
license agreement provides that the following language must be set forth
herein:
THE NOTES
ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI, ANY AFFILIATE OF MSCI OR
ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI
INDEX. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF
MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR
ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY
HSBC. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY
INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE NOTES OR
ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN THE NOTES
GENERALLY OR IN THE NOTES PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK
CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE
THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE
MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT
REGARD TO THE NOTES OR THE ISSUER OR OWNER OR THE NOTES. NEITHER
MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO,
MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE
ISSUERS OR OWNERS OF THE NOTES INTO CONSIDERATION IN DETERMINING, COMPOSING OR
CALCULATING THE MSCI INDEXES. NEITHER MSCI, ITS AFFILIATES NOR ANY
OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX IS
RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF,
PRICES AT, OR QUANTITIES OF THE NOTES TO BE ISSUED OR IN THE DETERMINATION OR
CALCULATION OF THE EQUATION BY WHICH THE NOTES ARE REDEEMABLE FOR
CASH. NEITHER
MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, THE
MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS
OF THE NOTES IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE
NOTES.
ALTHOUGH
MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF
THE MSCI INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI, ANY
OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR
COMPILING ANY MSCI INDEX WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR
THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED
THEREIN. NEITHER
MSCI, ANY
OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR
COMPILING ANY MSCI INDEX MAKES ANY WARRANTY, EXPRESS OF IMPLIED, AS TO RESULTS
TO BE OBTAINED BY LICENSEE, LICENSEE’S CUSTOMERS OR COUNTERPARTIES, ISSUERS FO
THE NOTES, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF
ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI, ANY OF ITS
AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING
ANY MSCI INDEX SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR
INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED
THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER
PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND MSCI, ANY OF ITS AFFILIATES AND
ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX
HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO ANY MSCI INDEX AND ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MSCI, ANY OF ITS AFFILIATES OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO,
MAKING OR COMPILING ANY MSCI INDEX HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
No
purchaser, seller or holder of the notes, or any other person or entity, should
use or refer to any MSCI trade name, trademark or service mark to sponsor,
endorse, market or promote the notes without first contacting MSCI to determine
whether MSCI’s permission is required. Under no circumstances may any
person or entity claim any affiliation with MSCI without the prior written
permission of MSCI.
THE
EURO STOXX 50
®
INDEX
The
disclosure relating to the EURO STOXX 50
®
Index
contained on pages US3-24 through US3-25 relates only to the offering of notes
linked to a Reference Asset that is or includes the EURO STOXX 50
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the EURO STOXX 50
®
Index or
any of the stocks or other securities comprising the EURO STOXX 50
®
Index. All disclosures contained in this underlying supplement
regarding the EURO STOXX 50
®
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the EURO
STOXX 50
®
Index or
any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the EURO STOXX 50
®
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
EURO STOXX 50
®
Index
We have
derived all information contained in this underlying supplement regarding the
EURO STOXX 50
®
Index
(the “SX5E”), including, without limitation, its make-up, method of calculation
and changes in its components, from publicly available
information. Such information reflects the policies of and is subject
to change by, STOXX Limited. STOXX Limited is under no obligation to
continue to publish, and may discontinue or suspend the publication of the SX5E
at any time.
STOXX
Limited Publishes the SX5E.
The SX5E
was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group
AG. Publication of the EURO STOXX 50
®
Index
began on February 28, 1998, based on an initial index value of 1,000 at
December 31, 1991. The SX5E is reported daily on the Bloomberg
Professional
®
service
under the symbol “SX5E” and on the STOXX Limited website. Information
contained in the STOXX Limited website is not incorporated by reference in, and
should not be considered a part of, this underlying supplement.
SX5E
Composition and Maintenance
The SX5E
is composed of 50 stocks from Eurozone (Austria, Belgium, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain) portion of the STOXX Europe 600 Supersector indices. The STOXX
600 Supersector indices contain the 600 largest stocks traded on the major
exchanges of 18 European countries and are organized into the following 19
Supersectors: automobiles & parts; banks; basic resources;
chemicals; construction & materials; financial services; food &
beverage; health care; industrial goods & services; insurance; media; oil
& gas; personal & household goods; real estate; retail; technology;
telecommunications; travel & leisure and utilities.
The EURO
STOXX 50 Index is weighted by free float market capitalization. Each
component’s weight is capped at 10% of the EURO STOXX 50 Index’s total free
float market capitalization. Free float weights are reviewed
quarterly and the EURO STOXX 50 Index composition is reviewed annually
September.
Within
each of the 19 EURO STOXX Supersector indices, the component stocks are ranked
by free float market capitalization. The largest stocks are added to
the selection list until the coverage is close to, but still less than, 60% of
the free float market capitalization of the corresponding EURO STOXX Total
Market Index (TMI) Supersector index. If the next-ranked stock brings
the coverage closer to 60% in absolute terms, then it is also added to the
selection list. Any remaining stocks that are current EURO STOXX 50
Index components are added to the selection list. The stocks on the
selection list are ranked by free float market capitalization. In
exceptional cases, the STOXX Limited Supervisory Board may make additions and
deletions to the selection list.
The 40
largest stocks on the selection list are chosen as components. Any
remaining current components of the EURO STOXX 50 Index ranked between 41 and 60
are added as index components. If the component number is still below
50, then the largest remaining stocks on the selection list are added until the
EURO STOXX 50 Index contains 50 stocks.
SX5E
Calculation
The SX5E
is calculated with the “Laspeyres formula”, which measures the aggregate price
changes in the component stocks against a fixed base quantity
weight. The formula for calculating the index value can be expressed
as follows:
Index
=
|
free
float market capitalization of the SX5E
|
divisor
of the SX5E
|
The “free
float market capitalization of the SX5E” is equal to the sum of the products of
the market capitalization and free float factor for each component stock as of
the time the SX5E is being calculated.
The SX5E
is also subject to a divisor, which is adjusted to maintain the continuity of
SX5E values despite changes due to corporate actions.
License
Agreement with STOXX Limited
HSBC or
one of its affiliates has entered into a nonexclusive license agreement
providing for the license to it, in exchange for a fee, of the right to use
certain indices owned and published by STOXX Limited in connection with some
products, including the notes.
STOXX and
its licensors (the “Licensors”) have no relationship to the HSBC USA Inc., other
than the licensing of the EURO STOXX 50
®
Index
and the related trademarks for use in connection with the notes.
STOXX
and its Licensors do
not
:
|
·
|
Sponsor,
endorse, sell or promote the notes.
|
|
·
|
Recommend
that any person invest in the notes or any other
securities.
|
|
·
|
Have
any responsibility or liability for or make any decisions about the
timing, amount or pricing of the
notes.
|
|
·
|
Have
any responsibility or liability for the administration, management or
marketing of the notes.
|
|
·
|
Consider
the needs of the notes or the owners of the notes in determining,
composing or calculating the EURO STOXX 50
®
Index or have any obligation to do
so.
|
STOXX
and its Licensors will not have any liability in connection with the
notes. Specifically,
·
STOXX and its
Licensors do not make any warranty, express or implied and disclaim any
and all warranty about:
·
The results to be
obtained by the notes, the owner of the notes or any other person in
connection with the use of the EURO STOXX 50
®
Index and the data included in
the EURO STOXX 50® Index;
·
The accuracy or
completeness of the EURO STOXX 50® Index and its data;
·
The
merchantability and the fitness for a particular purpose or use of the
EURO STOXX 50® Index and its data;
·
STOXX and its
Licensors will have no liability for any errors, omissions or
interruptions in the EURO STOXX 50® Index or its data;
·
Under no
circumstances will STOXX or its Licensors be liable for any lost profits
or indirect, punitive, special or consequential damages or losses, even if
STOXX or its Licensors knows that they might occur.
The
licensing agreement between HSBC USA Inc. and STOXX is solely for their
benefit and not for the benefit of the owners of the notes or any other
third parties.
|
THE
PHLX HOUSING SECTOR
SM
INDEX
The
disclosure relating to the PHLX Housing Sector
SM
Index
contained on pages US3-26 through US3-29 relates only to the offering of notes
linked to a Reference Asset that is or includes the PHLX Housing Sector
SM
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the PHLX Housing Sector
SM
Index
or any of the stocks or other securities comprising the PHLX Housing Sector
SM
Index. All disclosures contained in this underlying supplement
regarding the PHLX Housing Sector
SM
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the PHLX
Housing Sector
SM
Index
or any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the PHLX Housing Sector
SM
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
PHLX Housing Sector
SM
Index
We have
derived all information contained in this underlying supplement regarding the
PHLX Housing Sector
SM
Index,
including, without limitation, its make-up, method of calculation and changes in
its components, from publicly available information. Such information
reflects the policies of, and is subject to change by The Nasdaq Stock Market,
Inc. (“Nasdaq”). We make no representation or warranty as to the
accuracy or completeness of such information. The PHLX Housing
Sector
SM
Index
is administered by The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). Neither
Nasdaq nor NASDAQ OMX has any obligation to continue to publish, and may
discontinue publication of, the PHLX Housing Sector
SM
Index.
The PHLX
Housing Sector
SM
Index
is designed to track the performance of a set of companies whose primary lines
of business are directly associated with the U.S. housing construction
market (the “PHLX Component Securities”). Currently, the PHLX Housing
Sector
SM
Index
composition includes residential builders, suppliers of aggregate, lumber and
other construction materials, manufactured housing and mortgage
insurers. The PHLX Housing Sector
SM
Index
is administered by Nasdaq and was set to an initial value of 250 on
January 2, 2002. Options commenced trading on the PHLX Housing
Sector
SM
Index
on July 17, 2002.
PHLX
Housing Sector
SM
Index
Composition and Maintenance
The PHLX
Housing Sector
SM
Index
is a modified capitalization-weighted index. The value of the PHLX
Housing Sector
SM
Index
equals the aggregate value of the index share weights (also known as the Index
Shares) of each of the PHLX Component Securities multiplied by each such
security’s last sale price, and divided by the divisor of the PHLX Housing
Sector
SM
Index. The divisor serves the purpose of scaling such aggregate value
to a lower order of magnitude which is more desirable for PHLX Housing
Sector
SM
Index
reporting purposes. If trading in a PHLX Component Stock on its
primary listing market is halted while the market is open, the most recent last
sale price for that security is used for all PHLX Housing Sector
SM
Index
computations until trading on such market resumes. Likewise, the most
recent last sale price is used if trading in a security is halted on its primary
listing market before the market is open.
The
formula for PHLX Housing Sector
SM
Index
value is Aggregate Adjusted Market Value/Divisor:
where the
divisor is (Market Value after Adjustments/Market Value before Adjustments) ×
Divisor before Adjustments
The PHLX
Housing Sector
SM
Index
is ordinarily calculated without regard to cash dividends on the PHLX Component
Securities.
The PHLX
Housing Sector
SM
Index
is calculated during the trading day and is disseminated once per second from
09:30:01 to 17:16:00 ET. The closing value of the PHLX Housing
Sector
SM
Index
may change up until 17:15:00 ET due to corrections to the last sale price of the
Index Securities.
Eligibility
PHLX
Housing Sector
SM
Index
eligibility is limited to specific security types only. The security
types eligible for the PHLX Housing Sector
SM
Index
include common stocks, ordinary shares, shares of beneficial interest or limited
partnership interests, and tracking stocks. Security types not
included in the PHLX Housing Sector
SM
Index
are ADRs, closed-end funds, convertible debentures, exchange traded funds,
preferred stocks, rights, warrants, units and other derivative
securities.
Initial
Security Eligibility Criteria (*)
To be
included in the PHLX Housing Sector
SM
Index,
a security must meet the following criteria:
|
·
|
a
security must be listed on the Nasdaq Stock Market, the New York Stock
Exchange, or NYSE Alternext US;
|
|
·
|
the
issuer of the security must be classified, as reasonably determined by
NASDAQ OMX, as a company whose primary business is associated with the
U.S. housing construction
market;
|
|
·
|
only
one class of security per issuer is
allowed;
|
|
·
|
the
security must have a market capitalization of at least
$100 million;
|
|
·
|
the
security must have traded at least 1.5 million shares in each of the
last six months;
|
|
·
|
the
security must have listed options on a recognized options market in the
U.S. or be eligible for listed-options trading on a recognized
options market in the U.S.;
|
|
·
|
the
security may not be issued by an issuer currently in bankruptcy
proceedings;
|
|
·
|
the
issuer of the security may not have entered into a definitive agreement or
other arrangement which would likely result in the security no longer
being Index eligible;
|
|
·
|
the
issuer of the security may not have annual financial statements with an
audit opinion that is currently withdrawn;
and
|
|
·
|
the
issuer of the security must have “seasoned” on a recognized market for at
least 6 months; in the case of spin-offs, the operating history of
the spin-off will be considered.
|
Component
Replacement Criteria (*)
In the
event that a security no longer meets the Continued Security Eligibility
Criteria (as defined below), it will be replaced with a security that meets all
of the Initial Security Eligibility Criteria and additional criteria which
follows. Securities eligible for inclusion will be ranked descending
by market value, current price and greatest percentage price change over the
previous six months. The security with the highest overall ranking
will be added to the index (if multiple securities have the same rank, the
security with the largest market capitalization will rank
higher) provided that the index then meets the following
criteria:
|
·
|
no
single PHLX Component Security is greater than 20% of the weight of the
PHLX Housing Sector
SM
Index and the top 5 PHLX Component Securities are not greater than 55% of
the weight of the PHLX Housing Sector
SM
Index;
|
|
·
|
no
more than 15% of the weight of the PHLX Housing Sector
SM
Index is composed of non-U.S. component securities that are not
subject to comprehensive surveillance
agreements.
|
In the
event that the highest-ranking security does not permit the PHLX Housing
Sector
SM
Index
to meet the above criteria, the next highest-ranking security will be selected
and the PHLX Housing Sector
SM
Index
criteria will again be applied to determine eligibility. The process
will continue until a qualifying replacement security is selected.
Continued
Security Eligibility Criteria (*)
To be
eligible for continued inclusion in the Index, an Index Security must meet the
following criteria:
|
·
|
the
security must be listed on the Nasdaq Stock Market, the New York Stock
Exchange, or NYSE Alternext US;
|
|
·
|
the
issuer of the security must be classified, as reasonably determined by
NASDAQ OMX, as a company whose primary business is in the
U.S. housing sector;
|
|
·
|
the
security must have a market capitalization of at least
$60 million;
|
|
·
|
the
security may not be issued by an issuer currently in bankruptcy
proceedings; and
|
|
·
|
the
issuer of the security may not have annual financial statements with an
audit opinion that is currently
withdrawn.
|
Continued
Index Eligibility Criteria (*)
In
addition to the security eligibility criteria, the PHLX Housing Sector
SM
Index
as a whole must meet the following criteria on a continual basis unless
otherwise noted:
|
·
|
no
single Index Security is greater than 25% of the weight of the PHLX
Housing Sector
SM
Index and the top 5 PHLX Component Securities are not greater than 60% of
the weight of the PHLX Housing Sector
SM
Index (measured semiannually the first trading day in January and
July);
|
|
·
|
no
more than 18% of the weight of the index is composed of non-U.S. PHLX
Component Securities that are not subject to comprehensive surveillance
agreements;
|
|
·
|
the
total number of PHLX Component Securities has not increased or decreased
by 33.33% of the PHLX Housing Sector
SM
Index and in no event will be less than
nine;
|
|
·
|
PHLX
Component Securities representing at least 95% of the weight of the PHLX
Housing Sector
SM
Index has a market capitalization of
$75 million;
|
|
·
|
PHLX
Component Securities representing at least 92% of the weight of the PHLX
Housing Sector
SM
Index and at least 82% of the total number of PHLX Component Securities
meet the security options eligibility
rules;
|
|
·
|
PHLX
Component Securities must have trading volume of at least 600,000 shares
for each of the last 6 months except that for each of the lowest
weighted PHLX Component Securities that in the aggregate account for no
more than 5% of the weight of the PHLX Housing Sector
SM
Index, trading volume must be at least 500,000 shares for each of the last
six months; and
|
|
·
|
the
lesser of the 5 highest weighted PHLX Component Securities or the highest
weighted PHLX Component Securities that in the aggregate represent at
least 30% of the total number of PHLX Component Securities each have had
an average monthly trading volume of at least 1,250,000 shares over the
past 6 months.
|
In the
event the PHLX Housing Sector
SM
Index
does not meet the criteria, the PHLX Housing Sector
SM
Index
composition will be adjusted to ensure that the index meets the
criteria. PHLX Component Securities that contribute to the PHLX
Housing Sector
SM
Index
not meeting the eligibility criteria may be removed. PHLX Component
Securities may be added and/or replaced according to the component replacement
rules to ensure compliance with the Continued Index Eligibility
Criteria.
PHLX
Housing Sector
SM
Index
Maintenance
Changes
in the price and/or Index Shares driven by corporate events such as stock
dividends, splits, and certain spin-offs will be adjusted on the
ex-date. If the change in total shares outstanding arising from other
corporate actions is greater than or equal to 10.00%, the change will be made as
soon as practicable. Otherwise, if the change in total shares
outstanding is less than 10.00%, then all such changes are accumulated and made
effective on a quarterly basis after the close of trading on the third Friday in
each of March, June, September, and December. The Index Shares are
derived from the security’s total shares outstanding. The Index
Shares are adjusted by the same percentage amount by which the total shares
outstanding have changed. In the case of a special cash dividend, a
determination is made on an individual basis whether to make a change to the
price of a PHLX Component Security in accordance with its index dividend
policy. If it is determined that a change will be made, it will
become effective on the ex-date and advance notification will be
made.
Ordinarily,
whenever there is a change in Index Shares, a change in a PHLX Component
Security or a change to the price of a PHLX Component Security due to spin-off,
rights issuances or special cash dividends, the divisor is adjusted to ensure
that there is no discontinuity in the value of the PHLX Housing Sector
SM
Index,
which might otherwise be caused by any such change. All changes are
announced in advance and will be reflected in the PHLX Housing Sector
SM
Index
prior to market open on the effective date.
Index
Rebalancing
The PHLX
Housing Sector
SM
Index
employs a modified market capitalization-weighting methodology. At
each quarter, the PHLX Housing Sector
SM
Index
is rebalanced such that the maximum weight of any PHLX Component Security will
not exceed 15% and no more than 2 securities will be at the cap. Any
security then in excess of 8% will be capped at 8%. The aggregate
amount by which all securities over 15% and 8% is reduced will be redistributed
proportionally across the remaining PHLX Component Securities. After
redistribution, if any other PHLX Component Security then exceeds 8%, the PHLX
Component Security is set to 8% of the PHLX Housing Sector
SM
Index
and the redistribution is repeated to derive the final weights.
The
modified market capitalization-weighted methodology is applied to the
capitalization of each PHLX Component Security, using the last sale price of the
security at the close of trading on the first Friday in March, June, September,
and December and after applying quarterly changes to the total shares
outstanding. Index Shares are then calculated multiplying the weight
of the security by the new market value of the PHLX Housing Sector
SM
Index
and dividing the modified market capitalization for each PHLX Component Security
by its corresponding last sale price. The changes become effective
after trading on the third Friday in March, June, September, and
December.
In
administering the PHLX Housing Sector
SM
Index,
NASDAQ OMX will exercise reasonable discretion as it deems
appropriate.
License
Agreement with the Corporations (as defined below)
“PHLX
Housing Sector
SM
” and
“HGX
SM
” are
service marks of the Philadelphia Stock Exchange, Inc. and have been licensed
for use by HSBC USA Inc.
PHLX
Housing Sector
SM
Index
(HGX) (“Index”) is not sold or promoted by Philadelphia Stock Exchange, Inc.
(“PHLX”). PHLX makes no representation or warranty, express or
implied, to the owners of the Index or any member of the public regarding the
advisability of investing in securities generally or in the Index particularly
or the ability of the Index to track market performance. PHLX’s only
relationship to Licensee is the licensing of certain names and marks and of the
Index, which is determined, composed and calculated without regard to the
Licensee. PHLX has no obligation to take the needs of the Licensee or
the owners of the Index into consideration in determining, composing or
calculating the Index. PHLX is not responsible for and has not
participated in any determination or calculation made with respect to the
issuance or redemption of the Product. PHLX has no obligation or
liability in connection with the administration, purchase, sale, marketing,
promotion or trading of the Index or Product.
THE
TOPIX
®
INDEX
The
disclosure relating to the TOPIX
®
Index
contained on pages US3-30 through US3-32 relates only to the offering of notes
linked to a Reference Asset that is or includes the TOPIX
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the TOPIX
®
Index or
any of the stocks or other securities comprising the TOPIX
®
Index. All disclosures contained in this underlying supplement
regarding the TOPIX
®
Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
TOPIX
®
Index or
any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the TOPIX
®
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
TOPIX
®
Index
We have
derived all information relating to the TOPIX
®
Index
including, without limitation, its make-up, performance, method of calculation
and changes in its components, from publicly available sources. That
information reflects the policies of and is subject to change by, the Tokyo
Stock Exchange, Inc. (the “TSE”). TSE is under no obligation to
continue to publish, and may discontinue or suspend the publication of the
TOPIX
®
Index at
any time. We have not independently verified such
information. We have not confirmed the accuracy or completeness of
the information derived from these public sources.
TSE
publishes the TOPIX
®
Index
The
TOPIX
®
Index
was developed by the TSE. The TSE is responsible for calculating and
publishing the TOPIX
®
Index,
and can add, delete or substitute the stocks underlying the TOPIX
®
Index or
make other methodological changes that could change the value of the TOPIX
®
Index. Publication of the TOPIX
®
Index
began on July 1, 1969, with a base point of 100 as of the base date of
January 4, 1968.
Calculation of the TOPIX
®
Index
The
TOPIX
®
Index is
computed and published every second via TSE’s Market Information System, and is
reported to securities companies across Japan and available worldwide through
computerized information networks.
The
component stocks of the TOPIX
®
Index
consist of all domestic common stocks listed on the First Section of the
TSE. Additions to THE component stocks can occur as a result of
assignments from the TSE Second Section and alteration of listing markets from
the Mothers market of the TSE, with such changes taking effect one business day
before the last business day of the month after such assignment or alternation,
as applicable; (2) through the initial listing of a company (directly or
via another stock exchange), with such changes taking effect one business day
before the last business day of the month after such initial listing; or
(3) through the initial listing of a new company created through, among
other things, a stock swap, stock transfer or merger, with such changes taking
effect one business day before the listing date. Deletions of
constituents are conducted due to (1) de-listing due to a stock-swap or the
like when the surviving company re-lists with the TSE, with such changes taking
effect one business day before the initial listing date of the new company
(normally two business days after the de-listing date); (2) de-listing of a
company for reasons other than a stock-swap or the like, with such changes
taking effect one business day before the de-listing date; (3) designation
of securities to be de-listed, with such changes taking effect three business
days after such designation; or (4) reassignment of the listing to the
Second Section of the TSE from the First Section of the TSE, with such changes
taking effect one business day before such reassignment.
The
TOPIX
®
Index is
a free float-adjusted market capitalization-weighted index.
The
TOPIX
®
Index is
not expressed in Japanese Yen, but is presented in terms of points (as a decimal
figure) rounded off to the nearest one-hundredth. The TOPIX
®
Index is
calculated by multiplying 100 by the figure obtained by dividing the current
free-float adjusted market value (the current market price per share at the time
of the index calculation multiplied by the number of free-float adjusted common
shares listed on the First Section of the TSE at the same instance) (the
“Current Market Value”) by the base market value (i.e., the Current Market Value
on the base date) (the “Base Market Value”).
The
calculation of the TOPIX
®
Index
can be represented by the following formula:
Index
=
|
Current
Market Value
|
x
100
|
Base
Market Value
|
In order
to maintain continuity, the Base Market Value is adjusted from time to time to
ensure that it reflects only price movements resulting from auction market
activity, and to eliminate the effects of other factors and prevent any
instantaneous change or discontinuity in the level of the TOPIX
®
Index. Such factors include, without limitation: new
listings, delistings and transfer of listed securities from the First Section to
the Second Section of the TSE.
The
formula for the adjustment is as follows:
Adjusted
Market Value on Adjustment Date
|
=
|
(Adjusted
Market Value on Adjustment Date ± Adjustment Amount)
|
Base
Market Value before adjustment
|
Base
Market Value after adjustment
|
Where
Adjustment Amount is equal to the changes in the number of shares included in
the calculation of the TOPIX
®
Index
multiplied by the price of those shares used for the purposes of the
adjustment.
Therefore,
New
Base Market Value
|
=
|
Old
Base Market Value x (Adjusted Market Value on Adjustment Date ± Adjustment
Amount)
|
Adjusted
Market Value on Adjustment Date
|
The Base
Market Value remains at the new value until a further adjustment is necessary as
a result of another change. As a result of such change affecting the
Current Market Value or any stock underlying the TOPIX
®
Index,
the Base Market Value is adjusted in such a way that the new value of the
TOPIX
®
Index
will equal the level of the TOPIX
®
Index
immediately prior to such change.
No
adjustment is made to the Base Market Value, however, in the case of events such
as stock splits or decreases in capital without compensation, which
theoretically do not affect market value.
License
Agreement with TSE:
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
the Tokyo Stock Exchange, Inc. whereby it, in exchange for a fee, is permitted
to use the TPX in connection with certain securities, including the
notes. HSBC is not affiliated with the Tokyo Stock Exchange, Inc.;
the only relationship between the Tokyo Stock Exchange, Inc. and HSBC is any
licensing of the use of the TOPIX indices and trademarks relating to
them.
The
license agreement between the Tokyo Stock Exchange, Inc. and HSBC or one of its
affiliates provides that the following disclaimer must be set forth
herein:
(i)
The TOPIX
Index Value and the TOPIX Index Marks are subject to the rights owned by the
Tokyo Stock Exchange, Inc. and the Tokyo Stock Exchange, Inc. owns all rights
relating to the TPX such as calculation, publication and use of the TOPIX Index
Value and relating to the TOPIX Index Marks.
(ii)
The Tokyo
Stock Exchange, Inc. shall reserve the rights to change the methods of
calculation or publication, to cease the calculation or publication of the TOPIX
Index Value or to change the TOPIX Index Marks or cease the use
thereof.
(iii)
The Tokyo
Stock Exchange, Inc. makes no warranty or representation whatsoever, either as
to the results stemmed from the use of the TOPIX Index Value and the TOPIX Index
Marks or as to the figure at which the TOPIX Index Value stands on any
particular day.
(iv)
The Tokyo
Stock Exchange, Inc. gives no assurance regarding accuracy or completeness of
the TOPIX Index Value and data contained therein. Further, the Tokyo
Stock Exchange, Inc. shall not be liable for the miscalculation, incorrect
publication, delayed or interrupted publication of the TOPIX Index
Value.
(v)
No notes are
in any way sponsored, endorsed or promoted by the Tokyo Stock Exchange,
Inc.
(vi)
The Tokyo
Stock Exchange, Inc. shall not bear any obligation to give an explanation of the
notes or an advice on investments to any purchaser of the notes or to the
public.
(vii)
The Tokyo
Stock Exchange, Inc. neither selects specific stocks or groups thereof nor takes
into account any needs of the issuing company or any purchaser of the notes for
calculation of the TOPIX Index Value.
(viii)
Including but
not limited to the foregoing, the Tokyo Stock Exchange, Inc. shall not be
responsible for any damage resulting from the issue and sale of the
notes.
“TOPIX
®
” and
“TOPIX Index
®
” are
trademarks of the Tokyo Stock Exchange, Inc. and prior to the settlement date we
expect them to be licensed for use by HSBC or one of its
affiliates. The notes have not been and will not be passed on by the
TSE as to their legality or suitability. The notes will not be
issued, endorsed, sold or promoted by the TSE. THE TSE MAKES NO
WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE NOTES.
THE
NASDAQ-100 INDEX
®
The
disclosure relating to the NASDAQ-100 Index
®
contained on page US3-33 through US3-40 relates only to the offering of
notes linked to a Reference Asset that is or includes the NASDAQ-100 Index
®
.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the NASDAQ-100 Index
®
or any
of the stocks or other securities comprising the NASDAQ-100 Index
®
. All
disclosures contained in this underlying supplement regarding the NASDAQ-100
Index
®
,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
NASDAQ-100 Index
®
or any
other constituent included in any Reference Asset contained in this underlying
supplement. You should make your own investigation into the
NASDAQ-100 Index
®
.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
NASDAQ-100 Index
®
We have
derived all information regarding the NASDAQ-100 Index
®
,
including, without limitation, its make-up, method of calculation and changes in
its components, from publicly available information. Such information
reflects the policies of, and is subject to change by The Nasdaq Stock Market,
Inc. (“Nasdaq”). We make no representation or warranty as to the
accuracy or completeness of such information. The NASDAQ-100
Index
®
was developed by Nasdaq and is calculated, maintained and published by
The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). Neither Nasdaq nor NASDAQ
OMX has any obligation to continue to publish, and may discontinue publication
of, the NASDAQ-100 Index
®
.
The
NASDAQ-100 Index
®
is a
modified market capitalization-weighted index of 100 of the largest stocks of
non-financial companies listed on The Nasdaq Global Market tier of The NASDAQ
Stock Market. The NASDAQ-100 Index
®
, which
includes companies across a variety of major industry groups, was launched on
January 31, 1985, with a base index value of 250.00. On
January 1, 1994, the base index value was reset to
125.00. Current information regarding the market value of the
NASDAQ-100 Index
®
is
available from Nasdaq as well as numerous market information
services. The NASDAQ-100 Index
®
is
reported by Bloomberg L.P. under the ticker symbol “NDX.”
The
NASDAQ-100 Index
®
share
weights of the component securities of the NASDAQ-100 Index
®
at any
time are based upon the total shares outstanding in each of those securities and
are additionally subject, in certain cases, to
rebalancing. Accordingly, each underlying stock’s influence on the
level of the NASDAQ- 100 Index
®
is
directly proportional to the value of its NASDAQ-100 Index
®
share
weight.
Calculation
of the NASDAQ-100 Index
®
At any
moment in time, the value of the NASDAQ-100 Index
®
equals
the aggregate value of the then-current NASDAQ-100 Index
®
share
weights of each of the NASDAQ-100 Index
®
component securities, which are based on the total shares outstanding of
each such NASDAQ-100 Index
®
component security, multiplied by each such security’s respective last
sale price on The NASDAQ Stock Market (which may be the official closing price
published by The NASDAQ Stock Market), and divided by a scaling factor (the
“divisor”), which becomes the basis for the reported NASDAQ-100 Index
®
value. The divisor serves the purpose of scaling such
aggregate value (otherwise in the trillions) to a lower order of magnitude which
is more desirable for NASDAQ-100 Index
®
reporting purposes.
Underlying
Stock Eligibility Criteria and Annual Ranking Review
Initial
Eligibility Criteria
To be
eligible for initial inclusion in the NASDAQ-100 Index
®
, a
security must be listed on The NASDAQ Stock Market and meet the following
criteria:
|
·
|
the
security’s U.S. listing must be exclusively on the NASDAQ Global
Select Market or the NASDAQ Global Market (unless the security was dually
listed on another U.S. market prior to January 1, 2004 and has
continuously maintained that
listing);
|
|
·
|
the
security must be of a non-financial
company;
|
|
·
|
the
security may not be issued by an issuer currently in bankruptcy
proceedings;
|
|
·
|
the
security must have an average daily trading volume of at least 200,000
shares;
|
|
·
|
if
the security is of a foreign issuer (a foreign issuer is determined based
on its country of organization), it must have listed options on a
recognized market in the United States or be eligible for listed-options
trading on a recognized options market in the United
States;
|
|
·
|
only
one class of security per issuer is
allowed;
|
|
·
|
the
issuer of the security may not have entered into a definitive agreement or
other arrangement which would likely result in the security no longer
being NASDAQ-100 Index
®
eligible;
|
|
·
|
the
issuer of the security may not have annual financial statements with an
audit opinion that is currently
withdrawn;
|
|
·
|
the
issuer of the security must have “seasoned” on the NASDAQ Stock Market or
another recognized market (generally, a company is considered to be
seasoned if it has been listed on a market for at least two years; in the
case of spin-offs, the operating history of the spin-off will be
considered); and
|
|
·
|
if
the security would otherwise qualify to be in the top 25% of the
securities included in the NASDAQ-100 Index
®
by
market capitalization for the six prior consecutive month-ends, then a
one-year “seasoning” criterion would
apply.
|
Continued
Eligibility Criteria
In
addition, to be eligible for continued inclusion in the NASDAQ-100 Index
®
the
following criteria apply:
|
·
|
the
security’s U.S. listing must be exclusively on the NASDAQ Global
Select Market or the NASDAQ Global Market (unless the security was dually
listed on another U.S. market prior to January 1, 2004 and has
continuously maintained that
listing);
|
|
·
|
the
security must be of a non-financial
company;
|
|
·
|
the
security may not be issued by an issuer currently in bankruptcy
proceedings;
|
|
·
|
the
security must have an average daily trading volume of at least 200,000
shares as measured annually during the ranking review process described
below;
|
|
·
|
if
the security is of a foreign issuer, it must have listed options on a
recognized market in the United States or be eligible for listed-options
trading on a recognized options market in the United States, as measured
annually during the ranking review
process;
|
|
·
|
the
security must have an adjusted market capitalization equal to or exceeding
0.10% of the aggregate adjusted market capitalization of the NASDAQ-100
Index
®
at
each month-end. In the event a company does not meet this
criterion for two consecutive month-ends, it will be removed from the
NASDAQ-100 Index
®
effective after the close of trading on the third Friday of the
following month; and
|
|
·
|
the
issuer of the security may not have annual financial statements with an
audit opinion that is currently
withdrawn.
|
These
NASDAQ-100 Index
®
eligibility criteria may be revised from time to time by Nasdaq without
regard to the notes.
Annual
Ranking Review
The
NASDAQ-100 Index
®
securities are evaluated on an annual basis, except under extraordinary
circumstances which may result in an interim evaluation, as follows (this
evaluation is referred to herein as the “Ranking Review”). Securities
listed on The NASDAQ Stock Market which meet the applicable eligibility criteria
are ranked by market value. NASDAQ-100 Index
®
-eligible securities which are already in the NASDAQ-100 Index
®
and
which are ranked in the top 100 eligible securities (based on market
capitalization) are retained in the NASDAQ-100 Index
®
. A
security that is ranked 101 to 125 is also retained,
provided
that such security
was ranked in the top 100 eligible securities as of the previous Ranking
Review. Securities not meeting such criteria are
replaced. The replacement securities chosen are those NASDAQ-100
Index
®
-eligible securities not currently in the NASDAQ-100 Index
®
that
have the largest market capitalization.
Generally,
the list of annual additions and deletions is publicly announced via a press
release in the early part of December. Replacements are made
effective after the close of trading on the third Friday in
December. Moreover, if at any time during the
year, a
NASDAQ-100 Index
®
security
is determined by Nasdaq to become ineligible for continued inclusion in the
NASDAQ-100 Index
®
, the
security will be replaced with the largest market capitalization security not
currently in the NASDAQ-100 Index
®
and
meeting the NASDAQ-100 Index
®
eligibility criteria listed above.
Index
Maintenance
In
addition to the Ranking Review, the securities in the NASDAQ-100 Index
®
are
monitored every day by Nasdaq with respect to changes in total shares
outstanding arising from secondary offerings, stock repurchases, conversions or
other corporate actions. Nasdaq has adopted the following quarterly
scheduled weight adjustment procedures with respect to those
changes. If the change in total shares outstanding arising from a
corporate action is greater than or equal to 5.0%, that change will be made to
the NASDAQ-100 Index
®
as soon
as practical, normally within ten days of such corporate
action. Otherwise, if the change in total shares outstanding is less
than 5.0%, then all those changes are accumulated and made effective at one time
on a quarterly basis after the close of trading on the third Friday in each of
March, June, September and December. In either case, the NASDAQ-100
Index
®
share weights for those underlying stocks are adjusted by the same
percentage amount by which the total shares outstanding have changed in those
NASDAQ-100 Index
®
securities. Ordinarily, whenever there is a change in the
NASDAQ-100 Index
®
share
weights, a change in a component security included in the NASDAQ-100 Index
®
, or a
change to the price of a component security due to spin-off, rights issuances or
special cash dividends, Nasdaq adjusts the divisor to ensure that there is no
discontinuity in the level of the NASDAQ-100 Index
®
which
might otherwise be caused by any of those changes. All changes will
be announced in advance and will be reflected in the NASDAQ-100 Index
®
prior to
market open on the effective date of such changes.
Index
Rebalancing
The
NASDAQ-100 Index
®
is
calculated under a “modified capitalization-weighted” methodology, which is a
hybrid between equal weighting and conventional capitalization
weighting. This methodology is expected
to: (1) retain in general the economic attributes of
capitalization weighting; (2) promote portfolio weight diversification
(thereby limiting domination of the NASDAQ-100 Index
®
by a few
large stocks); (3) reduce NASDAQ-100 Index
®
performance distortion by preserving the capitalization ranking of
companies; and (4) reduce market impact on the smallest NASDAQ-100
Index
®
securities from necessary weight rebalancings.
Under the
methodology employed, on a quarterly basis coinciding with Nasdaq’s quarterly
scheduled weight adjustment procedures, the NASDAQ-100 Index
®
securities are categorized as either “Large Stocks” or “Small Stocks”
depending on whether their current percentage weights (after taking into account
scheduled weight adjustments due to stock repurchases, secondary offerings or
other corporate actions) are greater than, or less than or equal to, the average
percentage weight in the NASDAQ-100 Index
®
(
i.e.
, as a 100-stock index,
the average percentage weight in the NASDAQ-100 Index
®
is
1.0%).
This
quarterly examination will result in a NASDAQ-100 Index
®
rebalancing if either one or both of the following two weight
distribution requirements are not met: (1) the current weight of
the single largest market capitalization component security must be less than or
equal to 24.0% and (2) the “collective weight” of those component
securities the individual current weights of which are in excess of 4.5%, when
added together, must be less than or equal to 48.0%. In addition,
Nasdaq may conduct a special rebalancing if it is determined necessary to
maintain the integrity of the NASDAQ-100 Index
®
.
If either
one or both of these weight distribution requirements are not met upon quarterly
review, or Nasdaq determines that a special rebalancing is required, a weight
rebalancing will be performed. First, relating to weight distribution
requirement (1) above, if the current weight of the single largest
component security exceeds 24.0%, then the weights of all Large Stocks will be
scaled down proportionately towards 1.0% by enough for the adjusted weight of
the single largest component security to be set to 20.0%. Second,
relating to weight distribution requirement (2) above, for those component
securities the individual current weights or adjusted weights in accordance with
the preceding step of which are in excess of 4.5%, if their “collective weight”
exceeds 48.0%, then the weights of all Large Stocks will be scaled down
proportionately towards 1.0% by just enough for the “collective weight,” so
adjusted, to be set to 40.0%.
The
aggregate weight reduction among the Large Stocks resulting from either or both
of the above rescalings will then be redistributed to the Small Stocks in the
following iterative manner. In the first iteration, the weight of the
largest Small Stock will be scaled upwards by a factor which sets it equal to
the average Index weight of 1.0%. The weights of each of the smaller
remaining Small Stocks will be scaled up by the same factor reduced in relation
to each stock’s relative ranking among the Small Stocks such that the smaller
the component security in the ranking, the less the scale-up of its
weight. This is intended to reduce the market impact of the weight
rebalancing on the smallest component securities in the NASDAQ-100 Index
®
.
In the
second iteration, the weight of the second largest Small Stock, already adjusted
in the first iteration, will be scaled upwards by a factor which sets it equal
to the average index weight of 1.0%. The weights of each of the
smaller remaining Small Stocks will be scaled up by this same factor reduced in
relation to each stock’s relative ranking among the Small Stocks such that, once
again, the smaller the component stock in the ranking, the less the scale-up of
its weight.
Additional
iterations will be performed until the accumulated increase in weight among the
Small Stocks exactly equals the aggregate weight reduction among the Large
Stocks from rebalancing in accordance with weight distribution requirement
(1) and/or weight distribution requirement (2).
Then, to
complete the rebalancing procedure, once the final percent weights of each of
the component securities are set, the NASDAQ-100 Index
®
share
weights will be determined anew based upon the last sale prices and aggregate
capitalization of the NASDAQ-100 Index
®
at the
close of trading on the Tuesday in the week immediately preceding the week of
the third Friday in March, June, September and December. Changes to
the NASDAQ-100 Index
®
share
weights will be made effective after the close of trading on the third Friday in
March, June, September and December, and an adjustment to the NASDAQ-100
Index
®
divisor will be made to ensure continuity of the NASDAQ-100 Index
®
.
Ordinarily,
new rebalanced weights will be determined by applying the above procedures to
the current NASDAQ-100 Index
®
share
weights. However, Nasdaq may from time to time determine rebalanced
weights, if necessary, by instead applying the above procedure to the actual
current market capitalization of the component securities. In those
instances, Nasdaq would announce the different basis for rebalancing prior to
its implementation.
License
Agreement
The notes
are not sponsored, endorsed, sold or promoted by The Nasdaq Stock Market, Inc.
(including its affiliates) (Nasdaq, with its affiliates, are referred to as the
Corporations). The Corporations have not passed on the legality or
suitability of, or the accuracy or adequacy of descriptions and disclosures
relating to, the Product(s). The Corporations make no representation
or warranty, express or implied to the owners of the Product(s) or any member of
the public regarding the advisability of investing in securities generally or in
the Product(s) particularly, or the ability of the Nasdaq-100 Index
®
to track
general stock market performance. The Corporations’ only relationship
to HSBC Bank plc (Licensee) is in the licensing of the Nasdaq-100
®
,
Nasdaq-100 Index
®
, and
Nasdaq trademarks or service marks, and certain trade names of the Corporations
and the use of the Nasdaq-100 Index
®
which is
determined, composed and calculated by Nasdaq without regard to Licensee or the
Product(s). Nasdaq has no obligation to take the needs of the
Licensee or the owners of the Product(s) into consideration in determining,
composing or calculating the Nasdaq-100 Index
®
. The
Corporations are not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Product(s) to be
issued or in the determination or calculation of the equation by which the
Product(s) is to be converted into cash. The Corporations have no
liability in connection with the administration, marketing or trading of the
Product(s).
THE
CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF
THE NASDAQ-100 INDEX
®
OR ANY
DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S), OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX
®
OR ANY
DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX
®
OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL,
INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
S&P
BRIC 40 INDEX
The
disclosure relating to the S&P BRIC 40 Index contained on pages US3-37
through US3-39 relates only to the offering of notes linked to a Reference Asset
that is or includes the S&P 500
®
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the S&P BRIC 40 Index or any of the stocks or other securities
comprising the S&P BRIC 40 Index. All disclosures contained in
this underlying supplement regarding the S&P BRIC 40 Index,
including its make-up, performance, method of calculation and changes in its
components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
S&P BRIC 40 Index or any other constituent included in any Reference Asset
contained in this underlying supplement. You should make your own
investigation into the S&P BRIC 40 Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
S&P BRIC 40 Index
We have
derived all information contained in this product underlying supplement
regarding the S&P BRIC 40 Index, including, without limitation, its make-up,
method of calculation and changes in its components, from publicly available
information. Such information reflects the policies of, and is
subject to change by, Standard & Poor’s Financial Services
llc
,
a subsidiary of The McGraw-Hill Companies, Inc. (“S&P”). We make
no representation or warranty as to the accuracy or completeness of such
information. The S&P BRIC 40 Index was developed by S&P and
is calculated, maintained and published by S&P. S&P has no
obligation to continue to publish, and may discontinue the publication of, the
S&P BRIC 40 Index.
The
S&P BRIC 40 Index (Bloomberg, L.P. index symbol “SBR”) is designed to
provide exposure to 40 leading companies in Brazil, Russia, India and China
through liquid stocks trading on developed market exchanges (specifically, the
Hong Kong Stock Exchange, the London Stock Exchange, Nasdaq and NYSE
Euronext). Publication of the S&P BRIC 40 Index began in June
2006, based on an initial value of 874.48 that was set on February 2,
2004.
The
S&P BRIC 40 Index employs a modified market capitalization weighting
scheme. All constituent companies must be members of the S&P/IFC
Investable (S&P/IFCI) index series for Brazil, Russia, India and China (the
“BRIC Countries”). The S&P/IFCI indices measure the returns of
emerging market stocks that are legally and practically available to foreign
investors. Constituents for the S&P/IFCI series are chosen based
on size, liquidity, and their legal and practical availability to foreign
institutional investors. The S&P/IFCI indices are calculated on a
daily basis for each country.
All
constituents of the S&P/IFCI country indices for the BRIC Countries comprise
the initial selection universe. All companies that do not have a
developed market listing are removed. Average three-month daily value
traded (“liquidity”) and float-adjusted market capitalization (“market cap”), as
of the reference date, are measured. All stocks with a market cap of
less than US$1 billion (the “Market Cap Threshold”) and/or liquidity of
less than US$5 million (the “Liquidity Threshold”) are
removed. If a company has multiple share classes, the share class
with the lower liquidity is removed. The remaining stocks are sorted
in decreasing order of their market cap, and the top 40 become S&P BRIC 40
Index members. In the rare event that fewer than 40 stocks qualify
for inclusion, S&P may modify the criteria to include multiple share classes
or reduce the market cap limit, in that order.
The
pricing of the S&P BRIC 40 Index members is taken from the stocks included
in the S&P BRIC 40 Index—specifically their developed market
listing. If a single stock is trading in multiple developed markets,
only the listing from the market with most liquidity is
considered. The price of each stock used in the daily S&P BRIC 40
Index level computation is the closing price from its respective
exchange. All calculations are made in
U.S. dollars. The S&P BRIC 40 Index is calculated in
U.S. dollars, with Reuters/WM London closing fix being used to convert the
local market prices to U.S. dollars.
S&P
BRIC 40 Index Calculation
Once the
constituent companies are identified, S&P utilizes a modified market
capitalization weighing scheme to determine the composition of the S&P BRIC
40 Index. At rebalancing, the starting weight of each stock is
proportional to its available market capitalization, which accounts for
available float and investment restrictions for foreign
investors. The methodology stipulates that, at rebalancing, no stock
can have a weight of more than 10% in the S&P BRIC 40 Index and the minimum
initial portfolio size that can be turned over in a single day (based on recent
trading volumes) cannot be lower than
US$600 million. Modifications are made to market cap weights, if
required, to reflect available float, reduce single stock concentration and
enhance index basket liquidity.
S&P
BRIC 40 Index Maintenance
The
S&P BRIC 40 Index is rebalanced once a year in December. The
annual rebalancing of the S&P BRIC 40 Index will be effective after the
market close on the third Friday of December. The reference date for
the data used in the review will be the third Friday of November. In
addition to the annual rebalancing, there will be a mid-year
review. A semi-annual rebalancing will occur only if three of the
biggest 30 stocks from the eligible universe are not in the S&P BRIC 40
Index at the mid-year review. There will not be a semi-annual
rebalancing in years when this condition is not satisfied. No
companies are added between rebalancings, but a company can be deleted during
that time due to corporate events such as mergers, acquisitions, takeovers or
delistings. The reference date for the data used in the mid-year
review will be mid-May, with a mid-year rebalancing being made, if necessary,
after the market close on the third Friday of June.
The
S&P BRIC 40 Index Committee maintains the S&P BRIC 40 Index, meeting as
often as needed. The S&P BRIC 40 Index Committee members are
full-time professionals of the S&P staff. At each meeting, the
S&P BRIC 40 Index Committee reviews pending corporate actions that may
affect S&P BRIC 40 Index constituents, statistics comparing the composition
of the indices to the market and any significant market events. In
addition, the S&P BRIC 40 Index Committee may revise the S&P BRIC 40
Index policy covering rules for selecting companies, share counts, the Liquidity
Threshold, the Market Cap Threshold, basket liquidity and maximum weight or
other matters. S&P considers information about changes to its
indices and related matters to be potentially market-moving and
material. Therefore, all S&P BRIC 40 Index Committee discussions
are confidential.
The table
below summarizes the types of S&P BRIC 40 Index maintenance adjustments and
indicates whether or not an S&P BRIC 40 Index Divisor adjustment is
required.
Type
of
Corporate
Action
|
Comments
|
Divisor
Adjustment
|
|
|
|
Spin-Off
|
No
weight change. The price is adjusted to Price of Parent Company
minus (Price of Spin-off company/Share Exchange Ratio). S&P
BRIC 40 Index shares change so that the company’s weight remains the same
as its weight before the spin-off.
|
No
|
|
|
|
Rights
Offering
|
The
price is adjusted thus: ([Ratio Received * Rights Price] +
[Ratio Held * Close Price]) / ([Ratio Received + Ratio Held] * Close
Price). S&P BRIC 40 Index Shares are changed
correspondingly so that there is no change in weight.
|
No
|
|
|
|
Stock
Split
|
S&P
BRIC 40 Index Shares are multiplied by and price is divided by the split
factor.
|
No
|
|
|
|
Share
Issuance or Reduction
|
None
|
No
|
|
|
|
Special
Dividends
|
Price
of the stock making the special dividend payment is reduced by the
per-share special dividend amount after the close of trading on the day
before ex-date.
|
Yes
|
|
|
|
Delisting
|
The
stock is removed. No replacements are made.
|
Yes
|
|
|
|
Merger
or Acquisition
|
If
the surviving company is already an index member, it is retained in the
index. If the surviving company does not belong to one of the
BRIC countries or maintain the exchange listing included in the S&P
BRIC 40 Index, it is removed. An announcement will be made in
other cases.
|
Yes,
if there is a
removal.
|
License
Agreement with Standard & Poor’s Financial Services
llc
(“S&P”)
HSBC has
entered into a nonexclusive license agreement providing for the license to it,
in exchange for a fee, of the right to use indices owned and published by
S&P in connection with some products, including the notes.
The notes
are not sponsored, endorsed, sold or promoted by Standard & Poor’s, a
division of The McGraw-Hill Companies, Inc. (“S&P”) or its third party
licensors. Neither S&P nor its third party licensors makes any
representation or warranty, express or implied, to the owners of the notes or
any member of the public regarding the advisability of investing in securities
generally or in the notes particularly or the ability of the S&P Bric 40
Index to track general stock market performance. S&P’s and it
third party licensors only relationship to the Licensee is the licensing of
certain trademarks and trade names of S&P and its third party licensors and
of the S&P Bric 40 Index which is determined, composed and calculated by
S&P without regard to the Licensee or the notes. S&P and its
third party licensors have no obligation to take the needs of the Licensee or
the owners of the notes into consideration in determining, composing or
calculating the S&P Indices. S&P and its third party
licensors are not responsible for and have not participated in the determination
of the timing of, prices at, or quantities of the notes to be issued or in the
determination or calculation of the equation by which the notes is to be
converted into cash. S&P and its third party licensors have no
obligation or liability in connection with the administration, marketing or
trading of the notes.
NEITHER
S&P NOR ITS THIRD PARTY LICENSORS GUARANTEE THE ADEQUACY, ACCURACY,
TIMELINESS OR COMPLETENESS OF THE S&P BRIC 40 INDEX OR ANY DATA INCLUDED
THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN
COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT
THERETO. S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS
SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS,
DELAYS OR INTERRUPTIONS THEREIN. S&P AND ITS THIRD PARTIES MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE NOTES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
BRIC 40 INDEX OR ANY DATA INCLUDED THEREIN. S&P AND ITS THIRD
PARTY LICENSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P BRIC 40 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P, ITS AFFILIATES OR THEIR THIRD PARTY LICENSORS HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT
LIMITED TO LOST PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT
LIABILITY OR OTHERWISE.
THE
NIKKEI 225 INDEX
The
disclosure relating to the Nikkei 225 Index contained on pages US3-40 through
US3-41 relates only to the offering of notes linked to a Reference Asset that is
or includes the Nikkei 225 Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the Nikkei 225 Index or any of the stocks or other securities
comprising the Nikkei 225 Index. All disclosures contained in this
underlying supplement regarding the Nikkei 225 Index, including its make-up,
performance, method of calculation and changes in its components, where
applicable, are derived from publicly available information. Neither
HSBC USA Inc. nor any of its affiliates assumes any responsibilities for the
adequacy or accuracy of information about the Nikkei 225 Index or any other
constituent included in any Reference Asset contained in this underlying
supplement. You should make your own investigation into the Nikkei
225 Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
Nikkei 225 Index
We have
derived all information regarding the Nikkei 225 Index contained in this
underlying supplement, including, without limitation, its make-up, method of
calculation and changes in its components, from publicly available
information. Such information reflects the policies of, and is
subject to change by Nikkei Inc. The Nikkei 225 Index was developed by Nikkei
Inc. and is calculated, maintained and published by Nikkei Digital Media, Inc.,
a wholly owned subsidiary of Nikkei Inc. We make no representation or warranty
as to the accuracy or completeness of such information. Nikkei Inc.
and Nikkei Digital Media, Inc. have no obligation to continue to publish, and
may discontinue publication of, the Nikkei 225 Index.
The
Nikkei 225 Index is a stock index that measures the composite price performance
of selected Japanese stocks. The Nikkei 225 Index, as of the date of
this underlying supplement, is based on 225 underlying stocks (the “Nikkei
Underlying Stocks”) trading on the Tokyo Stock Exchange (“TSE”) representing a
broad cross-section of Japanese industries. All 225 Nikkei Underlying
Stocks are stocks listed in the First Section of the TSE. Stocks
listed in the First Section of the TSE are among the most actively traded stocks
on the TSE. Nikkei Inc. rules require that the 75 most liquid issues
(one-third of the component count of the Nikkei 225 Index) be included in the
Nikkei 225 Index.
The 225
companies included in the Nikkei 225 Index are divided into six sector
categories: Technology, Financials, Consumer Goods, Materials,
Capital Goods/Others and Transportation and Utilities. These six
sector categories are further divided into 36 industrial classifications as
follows:
|
·
|
Technology
— Pharmaceuticals, Electrical Machinery, Automobiles, Precision Machinery,
Telecommunications;
|
|
·
|
Financials
— Banks, Miscellaneous Finance, Securities,
Insurance;
|
|
·
|
Consumer
Goods — Marine Products, Food, Retail,
Services;
|
|
·
|
Materials
— Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics,
Steel, Nonferrous Metals, Trading
House;
|
|
·
|
Capital
Goods/Others — Construction, Machinery, Shipbuilding, Transportation
Equipment, Miscellaneous Manufacturing, Real Estate;
and
|
|
·
|
Transportation
and Utilities — Railroads and Buses, Trucking, Shipping, Airlines,
Warehousing, Electric Power, Gas.
|
The
Nikkei 225 Index is a modified, price-weighted index (
i.e.
, a Nikkei Underlying
Stock’s weight in the Nikkei 225 Index is based on its price per share rather
than the total market capitalization of the issuer) which is calculated by
(i) multiplying the per share price of each Nikkei Underlying Stock by the
corresponding weighting factor for such Nikkei Underlying Stock (a “Weight
Factor”), (ii) calculating the sum of all these products and
(iii) dividing such sum by a divisor (the “Divisor”). The
Divisor was initially set at 225 for the date of May 16, 1949 using
historical numbers from May 16, 1949, the date on which the TSE was
reopened. The Divisor was 24.656 as of April 2, 2009 and is
subject to periodic adjustments as set forth below. Each Weight
Factor is computed by dividing ¥50 by the par value of the relevant Nikkei
Underlying Stock, so that the share price of each Nikkei Underlying Stock when
multiplied by its Weight Factor corresponds to a share price based on a uniform
par value of ¥50. The stock prices used in the calculation of the
Nikkei 225 Index are those reported by a primary market for the Nikkei
Underlying Stocks (currently the TSE). The level of the Nikkei 225
Index is calculated once per minute during TSE trading hours.
In order
to maintain continuity in the Nikkei 225 Index in the event of certain changes
due to non-market factors affecting the Nikkei Underlying Stocks, such as the
addition or deletion of stocks, substitution of stocks, stock splits or
distributions of assets to stockholders, the Divisor used in calculating the
Nikkei 225 Index is adjusted in a manner designed to prevent any instantaneous
change or discontinuity in the level of the Nikkei 225
Index. Thereafter, the Divisor remains at the new value until a
further adjustment is necessary as the result of another change. As a
result of such change affecting any Nikkei Underlying
Stock,
the Divisor is adjusted in such a way that the sum of all share prices
immediately after such change multiplied by the applicable Weight Factor and
divided by the new Divisor (
i.e.
, the level of the Nikkei
225 Index immediately after such change) will equal the level of the Nikkei 225
Index immediately prior to the change.
A Nikkei
Underlying Stock may be deleted or added by Nikkei Inc. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Nikkei Underlying
Stocks: (i) bankruptcy of the issuer, (ii) merger of the
issuer with, or acquisition of the issuer by, another company,
(iii) delisting of such stock, (iv) transfer of such stock to the
“Seiri-Post” because of excess debt of the issuer or because of any other reason
or (v) transfer of such stock to the Second Section. In
addition, a component stock transferred to the “Kanri-Post” (Posts for stocks
under supervision) is in principle a candidate for deletion. Nikkei
Underlying Stocks with relatively low liquidity, based on trading value and rate
of price fluctuation over the past five years, may be deleted by Nikkei Inc.
Upon deletion of a stock from the Nikkei Underlying Stocks, Nikkei Inc. will
select a replacement for such deleted Nikkei Underlying Stock in accordance with
certain criteria. In an exceptional case, a newly listed stock in the
First Section of the TSE that is recognized by Nikkei Inc. to be representative
of a market may be added to the Nikkei Underlying Stocks. In such a
case, an existing Nikkei Underlying Stock with low trading volume and deemed not
to be representative of a market will be deleted by Nikkei Inc.
A list of
the issuers of the Nikkei Underlying Stocks constituting the Nikkei 225 Index is
available from the Nikkei Economic Electronic Databank System and from the Stock
Market Indices Data Book published by Nikkei Inc. Nikkei Inc. may delete, add or
substitute any stock underlying the Nikkei 225 Index. Nikkei Inc.
first calculated and published the Nikkei 225 Index in 1970.
Property
Rights and Disclaimers
The
Nikkei Stock Average is an intellectual property of Nikkei Inc. “Nikkei”,
“Nikkei Stock Average”, and “Nikkei 225” are the service marks of Nikkei Inc.
Nikkei Inc. reserves all the rights, including copyright, to the Nikkei 225
Index. Nikkei Digital Media, Inc., a wholly owned subsidiary of
Nikkei Inc. calculates and disseminates the Nikkei 225 Index under exclusive
agreement with Nikkei Inc. Nikkei Inc. and Nikkei Digital Media Inc. are
collectively “Nikkei Index Sponsor”.
The notes
are not in any way sponsored, endorsed or promoted by the Nikkei Index
Sponsor. The Nikkei Index Sponsor does not make any warranty or
representation whatsoever, express or implied, either as to the results to be
obtained as to the use of the Nikkei 225 Index or the figure as which the Nikkei
225 Index stands at any particular day or otherwise. The Nikkei 225
Index is compiled and calculated solely by the Index
Sponsor. However, the Index Sponsor shall not be liable to any person
for any error in the Nikkei 225 Index and the Index Sponsor shall not be under
any obligation to advise any person, including a purchase or vendor of the
notes, of any error therein.
In
addition, the Nikkei Index Sponsor gives no assurance regarding any modification
or change in any methodology used in calculating the Nikkei 225 Index and is
under no obligation to continue the calculation, publication and dissemination
of the Nikkei 225 Index.
THE
FTSE™ 100 INDEX
The
disclosure relating to the FTSE
TM
100
Index contained on pages US3-42 through US3-43 relates only to the offering of
notes linked to a Reference Asset that is or includes the FTSE
TM
100
Index.
This
underlying supplement is not an offer to sell and it is not an offer to buy
interests in the FTSE
TM
100
Index or any of the stocks or other securities comprising the FTSE
TM
100
Index. All disclosures contained in this underlying supplement
regarding the FTSE
TM
100
Index, including its make-up, performance, method of calculation and changes in
its components, where applicable, are derived from publicly available
information. Neither HSBC USA Inc. nor any of its affiliates assumes
any responsibilities for the adequacy or accuracy of information about the
FTSE
TM
100
Index or any other constituent included in any Reference Asset contained in this
underlying supplement. You should make your own investigation into
the FTSE
TM
100
Index.
We urge
you to read the section “Sponsors or Issuers and Reference Asset” on
page S-37 in the prospectus supplement dated April 9,
2009.
The
FTSE
TM
100
Index
We have
derived all information regarding the FTSE
TM
100
Index, including, without limitation, its make-up, method of calculation and
changes in its components, from publicly available information. Such
information reflects the policies of, and is subject to change by FTSE Group
(“FTSE”), an independent company jointly owned by the London Stock Exchange plc
(the “LSE”) and The Financial Times Limited (“FT”). FTSE is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the FTSE
TM
100
Index at any time. We have not independently verified such
information. We have not confirmed the accuracy or completeness of
the information derived from these public sources.
FTSE
publishes the FTSE
TM
100
Index
The
FTSE
TM
100
Index is a market-capitalization weighted index calculated, published and
disseminated by FTSE, an independent company jointly owned by the LSE and
FT. The FTSE
TM
100
Index measures the composite performance of the 100 largest UK-domiciled blue
chip companies which pass screening for size and liquidity traded on the
LSE. As of May 28, 2010, the FTSE
TM
100
Index represents approximately 85.18% of the UK’s market capitalization
and 7.84% of the world’s equity market capitalization. The FTSE
TM
100
Index was launched on January 3, 1984 and has a base date of
December 30, 1983.
The
FTSE
TM
100
Index is calculated by (i) multiplying the per share price of each stock
included in the FTSE
TM
100
Index by the number of outstanding shares and by the free float factor
applicable to such stock, (ii) calculating the sum of all these products
(such sum referred to hereinafter as the “FTSE Aggregate Market Value”) as of
the starting date of the FTSE
TM
100
Index and (iii) dividing the FTSE Aggregate Market Value by a divisor which
represents the total issued share capital of the FTSE
TM
100
Index on the base date and which can be adjusted to allow changes in the issued
share capital of individual underlying stocks (including the deletion and
addition of stocks, the substitution of stocks, stock dividends and stock
splits) to be made without distorting the FTSE
TM
100
Index . Because of such capitalization weighting, movements in share
prices of companies with relatively larger market capitalization will have a
greater effect on the level of the entire FTSE
TM
100
Index than will movements in share prices of companies with relatively smaller
market capitalization.
The 100
stocks included in the FTSE
TM
100
Index (the “FTSE
TM
100
Index Underlying Stocks”) were selected from a reference group of stocks trading
on the LSE which were selected by excluding certain stocks that have low
liquidity based on public float, accuracy and reliability of prices, size and
number of trading days. The FTSE
TM
100
Index Underlying Stocks were selected from this reference group by selecting 100
stocks with the largest market value. A list of the issuers of the
FTSE
TM
100
Index Underlying Stocks is available from FTSE. The FTSE
TM
100
Index is reviewed quarterly by the FTSE Europe/Middle East/Africa Regional
Committee (the “Committee”) in order to maintain continuity in the
level. The FTSE
TM
100
Index Underlying Stocks may be replaced, if necessary, in accordance with
deletion/addition rules which provide generally for the removal and replacement
of a stock from the FTSE
TM
100
Index if such stock is delisted or its issuer is subject to a takeover offer
that has been declared unconditional or it has ceased, in the opinion of the
Chairman and Deputy Chairman of the Committee (or their nominated deputies), to
be a viable component of the FTSE
TM
100
Index . To maintain continuity, a stock will be added at the
quarterly review if it has risen to 90
th
place
or above and a stock will be deleted if at the quarterly review it has fallen to
111th place or below, in each case ranked on the basis of market
value.
License Agreement
with FTSE
TM
100
Index
HSBC or
one of its affiliates has entered into a non-exclusive license agreement with
FTSE, whereby HSBC and its affiliates and subsidiary companies and certain of
its affiliates, in exchange for a fee, will be permitted to use the FTSE
TM
100
Index , which is owned and published by FTSE, in connection with certain
products, including the notes.
Neither
FTSE, the LSE nor FT makes any representation or warranty, express or implied,
to the owners of the notes or any member of the public regarding the
advisability of investing in structured products generally or in the notes
particularly, or the ability of the FTSE
TM
100
Index to track general stock market performance. FTSE, the LSE, and
FT’s only relationship with HSBC is the
licensing
of certain trademarks and trade names of FTSE, respectively, without regard to
us or the notes. FTSE, the LSE and FT have no obligation to take the
needs of us or the holders of the notes into consideration in determining,
composing or calculating the FTSE
TM
100
Index Neither FTSE nor the LSE nor FT is responsible for and has not
participated in the determination of the timing, price or quantity of the notes
to be issued or in the determination or calculation of the amount due at
maturity of the notes. Neither FTSE nor the LSE nor FT has any
obligation or liability in connection with the administration, marketing or
trading of the notes.
The notes
are not in any way sponsored, endorsed, sold or promoted by FTSE, the LSE or FT,
and neither FTSE, the LSE nor FT makes any warranty or representation
whatsoever, expressly or impliedly, either as to the results to be obtained from
the use of the FTSE
TM
100
Index and/or the figure at which the said Component stands at any particular
time on any particular day or otherwise. The FTSE
TM
100
Index is compiled and calculated by FTSE. However, neither FTSE, the
LSE nor FT shall be liable (whether in negligence or otherwise) to any person
for any error in the FTSE
TM
100
Index and neither FTSE nor the LSE nor FT shall be under any obligation to
advise any person of any error therein.
“FTSE
®
”,
“FTSE
TM
”,
“FT-SE
®
” and
“Footsie
®
” are
trade marks of the London Stock Exchange Plc and The Financial Times Limited and
are used by FTSE International Limited under license. “All-World”,
“All-Share” and “All-Small” are trade marks of FTSE International
Limited.
OTHER
COMPONENTS
If the
Reference Asset includes a basket component not described in this underlying
supplement, the relevant free writing prospectus or pricing supplement or a
separate underlying supplement will provide additional information relating to
such basket component.
ADDITIONAL
TERMS OF THE NOTES
Discontinuance
or Modification of an Index
If the
reference sponsor (as defined below) of an index discontinues publication of or
otherwise fails to publish such index on any day on which such index is
scheduled to be published and the reference sponsor or another entity publishes
a successor or substitute index that the calculation agent determines to be
comparable to the discontinued index (the comparable index, the “successor
index”), then that successor index will be deemed to be such index for all
purposes relating to the notes, including for purposes of determining whether a
market disruption event exists. Upon any selection by the calculation
agent of a successor index, the calculation agent will furnish written notice to
us and the holders of the securities.
If such
index is discontinued or if the reference sponsor fails to publish the index and
the calculation agent determines that no successor index is available at that
time, then the calculation agent will determine the applicable official closing
level for such index using the same general methodology previously used by such
reference sponsor. The calculation agent will continue to make that
determination until the earlier of (i) the final valuation date or
(ii) a determination by the calculation agent that such index or a
successor index is available. In that case, the calculation agent
will furnish written notice to us and the holders of the notes.
If at any
time the method of calculating an index or a successor index, or the level
thereof, is changed in a material respect, or if an index or a successor index
is in any other way modified so that, in the determination of the calculation
agent, the level of that index does not fairly represent the level of such index
or successor index that would have prevailed had those changes or modifications
not been made, then the calculation agent will make the calculations and
adjustments as may be necessary in order to determine a level comparable to the
level that would have prevailed had those changes or modifications not been
made. In that case, the calculation agent will furnish written notice
to us and the holders of the notes.
Notwithstanding
these alternative arrangements, if the publication of an index is discontinued,
it may adversely affect the value of, and trading in, the notes.
“Reference
sponsor” means:
|
·
|
with
respect to the S&P 500
®
Index, Standard and Poor’s Financial Services
llc
,
a subsidiary of The McGraw-Hill Companies,
Inc.;
|
|
·
|
with
respect to the Russell 2000
®
Index, Russell Investment Group;
|
|
·
|
with
respect to the Dow Jones Industrial Average
SM
,
Dow Jones & Company, Inc.;
|
|
·
|
with
respect to the Hang Seng China Enterprises Index
®
,
Hang Seng Indexes Company Limited, a wholly owned subsidiary of Hang Seng
Bank;
|
|
·
|
with
respect to the Hang Seng
®
Index, Hang Seng Indexes Company Limited, a wholly owned subsidiary of
Hang Seng Bank;
|
|
·
|
with
respect to the Korea Stock Price Index 200, the Korea
Exchange;
|
|
·
|
with
respect to the MSCI Singapore Index
SM
,
MSCI Inc.;
|
|
·
|
with
respect to the MSCI Taiwan Index
SM
;
MSCI Inc.;
|
|
·
|
with
respect to the EURO STOXX 50
®
Index, STOXX Limited, which is owned by Deutsche Börse AG and SIX Group
AG;
|
|
·
|
with
respect to the PHLX Housing Sector
SM
Index, The NASDAQ OMX Group, Inc.;
|
|
·
|
with
respect to the TOPIX
®
Index, the Tokyo Stock Exchange,
Inc.;
|
|
·
|
with
respect to the NASDAQ-100 Index
®
,
The NASDAQ OMX Group, Inc.;
|
|
·
|
with
respect to the S&P BRIC 40 Index, Standard and Poor’s Financial
Services
llc
,
a subsidiary of The McGraw-Hill Companies,
Inc.;
|
|
·
|
with
respect to the Nikkei 225 Index, Nikkei Inc. together with Nikkei Digital
Media Inc.;
|
|
·
|
with
respect to the FTSE™ 100 Index, FTSE
Group;
|
|
·
|
with
respect to the MSCI EAFE
®
Index, MSCI Inc.; and
|
|
·
|
with
respect to the MSCI Emerging Markets Index, MSCI
Inc.
|
Market
Disruption Event
“Market
disruption event” with respect to an index that tracks the performance of equity
securities, which we refer to as an “equity index,” means any scheduled trading
day on which any relevant exchange or related exchange fails to open for trading
during its regular trading session or on which any of the following events has
occurred and is continuing which the calculation agent determines is
material:
(i) any
suspension of or limitation imposed on trading by any relevant exchange or
related exchanges or otherwise, (A) relating to any stocks or other
securities included in such index then constituting 20% or more of the level of
such index; or (B) in futures or options contracts relating to such index
on any related exchange; or
(ii) any
event (other than any event described in (iii) below) that disrupts or
impairs (as determined by the Calculation Agent) the ability of market
participants in general (A) to effect transactions in, or obtain market
values for, any stocks or other securities included in such index then
constituting 20% or more of the level of such index; or (B) to effect
transactions in, or obtain market values for, futures or options contracts
relating to such index on any applicable related exchange; or
(iii) the
closure, on any scheduled trading day, of any relevant exchange or any related
exchange relating to any stocks or other securities included in such index then
constituting 20% or more of the level of such index prior to its scheduled
closing time (unless the earlier closing time is announced by the relevant
exchange or related exchange at least one hour prior to the earlier of
(A) the actual closing time for the regular trading session on such
exchange; or (B) the submission deadline for orders to be entered into the
relevant exchange or related exchange for execution at the close of trading on
that day).
“Related
exchange” for an index means each exchange or quotation system or any successor
or temporary substitute for such exchange or quotation system (provided HSBC has
determined, for a substitute exchange or quotation system, that liquidity on
such substitute is comparable to liquidity on the original related exchange) and
where trading has a material effect (as determined by the calculation agent) on
the overall market for futures or options contracts relating to such
index.
“Relevant
exchange” for an index means the primary exchange or quotation system for any
stock or other security then included in such index.
“Scheduled
closing time” for an index means the scheduled weekday closing time of the
relevant exchange or related exchange, without regard to after hours or any
other trading outside of the regular trading session hours.
“Scheduled
trading day” for any index means any day on which all of the relevant exchanges
and related exchanges are scheduled to be open for their respective regular
trading sessions.
Valuation
Dates
For
notes where the Reference Asset is an equity index:
If any
date on which the valuation of an equity index is to be determined (a “valuation
date”) as set forth in the relevant free writing prospectus or pricing
supplement is not a scheduled trading day, then such valuation date will be the
next succeeding day that is a scheduled trading day. If a market
disruption event (as defined above) exists on a valuation date, then such
valuation date will be the next scheduled trading day for which there is no
market disruption event. If such market disruption event continues
for five consecutive scheduled trading days, then the fifth of such consecutive
scheduled trading days will nonetheless be the valuation date and the
calculation agent will determine, in its discretion, the index ending level on
that date by means of the formula for, and method of calculating of, the index
which applied just prior to the market disruption event, using the relevant
exchange’s traded or quoted price of each stock or other security in the index
(or if an event giving rise to a market disruption event has occurred with
respect to a stock or other security in the index and is continuing on that
fifth scheduled trading day, the calculation agent’s good faith estimate of the
value for that stock or other security). If a valuation date is
postponed, then each subsequent valuation date will also be postponed by an
equal number of scheduled trading days. If the final valuation date
is postponed, then the maturity date will also be postponed by the same number
of business days and no interest will be paid in respect of such
postponement.
For
notes where the Reference Asset is a basket of equity indices:
If a
valuation date as set forth in the relevant free writing prospectus or pricing
supplement is not a scheduled trading day for an index, then such valuation date
for such index will be the next succeeding day that is a scheduled trading day
for such index. For each index that makes up the Reference Asset, the
calculation agent will determine whether a market disruption event exists on a
valuation date, with respect to such index independent from other indices,
therefore a market disruption event may exist for certain indices and not exist
for other indices. If a market disruption event (as defined above)
exists for an index on a valuation date, then such valuation date for such
index, as applicable, will be the next scheduled trading day for which there is
no market disruption event for index. If such market disruption event
continues for five consecutive scheduled trading days, then that
fifth
scheduled
trading day will nonetheless be the valuation date for such index, as
applicable, and the index ending level with respect to such index will be
determined by means of the formula for and method of calculating such index
which applied just prior to the market disruption event, using the relevant
exchange’s traded or quoted price of each stock or other security in such index
(or if an event giving rise to a market disruption event has occurred with
respect to a stock or other security in such index and is continuing on that
fifth scheduled trading day, the calculation agent’s good faith estimate of the
value for that stock or other security). If a valuation date is
postponed for an index, then each subsequent valuation date for such index will
also be postponed by an equal number of scheduled trading days. For
the avoidance of doubt, if no market disruption event exists with respect to an
index on the originally scheduled valuation date, the determination of such
index’s index ending level will be made on the originally scheduled valuation
date, irrespective of the existence of a market disruption event with respect to
any other index. If the final valuation date for any index is
postponed, then the maturity date will also be postponed by the same number of
business days and no interest will be paid in respect of such
postponement.
For
notes where the Reference Asset includes any basket component that is not an
equity index:
The
relevant free writing prospectus or pricing supplement, the relevant product
supplement, if applicable, or another underlying supplement will set forth the
mechanism for determining the value of the Reference Asset on a valuation date
in the event of a market disruption event.