How Is Residual Value Calculated After Mandatory Call of CBBCs?

Q1: Is there always residual value after a CBBC is mandatorily called?

A: No, it depends on the type of CBBC:

• N-Class CBBCs: Call price = strike price. There is no residual value after mandatory call, and investors will lose their full invested principal.

• R-Class CBBCs: Call price is different from strike price. There may be residual value (or may be zero) after mandatory call. The actual amount is calculated in accordance with HKEX rules and the issuer’s terms.

Note: Most CBBCs traded in the Hong Kong market are R-Class.

Q2: What is the formula for calculating residual value of R-Class CBBCs?

A: Calculated separately for Bull and Bear CBBCs as follows:

• Residual Value of Bull CBBC = (Lowest Spot Price of the Underlying Asset during the Valuation Period − Strike Price) ÷ Entitlement Ratio

• Residual Value of Bear CBBC = (Strike Price − Highest Spot Price of the Underlying Asset during the Valuation Period) ÷ Entitlement Ratio

• Important Rule: If the calculation result is negative or zero, the residual value shall be zero. Investors will not be required to pay any additional fees.

Q3: What is the “Mandatory Call Valuation Period” and how is it determined?

A: The Valuation Period is the price observation period used to determine the settlement price after a mandatory call is triggered. The applicable rules are:

• If triggered during the Morning Trading Session: Valuation Period = remaining time of the morning session on the same day + afternoon trading session on the same day

• If triggered during the Afternoon Trading Session: Valuation Period = remaining time of the afternoon session on the same day + morning trading session of the next trading day

• If triggered on a Half-Day Trading Session: Valuation Period = remaining time of the session on the same day + morning trading session of the next trading day

Q4: Example of Residual Value Calculation for R-Class Bull CBBC

Scenario: You hold an R-Class Bull CBBC linked to a stock with a strike price of HKD 100 and an entitlement ratio of 100:1 (100 CBBCs = 1 board lot of the underlying stock). After the call is triggered, the lowest spot price of the underlying stock during the Valuation Period is HKD 102.

Calculation:

Residual Value of Bull CBBC = (102 − 100) ÷ 100 = HKD 0.02 per CBBC

If the lowest spot price during the Valuation Period ≤ strike price, residual value = 0.

Q5: Example of Residual Value Calculation for R-Class Bear CBBC

Scenario: You hold an R-Class Bear CBBC linked to an index with a strike price of 20,000 points and an entitlement ratio of 10,000:1. After the call is triggered, the highest spot price of the index during the Valuation Period is 19,800 points.

Calculation:

Residual Value of Bear CBBC = (20,000 − 19,800) ÷ 10,000 = HKD 0.02 per CBBC

If the highest spot price during the Valuation Period ≥ strike price, residual value = 0.