Additional Information about HSBC USA Inc. and the Securities
|
This pricing supplement
relates to one offering linked to the Index Fund identified on the cover page. As a purchaser of a Security, you will acquire an
investment instrument linked to the Index Fund. Although this offering relates to the Index Fund identified on the cover page,
you should not construe that fact as a recommendation of the merits of acquiring an investment linked to the Index Fund, or as
to the suitability of an investment in the Securities.
You should read this document
together with the ETF Underlying Supplement dated March 22, 2012, the prospectus dated March 22, 2012 and the prospectus supplement
dated March 22, 2012. If the terms of the Securities offered hereby are inconsistent with those described in the accompanying ETF
Underlying Supplement, prospectus supplement or prospectus, the terms described in this pricing supplement will control. You should
carefully consider, among other things, the matters set forth in “Key Risks” beginning on page 7 of this pricing supplement
and in “Risk Factors” beginning on page S-2 of the ETF Underlying Supplement and beginning on page S-3 of the prospectus
supplement, as the Securities involve risks not associated with conventional debt securities. You are urged to consult your investment,
legal, tax, accounting and other advisors before you invest in the Securities.
HSBC has filed a registration
statement (including the ETF Underlying Supplement, a prospectus and prospectus supplement) with the SEC for the offering to which
this pricing supplement relates. Before you invest, you should read the ETF Underlying Supplement, the prospectus and prospectus
supplement in that registration statement and other documents HSBC has filed with the SEC for more complete information about HSBC
and this offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, HSBC
Securities (USA) Inc. or any dealer participating in this offering will arrange to send you the ETF Underlying Supplement, prospectus
and prospectus supplement if you request them by calling toll-free 1-866-811-8049.
You may access these documents on the SEC web site at www.sec.gov
as follows:
|
¨
|
ETF Underlying Supplement dated March 22, 2012:
|
http://www.sec.gov/Archives/edgar/data/83246/000114420412016689/v306692_424b2.htm
|
¨
|
Prospectus supplement dated March 22, 2012:
|
http://www.sec.gov/Archives/edgar/data/83246/000104746912003151/a2208335z424b2.htm
|
¨
|
Prospectus dated March 22, 2012:
|
http://www.sec.gov/Archives/edgar/data/83246/000104746912003148/a2208395z424b2.htm
As used herein, references to “HSBC”, “we”,
“the issuer”, “us” and “our” are to HSBC USA Inc. References to the “ETF Underlying Supplement”
mean the ETF Underlying Supplement dated March 22, 2012, references to “prospectus supplement” mean the prospectus
supplement dated March 22, 2012 and references to “accompanying prospectus” mean the HSBC prospectus dated March 22,
2012.
The Securities may be suitable for you if:
¨
You
fully understand the risks inherent in an investment in the Securities, including the risk of loss of up to 90% of your Principal
Amount.
¨
You
can tolerate the loss of up to 90% of your Principal Amount and you are willing to make an investment that has similar downside
market risk as an investment in the Index Fund, subject to the Buffer at maturity.
¨
You
believe the Index Fund will appreciate over the term of the Securities and that the appreciation is unlikely to exceed the Maximum
Gain.
¨
You
understand and accept that your potential return is limited by the Maximum Gain and you are willing to invest in the Securities
based on the Maximum Gain of 23
%
.
¨
You
are willing to hold the Securities to maturity, a term of two years, and accept that there may be little or no secondary market
for the Securities.
¨
You
are willing to accept the risk and return profile of the Securities versus a conventional debt security with a comparable maturity
issued by HSBC or another issuer with a similar credit rating.
¨
You
do not seek current income from your investment and are willing to forgo dividends paid on the Index Fund.
¨
You
are willing to assume the credit risk of HSBC, as Issuer of the Securities, and understand that if HSBC defaults on its obligations
you may not receive any amounts due to you including any repayment of your principal.
|
|
The Securities may not be suitable for you if:
¨
You
do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of up to 90% of your
Principal Amount.
¨
You
cannot tolerate the loss of up to 90% of your Principal Amount and you are not willing to make an investment that has similar downside
market risk as an investment in the Index Fund, subject to the Buffer at maturity.
¨
You
seek an investment that provides a full return of principal at maturity.
¨
You
believe that the price of the Index Fund will decline during the term of the Securities, or you believe the Index Fund will appreciate
over the term of the Securities by a percentage that exceeds the Maximum Gain.
¨
You
seek an investment that has unlimited return potential without a cap on appreciation.
¨
You
are unwilling to invest in the Securities based on the Maximum Gain of 23
%
.
¨
You
prefer the lower risk, and therefore accept the potentially lower returns, of conventional debt securities with comparable maturities
issued by HSBC or another issuer with a similar credit rating.
¨
You
seek current income from this investment or prefer to receive the dividends paid on the Index Fund.
¨
You
are unable or unwilling to hold the Securities to maturity, a term of two years, or you seek an investment for which there will
be an active secondary market.
¨
You
are not willing or are unable to assume the credit risk associated with HSBC, as Issuer of the Securities, for any payment on the
Securities, including any repayment of principal.
|
The suitability considerations identified above are not exhaustive.
Whether or not the Securities are a suitable investment for you will depend on your individual circumstances, and you should reach
an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered
the suitability of an investment in the Securities in light of your particular circumstances. You should also review “Key
Risks” beginning on page 7 of this pricing supplement and the more detailed “Risk Factors” beginning on page
S-2 of the ETF Underlying Supplement and beginning on page S-3 of the accompanying prospectus supplement.
Issuer
|
|
HSBC USA Inc.
|
Issue Price
|
|
$10.00 per Security for brokerage account holders;
$9.80 per Security for certain advisory account holders.
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Principal Amount
|
|
$10 per Security. The Payment at Maturity will be based on the Principal Amount per Security.
|
Term
|
|
2 years
|
Trade Date
|
|
October 26, 2012
|
Settlement Date
|
|
October 31, 2012
|
Final Valuation Date
|
|
October 27, 2014, subject to adjustment as described under “Additional Terms of the Notes” in the accompanying ETF Underlying Supplement
|
Maturity Date
|
|
October 31, 2014, subject to adjustment as described under “Additional Terms of the Notes” in the accompanying ETF Underlying Supplement
|
Index Fund
|
|
iShares
®
MSCI Emerging Markets Index Fund (“EEM”)
|
Payment at Maturity (per $10 Principal Amount Security)
1
|
|
You will receive a cash payment at maturity linked to the performance
of the Index Fund during the term of the Securities.
If the Index Fund Return is greater than zero
, HSBC will
pay you an amount equal to the lesser of:
(A) $10 + ($10 × Index Fund Return
× Multiplier); and
(B) $10 + ($10 × Maximum Gain).
If the Index Fund Return is zero or negative, but the Index
Fund's percentage decline is not more than the Buffer,
HSBC will pay you the $10 Principal Amount.
If the Index Fund Return is negative and the Index Fund's
percentage decline is more than the Buffer
, HSBC will pay you an amount calculated as follows:
$10 + [$10 × (Index Fund Return + Buffer)]
In this case you will be exposed to the negative Index
Fund Return in excess of the Buffer and you could lose up to 90% of your Principal Amount.
|
Multiplier
|
|
2.00
|
Maximum Gain
|
|
23%.
|
Buffer
|
|
10%
|
Index Fund Return
|
|
Final Price – Initial Price
|
|
|
Initial Price
|
Initial Price
|
|
$41.24, which was t
he Official Closing Price of the Index Fund on the Trade Date.
|
Final Price
|
|
The Official Closing Price on the Final Valuation Date.
|
Official Closing Price
|
|
The Official Closing Price on any scheduled
trading day will be the closing price of the Index Fund as determined by the calculation agent and based on the value displayed
on Bloomberg Professional
®
service page “EEM UP
|
|
|
<EQUITY>”or any successor
page on the Bloomberg Professional
®
service or any successor service, as applicable.
|
CUSIP / ISIN
|
|
40433T802 / US40433T8027
|
Calculation Agent
|
|
HSBC USA Inc. or one of its affiliates.
|
Under these circumstances, you could lose up to 90% of
the Principal Amount of your Securities depending on how much the price of the Index Fund decreases over the term of the Securities.
Investing in the
Securities involves significant risks. You may lose up to 90% of your principal amount. Any payment on the Securities, including
any repayment of principal at maturity, is subject to the creditworthiness of HSBC. If HSBC were to default on its payment obligations,
you may not receive any amounts owed to you under the Securities and you could lose your entire investment.
1
Payment at maturity and any repayment of principal
is provided by HSBC USA Inc., and therefore is dependent on the ability of HSBC USA Inc. to satisfy its obligations when they come
due
An investment in the Securities
involves significant risks. Some of the risks that apply to the Securities are summarized here, but we urge you to read the more
detailed explanation of risks relating to the Securities generally in the “Risk Factors” section of the accompanying
ETF Underlying Supplement and the accompanying prospectus supplement. We also urge you to consult your investment, legal, tax,
accounting and other advisors before you invest in the Securities.
¨
Your
Investment in the Securities May Result in a Loss:
The Securities differ from ordinary debt securities in that HSBC
is not necessarily obligated to repay the full Principal Amount of the Securities at maturity. The return on the Securities at
maturity is linked to the performance of the Index Fund and will depend on whether, and the extent to which, the Index Fund Return
is positive or negative. If the Index Fund Return is negative and the Index Fund's percentage decline is more than 10%, HSBC will
pay you less than the Principal Amount at maturity, resulting in a loss of principal equal to the negative Index Fund Return in
excess of the 10% Buffer. Accordingly, you could lose up to 90% of the Principal Amount of the
Securities.
¨
Downside
Market Exposure is Buffered Only if You Hold the Securities to Maturity:
You should be willing to hold your Securities to maturity. If
you are able to sell your Securities in the secondary market, you may have to sell them at a loss even if the price of the Index
Fund has not declined by more than the Buffer.
¨
The
Multiplier Applies Only if You Hold the Securities to Maturity
: You should be willing to hold your Securities to maturity.
If you are able to sell your Securities prior to maturity in the secondary market, the price you receive will likely not reflect
the full economic value of the Multiplier or the Securities themselves, and the return you realize may be less than the Index Fund’s
return even if such return is positive and when magnified by the Multiplier does not exceed the Maximum Gain. You can receive the
full benefit of the Multiplier and earn the potential Maximum Gain on the Principal Amount from HSBC only if you hold your Securities
to maturity.
¨
Maximum
Gain:
You will not participate in any increase in the price of the Index Fund (as magnified by the Multiplier) beyond the Maximum
Gain of 23%, which could be significant.
YOU WILL NOT RECEIVE A RETURN ON THE PRINCIPAL AMOUNT GREATER THAN THE MAXIMUM GAIN
.
As a result, your return on the Securities is limited and could be less than a direct investment in the Index Fund.
¨
No
Interest Payments:
HSBC will not make any interest payments with respect to the Securities.
¨
The
Securities Are Subject to the Credit Risk of the Issuer:
The Securities are senior unsecured debt obligations of HSBC, and
are not, either directly or indirectly, an obligation of any third party. As further described in the accompanying prospectus supplement
and prospectus, the Securities will rank on par with all of the other unsecured and unsubordinated debt obligations of HSBC, except
such obligations as may be preferred by operation of law. Any payment to be made on the Securities, including any repayment of
principal at maturity, depends on the ability of HSBC to satisfy its obligations as they come due. As a result, the actual and
perceived creditworthiness of HSBC may affect the market value of the Securities and, in the event HSBC were to default on its
obligations, you may not receive any amounts owed to you under the terms of the Securities and you could lose your entire investment.
¨
The
Securities Lack Liquidity:
The Securities will not be listed on any securities exchange or quotation system. An affiliate of
HSBC intends to offer to repurchase the Securities in the secondary market but is not required to do so and may cease any such
market-making activities at any time without notice. Because other dealers are not likely to make a secondary market for the Securities,
the price at which you may be able to trade your Securities is likely to depend on the price, if any, at which an affiliate of
HSBC is willing to buy the Securities. The price, if any, will exclude any fees or commissions paid by brokerage account holders
when the Securities were purchased and therefore will generally be lower than such purchase price.
¨
Owning
the Securities Is Not the Same as Owning the Index Fund or the Stocks Comprising the Index Fund’s Underlying Index
: The
return on your Securities may not reflect the return you would realize if you actually owned the Index Fund or stocks included
in the Index Fund. As a holder of the Securities, you will not have voting rights or rights to receive dividends or other distributions
or other rights that holders of the Index Fund or the stocks included in the Index Fund would have.
¨
Price
Prior to Maturity:
The market price of the Securities will be influenced by many factors including the price of the Index Fund,
volatilities, dividends, the time remaining to maturity of the Securities, interest rates, geopolitical conditions, economic, political,
financial and regulatory or judicial events, and the creditworthiness of HSBC.
¨
There
Is Limited Anti-Dilution Protection
: For certain events affecting the Index Fund, such as stock splits or extraordinary dividends,
the Calculation Agent may make adjustments to the Final Price which may affect your Payment at Maturity. However, the Calculation
Agent is not required to make an adjustment for every corporate action which affects the Index Fund. If an event occurs that does
not require the Calculation Agent to adjust the price of the shares of the Index Fund, the market price of the securities and the
Payment at Maturity may be materially and adversely affected.
¨
An
Index Fund and its Underlying Index Are Different
: The performance of an index fund may not exactly replicate the
performance of its underlying index, because the index fund will reflect transaction costs and fees that are not included in
the calculation of its underlying index. It is also possible that an index fund may not fully replicate or may in certain
circumstances diverge significantly from the performance of its underlying index due to the temporary unavailability of
certain securities in the secondary market, the performance of any derivative instruments contained in the index fund or due
to other circumstances. An index fund may use futures contracts, options, swap agreements, currency forwards and repurchase
agreements in seeking performance that corresponds to its underlying index and in managing cash flows.
¨
The
Index Fund is Subject to Management Risk
: The Index Fund is not managed according to traditional methods of ‘‘active’’
investment management, which involve the buying and selling of securities based on economic, financial and market analysis and
investment judgment. Instead, the Index Fund, utilizing a ‘‘passive’’ or indexing investment approach,
attempts to approximate the investment performance of its underlying index by investing in a portfolio of securities that generally
replicate the underlying index.
Therefore, unless a specific security is removed from the underlying index, the Index Fund generally
would not sell a security because the security’s issuer was in financial trouble. In addition, the Index Fund is subject
to the risk that the investment strategy of the Index Fund’s investment advisor may not produce the intended results.
¨
The
Securities are Subject to Risks Associated with Foreign Securities Markets:
Because foreign companies or foreign equity securities
held by the Index Fund may be publicly traded in the applicable foreign countries and are denominated in currencies other than
U.S. dollars, investments in the Securities involve particular risks. For example, the foreign securities markets may be more volatile
than the U.S. securities markets, and market developments may affect these markets differently from the United States or other
securities markets. Direct or indirect government intervention to stabilize the securities markets outside the United States, as
well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public
availability of information concerning the foreign issuers may vary depending on their home jurisdiction and the reporting requirements
imposed by their respective regulators. In addition, the foreign issuers may be subject to accounting, auditing and financial reporting
standards and requirements that differ from those applicable to United States reporting companies.
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. 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
Securities are Subject to Emerging Markets Risk:
Investments in securities linked directly or indirectly to emerging market
equity securities, such as the Index Fund, involve many risks, including, but not limited to: economic, social, political, financial
and military conditions in the emerging market; regulation by national, provincial, and local governments; less liquidity and smaller
market capitalizations than exist in the case of many large U.S. companies; different accounting and disclosure standards; and
political uncertainties. Stock prices of emerging market companies may be more volatile and may be affected by market developments
differently than U.S. companies. Government interventions to stabilize securities markets and cross-shareholdings may affect prices
and volume of trading of the securities of emerging market companies. Economic, social, political, financial and military factors
could, in turn, negatively affect such companies’ value. These factors could include changes in the emerging market government’s
economic and fiscal policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable
to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of exchange
between currencies. Moreover, emerging market economies may differ favorably or unfavorably from the U.S. economy in a variety
of ways, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. You
should carefully consider the risks related to emerging markets, to which the Securities are highly susceptible, before making
a decision to invest in the Securities.
¨
Exchange
Rate Risk:
Because the Index Fund will hold stocks denominated in foreign currencies, changes in currency exchange rates may
negatively impact the return. The values of the foreign currencies may be subject to a high degree of fluctuation due to changes
in interest rates, the effects of monetary policies issued by the United States, foreign governments, central banks or supranational
entities, the imposition of currency controls or other national or international political or economic developments. Therefore,
exposure to exchange rate risk may result in reduced returns to the Index Fund.
¨
Potential
HSBC and UBS Financial Services Inc. Impact on Price:
Trading or transactions by HSBC, UBS Financial Services Inc., or any
of their respective affiliates in the stocks held by the Index Fund or in shares of the Index Fund, or in futures, options, exchange-traded
funds or other derivative products on the stocks held by the Index Fund or shares of the Index Fund, may adversely affect the market
value of the stocks held by the Index Fund or shares of the Index Fund, and, therefore, the market value of the Securities.
¨
Impact
of Fees and Hedging Costs on Secondary Market Prices:
Generally, the price of the Securities in the secondary market, if any,
is likely to be lower than the initial offering price since the issue price includes and the secondary market prices are likely
to exclude hedging costs, or for brokerage account holders, commissions and other compensation paid with respect to the Securities.
¨
Potential
Conflict of Interest:
HSBC and its affiliates may engage in business with the issuers of the stocks comprising an underlying
index, which may present a conflict between the obligations of HSBC and you, as a holder of the Securities. The Calculation Agent,
who is the issuer of the Securities, will determine the Payment at Maturity based on the observed Final Price. The Calculation
Agent can postpone the determination of the Final Price or the Maturity Date if a market disruption event occurs and is continuing
on the Final Valuation Date.
¨
Potentially
Inconsistent Research, Opinions or Recommendations by HSBC, UBS or Their Respective Affiliates:
HSBC, UBS Financial Services
Inc., or any of their respective affiliates may publish research, express opinions or provide recommendations that are inconsistent
with investing in or holding the Securities and such research, opinions or recommendations may be revised at any time. Any such
research, opinions or recommendations could affect the price of the stocks included in the underlying index or the price of the
Index Fund, and therefore, the market value of the Securities.
¨
The
Securities Are Not Insured by any Governmental Agency of the United States or any Other Jurisdiction
:
The Securities are not deposit liabilities or other obligations of a bank and are not insured by the Federal Deposit Insurance
Corporation or any other governmental agency or program of the United States or any other jurisdiction. An investment in the Securities
is subject to the credit risk of HSBC, and in the event that HSBC is unable to pay its obligations as they become due, you may
not receive the full Payment at Maturity of the Securities and you could lose your entire investment.
¨
Uncertain
Tax Treatment:
Significant aspects of the tax treatment of the Securities are uncertain. You should consult your tax advisor
about your own tax situation. See “What Are the Tax Consequences of the Securities” beginning on page 9.
Scenario Analysis and Examples at Maturity
|
The scenario analysis and
examples below are provided for illustrative purposes only and are purely hypothetical. They do not purport to be representative
of every possible scenario concerning increases or decreases in the price of the Index Fund relative to the Initial Price. We cannot
predict the Final Price or the Official Closing Price of the Index Fund on any other scheduled trading day. You should not take
the scenario analysis and these examples as an indication or assurance of the expected performance of the Index Fund. The numbers
set forth in the examples below have been rounded for ease of analysis. The following scenario analysis and examples illustrate
the Payment at Maturity for a $10.00 Principal Amount of Securities. The scenario analysis provides different hypothetical returns
depending on the purchase price of the Securities.
The following scenario analysis
and examples reflect the Initial Price of $41.24, Maximum Gain of 23.00%, Multiplier of 2.00 and the Buffer of 10.00%.
Example 1
—
The price of the
Index Fund increases from the Initial Price of $41.24 to a Final Price of $43.30.
The Index Fund Return is calculated as follows:
($43.30 – $41.24)
/ $41.24 = 5.00%
Because the Index Fund Return is greater than
zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00 + ($10.00 ×
Index Fund Return × Multiplier), and
(B) $10.00 + ($10.00 ×
Maximum Gain)
= the lesser of (A) $10.00
+ ($10.00 × 5.00% × 2.00) and (B) $10.00 + ($10.00 × 23.00%)
= the lesser of (A) $10.00
+ ($10.00 × 10.00%) and (B) $10.00 + ($10.00 × 23.00%)
= $10.00 + ($10.00 ×
10.00%)
= $10.00 + $1.00
= $11.00
Because the Index Fund Return of
5.00% multiplied by the Multiplier is less than the Maximum Gain of 23.00%, at maturity, for each $10.00 Principal
Amount of Securities, HSBC will pay you $11.00
, resulting in a total return on the Securities of 10.00% for purchases by
brokerage accounts at $10.00 per $10.00 Principal Amount and 12.24% for purchases by advisory accounts at $9.80 per $10.00 Principal
Amount.
Example 2
—
The price of the
Index Fund increases from an Initial Price of $41.24 to a Final Price of $49.49.
The Index Fund Return is calculated as follows:
($49.49 - $41.24) / $41.24
= 20.00%
Because the Index Fund Return is greater than
zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00 + ($10.00 ×
Index Fund Return × Multiplier), and
(B) $10.00 + ($10.00 ×
Maximum Gain)
= the lesser of (A) $10.00
+ ($10.00 × 20.00% × 2.00) and (B) $10.00 + ($10.00 × 23.00%)
= the lesser of (A) $10.00
+ ($10.00 × 40.00%) and (B) $10.00 + ($10.00 × 23.00%)
= $10.00 + ($10.00 ×
23.00%)
= $10.00 + $2.30
= $12.30
Because the Index Fund Return of 20.00% multiplied
by the Multiplier is greater than the Maximum Gain of 23.00%, at maturity, for each $10.00 Principal Amount of Securities, HSBC
will pay you $12.30, the maximum payment on the Securities, resulting in a total return on the Securities of 23.00% for purchases
by brokerage accounts at $10.00 per $10.00 Principal Amount and 25.51% for purchases by advisory accounts at $9.80 per $10.00 Principal
Amount.
Example 3
—
The price of the
Index Fund decreases from the Initial Price of $41.24 to a Final Price of $39.18.
The Index Fund Return is calculated as follows:
($39.18 - $41.24) / $41.24
= -5.00%
Because the Index Fund Return is negative, but
the Index Fund's percentage decline of 5% is less than the Buffer of 10%, at maturity, for each $10.00 Principal Amount of Securities,
HSBC will pay you the $10.00 Principal Amount, resulting in a zero percent return for purchases by brokerage accounts at $10.00
per $10.00 Principal Amount and a 2.04% return for purchases by advisory accounts at $9.80 per $10.00 Principal Amount.
Example 4
—
The level of the
Index Fund decreases from the Initial Price of $41.24 to a Final Price of $32.99.
The Index Fund Return is calculated as follows:
($32.99 - $41.24) / $41.24
= -20.00%
Because the Index Fund Return is negative and
the Index Fund's percentage decline of 20% is more than the Buffer of 10%, at maturity, for each $10.00 Principal Amount of Securities
HSBC will pay you an amount equal to the Principal Amount reduced by 1% for every 1% by which the Index Fund's percentage decline
exceeds the Buffer, and the Payment at Maturity is calculated as follows:
$10.00 + [$10.00 ×
(Index Fund Return + Buffer Amount)]
= $10.00 + [$10.00 ×
(-20.00% + 10.00%)]
= $10.00 + [$10.00 ×
-10.00%]
= $10.00 - $1.00
= $9.00
In this scenario, the total loss on the Securities
is 10.00% for purchases by brokerage accounts at $10.00 per $10.00 Principal Amount and 8.16% for purchases by advisory accounts
at $9.80 per $10.00 Principal Amount.
Hypothetical
Final Price
|
Hypothetical
Index Fund
Return
|
Multiplier
|
Hypothetical
Payment at
Maturity
|
Hypothetical
Return on
Securities
Purchased at
$10.00 (1)
|
Hypothetical Return
on Securities
Purchased at $9.80
by Advisory
Accounts(2)
|
$82.48
|
100.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$78.36
|
90.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$74.23
|
80.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$70.11
|
70.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$65.98
|
60.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$61.86
|
50.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$57.74
|
40.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$53.61
|
30.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$49.49
|
20.00%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$45.98
|
11.50%
|
2.00
|
$12.30
|
23.00%
|
25.51%
|
$45.36
|
10.00%
|
2.00
|
$12.00
|
20.00%
|
22.45%
|
$43.30
|
5.00%
|
2.00
|
$11.00
|
10.00%
|
12.24%
|
$42.27
|
2.50%
|
2.00
|
$10.50
|
5.00%
|
7.14%
|
$41.24
|
0.00%
|
N/A
|
$10.00
|
0.00%
|
2.04%
|
$40.21
|
-2.50%
|
N/A
|
$10.00
|
0.00%
|
2.04%
|
$39.18
|
-5.00%
|
N/A
|
$10.00
|
0.00%
|
2.04%
|
$37.12
|
-10.00%
|
N/A
|
$10.00
|
0.00%
|
2.04%
|
$32.99
|
-20.00%
|
N/A
|
$9.00
|
-10.00%
|
-8.16%
|
$28.87
|
-30.00%
|
N/A
|
$8.00
|
-20.00%
|
-18.37%
|
$24.74
|
-40.00%
|
N/A
|
$7.00
|
-30.00%
|
-28.57%
|
$20.62
|
-50.00%
|
N/A
|
$6.00
|
-40.00%
|
-38.76%
|
$16.50
|
-60.00%
|
N/A
|
$5.00
|
-50.00%
|
-48.98%
|
$12.37
|
-70.00%
|
N/A
|
$4.00
|
-60.00%
|
-59.18%
|
$8.25
|
-80.00%
|
N/A
|
$3.00
|
-70.00%
|
-69.39%
|
$4.12
|
-90.00%
|
N/A
|
$2.00
|
-80.00%
|
-79.59%
|
$0.00
|
-100.00%
|
N/A
|
$1.00
|
-90.00%
|
-89.80%
|
|
(1)
|
This “Hypothetical Return on Securities” is the number, expressed as a percentage, that results from comparing
the Payment at Maturity per $10 Principal Amount Security to the purchase price of $10 per Security for all brokerage account holders.
|
|
(2)
|
This “Hypothetical Return on Securities” is the number, expressed as a percentage, that results from comparing
the Payment at Maturity per $10 Principal Amount Security to the purchase price of $9.80 per Security, which is the purchase price
for investors in advisory accounts. See "Supplemental Plan of Distribution (Conflicts of Interest)" on page 11 of this
pricing supplement.
|
What Are the Tax Consequences of the Securities?
|
You should carefully consider,
among other things, the matters set forth in the section “U.S. Federal Income Tax Considerations” in the prospectus
supplement. The following discussion summarizes the U.S. federal income tax consequences of the purchase, beneficial ownership,
and disposition of each of the Securities. This summary supplements the section “U.S. Federal Income Tax Considerations”
in the prospectus supplement and supersedes it to the extent inconsistent therewith.
There are no statutory provisions,
regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities
with terms that are substantially the same as those of the Securities. Under one reasonable approach, the Securities should be
treated as pre-paid executory contracts with respect to the Index Fund. HSBC intends to treat the Securities consistent with this
approach and pursuant to the terms of the Securities, you agree to treat the Securities under this approach for all U.S. federal
income tax purposes. Subject to certain limitations described in the accompanying prospectus supplement, and based on certain factual
representations received from HSBC, in the opinion of HSBC’s special U.S. tax counsel, Morrison & Foerster LLP, it is
reasonable to treat the Securities in accordance with this approach. Pursuant to this approach, and subject to the discussion below
regarding “constructive ownership transactions,” HSBC does not intend to report any income or gain with respect to
the Securities prior to their maturity or an earlier sale or exchange and HSBC intends to treat any gain or loss upon maturity
or an earlier sale or exchange as long-term capital gain or loss, provided that you have held the Security for more than one year
at such time for U.S. federal income tax purposes. See "U.S. Federal Income Tax Considerations — Certain Equity-Linked
Notes — Certain Notes Treated as Forward Contracts or Executory Contracts" in the prospectus supplement for certain
U.S. federal income tax considerations applicable to Securities that are treated as pre-paid cash-settled executory contracts.
Despite the foregoing, U.S.
holders (as defined under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement) should
be aware that the Internal Revenue Code of 1986, as amended (the “Code”) contains a provision, Section 1260 of the
Code, which sets forth rules which are applicable to what it refers to as “constructive ownership transactions.” Due
to the manner in which it is drafted, the precise applicability of Section 1260 of the Code to any particular transaction is often
uncertain. In general, a “constructive ownership transaction” includes a contract under which an investor will receive
payment equal to or credit for the future value of any equity interest in a regulated investment company (such as shares of the
Index Fund (the “Underlying Shares”)). Under the “constructive ownership” rules, if an investment in a
Security is treated as a “constructive ownership transaction,” any long-term capital gain recognized by a U.S. holder
in respect of the Security will be recharacterized as ordinary income to the extent such gain exceeds the amount of “net
underlying long-term capital gain” (as defined in Section 1260 of the Code) of the U.S. holder determined as if the U.S.
holder had acquired the Underlying Shares on the original issue date of the Security at fair market value and sold them at fair
market value on the Maturity Date (if the Security was held until the Maturity Date) or on the date of sale or exchange of the
Security (if the Security was sold or exchanged prior to the Maturity Date) (the “Excess Gain”). In addition, an interest
charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have resulted
in gross income inclusion for the U.S. holder in taxable years prior to the taxable year of the sale, exchange or maturity of the
Security (assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange
or maturity of the Security).
Although the matter is not
clear, there exists a risk that an investment in a Security will be treated as a “constructive ownership transaction.”
If such treatment applies, it is not entirely clear to what extent any long-term capital gain recognized by a U.S. holder in respect
of a Security will be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any)
that would be recharacterized as ordinary income in respect of each Security will equal the excess of (i) any long-term capital
gain recognized by the U.S. holder in respect of such a Security over (ii) the “net underlying long-term capital gain”
such U.S. holder would have had if such U.S. holder had acquired a number of the Underlying Shares at fair market value on the
original issue date of such Security for an amount equal to the “issue price” of the Security and, upon the date of
sale, exchange or maturity of the Security, sold such Underlying Shares at fair market value (which would reflect the percentage
increase in the value of the Underlying Shares over the term of the Security). Accordingly, U.S. holders should consult their tax
advisors regarding the potential application of the “constructive ownership” rules.
HSBC will not attempt to
ascertain whether any of the entities whose stock is owned by the Index Fund would be treated as a passive foreign investment company
(“PFIC”) as defined for U.S. federal income tax purposes. If one or more of the entities whose stock is owned by the
Index Fund were so treated, certain adverse U.S. federal income tax consequences might apply. You should refer to information filed
with the SEC and other authorities by the entities whose stock is owned by the Index Fund and consult your tax advisor regarding
the possible consequences to you if one or more of the entities whose stock is owned by the Index Fund is or becomes a PFIC.
Because there are no statutory
provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes
of securities with terms that are substantially the same as those of the Securities, other characterizations and treatments are
possible and the timing and character of income in respect of the Securities might differ from the treatment described above. For
example, the Securities could be treated as debt instruments that are “contingent payment debt instruments” for U.S.
federal income tax purposes subject to the treatment described under the heading “U.S. Federal Income Tax Considerations
— U.S. Federal Income Tax Treatment of the Notes as Indebtedness for U.S. Federal Income Tax Purposes — Contingent
Payment Debt Instruments” in the prospectus supplement.
In Notice 2008-2, the Internal
Revenue Service (“IRS”) and the Treasury Department requested comments as to whether the purchaser of an exchange
traded note or pre-paid forward contract (which may include the Securities) should be required to accrue income during its term
under a mark-to-market, accrual or other methodology, whether income and gain on such a note or contract should be ordinary or
capital, and whether foreign holders should be subject to withholding tax on any deemed income accrual. Accordingly, it is possible
that regulations or other guidance could provide that a U.S. holder (as defined in the prospectus supplement) of a Security is
required to accrue income in respect of the Security prior to the receipt of payments with respect to the Security or its earlier
sale. Moreover, it is possible that any such regulations or other guidance could treat all income and gain of a U.S. holder in
respect of a Security as ordinary income (including gain on a sale). Finally, it is possible that a non-U.S. holder (as defined
in the prospectus supplement) of the Security could be subject to U.S. withholding tax in respect of a Security. It is unclear
whether any regulations or other guidance would apply to the Securities (possibly on a retroactive basis). Prospective investors
are urged to consult with their tax advisors regarding Notice 2008-2 and the possible effect to them of the issuance of regulations
or other guidance that affects the U.S. federal income tax treatment of the Securities.
PROSPECTIVE PURCHASERS OF
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SECURITIES.
The iShares® MSCI Emerging Markets Index Fund
|
Description of the EEM
The EEM seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. The Emerging Markets
Index is intended to measure the performance of equity markets in the global emerging markets. As of October 26, 2012, the MSCI
Emerging Markets Index consisted of the following 21 component country indices: Brazil, Chile, China, Colombia, Czech Republic,
Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand
and Turkey.
For
more information about the EEM, see “The iShares
Ò
MSCI Emerging Markets Index Fund” on page S-21 of the accompanying ETF Underlying Supplement.
Historical Performance of the EEM
The following graph sets forth the historical
performance of the EEM based on the daily historical closing prices from August 27, 2003 through October 26, 2012 as reported on
the Bloomberg Professional
®
service. We have not undertaken any independent review of, or made any due diligence
inquiry with respect to, the information obtained from the Bloomberg Professional
®
service. The historical prices
of the Index Fund should not be taken as an indication of future performance.
Source: Bloomberg Professional
®
service
The Official Closing Price for the EEM on
October 26, 2012 was $41.24.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/3/2007
|
3/30/2007
|
$39.85
|
$34.52
|
$38.75
|
4/2/2007
|
6/29/2007
|
$44.62
|
$38.74
|
$43.82
|
7/2/2007
|
9/28/2007
|
$50.49
|
$37.15
|
$49.78
|
10/1/2007
|
12/31/2007
|
$55.83
|
$47.22
|
$50.10
|
1/2/2008
|
3/31/2008
|
$50.75
|
$40.68
|
$44.79
|
4/1/2008
|
6/30/2008
|
$52.48
|
$44.43
|
$45.19
|
7/1/2008
|
9/30/2008
|
$44.76
|
$30.88
|
$34.53
|
10/1/2008
|
12/31/2008
|
$34.29
|
$18.22
|
$24.97
|
1/2/2009
|
3/31/2009
|
$27.28
|
$19.87
|
$24.81
|
4/1/2009
|
6/30/2009
|
$34.88
|
$24.72
|
$32.23
|
7/1/2009
|
9/30/2009
|
$39.51
|
$30.25
|
$38.91
|
10/1/2009
|
12/31/2009
|
$42.52
|
$37.30
|
$41.50
|
1/4/2010
|
3/31/2010
|
$43.47
|
$35.01
|
$42.12
|
4/1/2010
|
6/30/2010
|
$44.02
|
$35.21
|
$37.32
|
7/1/2010
|
9/30/2010
|
$44.99
|
$36.76
|
$44.77
|
10/1/2010
|
12/31/2010
|
$48.62
|
$44.51
|
$47.62
|
1/3/2011
|
3/31/2011
|
$48.75
|
$44.25
|
$48.69
|
4/1/2011
|
6/30/2011
|
$50.43
|
$44.77
|
$47.60
|
7/1/2011
|
9/30/2011
|
$48.63
|
$34.71
|
$35.07
|
10/3/2011
|
12/30/2011
|
$43.21
|
$33.43
|
$37.94
|
1/3/2012
|
3/30/2012
|
$44.91
|
$38.21
|
$42.94
|
4/2/2012
|
6/29/2012
|
$43.75
|
$36.58
|
$39.19
|
7/2/2012
|
9/28/2012
|
$42.37
|
$37.42
|
$41.32
|
10/1/2012
|
10/26/2012*
|
$42.29
|
$40.99
|
$41.24
|
*
As of the date of this pricing
supplement available information for the fourth calendar quarter of 2012 includes data for the period from October 2, 2012 through
October 26, 2012. Accordingly, the “Quarterly High,” “Quarterly Low” and “Quarterly Close”
data indicated are for this shortened period only and do not reflect complete data for the fourth calendar quarter of 2012.
Events of Default and Acceleration
|
If the Securities have become immediately due and payable following
an event of default (as defined in the accompanying prospectus) with respect to the Securities, the Calculation Agent will determine
the accelerated Payment at Maturity due and payable in the same general manner as described in “Final Terms” in this
pricing supplement. In that case, the scheduled trading day preceding the date of acceleration will be used as the Final Valuation
Date for purposes of determining the accelerated Index Fund Return. If a market disruption event exists on that scheduled trading
day, then the accelerated Final Valuation Date will be postponed for up to five scheduled trading days (in the same general manner
used for postponing the originally scheduled Final Valuation Date). The accelerated Maturity Date will also be postponed by an
equal number of business days.
If the Securities have become immediately due and payable following
an event of default, you will not be entitled to any additional payments with respect to the Securities. For more information,
see “Description of Debt Securities — Senior Debt Securities — Events of Default” in the accompanying prospectus.