The trading channel for Warrants & CBBCs are the same as those stocks listed on HKEx. The trades will be excutaed during Hong Kong stock market trading hour and the mininum investment amount will be determined by the lot size of the Warrants & CBBCs. Investors can obtain Warrants & CBBCs quote and related information from website and mobile apps.
For trading Warrants & CBBCs, investors only need to have securities accounts at banks/securities firms. It is not required to have account at warrant issuers and futures account or margin trading account at banks/securities firms.
Warrants & CBBCs are subject to regulations and guidelines which are supervised by regulatory authorities. According to regulations, issuers must provide offer quote and liquidity for their Warrants & CBBCs .
Warrants and CBBCs are leveraged products, and investors can use Warrants and CBBCs to amplify their return on investment or to reduce the amount of money invest. However, the investor should pay attention to the risk that Warrants and CBBCs can also expand potential losses.
CBBC is also a leveraged derivative product with an expiry date. The main difference between it and warrant is that CBBC has a Call Price and a mandatory call feature. That means CBBC can be knocked out (or called Mandatory Call Event) when the underlying price reach Call Price before expire. If CBBC has not been knocked out, they can be traded until expired.
The full name of CBBC is “Callable Bull / Bear Contracts”. If investors are optimistic about the market or predict stock prices will rise, they can choose Bull. If they expect stock prices will fall, they can buy Bear. Currently, issuers launch CBBCs with underlying of local indices, blue chips, and ETFs.
CBBCs have call price. If the underlying price fall to/ below call price before expires, the Bull Contracts will be knocked out, and suspend trading. If the underlying rise to/ above call price before expires, the Bear Contracts will be knocked out, and trading will be suspended.
CBBCs can also be divided into N and R-type. Once knock out, N-type CBBCs have no residual value, and R-type may have residual value. The residual Value is depended on the difference in underlying price & strike price of the CBBC; it may fall to zero. In HK, most CBBCs are R-type.
Although the CBBC has the mandatory call feature, it's pricing methodology is simpler than the warrant. Theoretical price of CBBC is mainly affected by the underlying price, and other factors that affect theoretical price include the date to expire, interest rate, dividend and market supply/ demand. The theoretical value of CBBC consists of an intrinsic value and "financial expense". The higher the financial cost, the higher the theoretical price of CBBC.
Warrants & CBBCs are structured products that are not suitable for all investors. Therefore, it is important to know the risks before investing. The investor should consider their financial endurance if "worst case" happened. In fact, “Listing documents of the Warrants & CBBCs” and "Frequently Asked Questions - Hong Kong Listing Warrants and CBBC Markets" (19 August 2016) issued by the HKEx listed the main risks as followed: