Units
Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index,
due February , 2013
$10 principal amount per unit
Term Sheet No.
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Pricing Date*
Settlement Date*
Maturity Date*
CUSIP No.
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January , 2012
February , 2012
February , 2013
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HSBC USA Inc. |
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§
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The notes have a maturity of approximately one year, and are callable at approximately 6, 9 and 12 months after issuance
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§
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The notes will be called at $10 per unit plus a Call Premium if the closing level of the S&P 500® Index (the “Index”) on any Observation Date is equal to or greater than 100% of its Starting Value
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§
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The Call Premium will be between 10% and 14% per annum (equivalent to between 5.00% and 7.00% of the Original Offering Price if the notes are called on the first Observation Date, or between 7.50% and 10.50% of the Original Offering Price if the notes are called on the second Observation Date)
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§
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1-to-1 downside exposure if the notes are not called and the closing level of the Index on the final Observation Date is below the Threshold Value, which will be equal to 95% of the Starting Value
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§
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Payments on the notes, including the payment of the Redemption Amount at maturity, are subject to the credit risk of HSBC USA Inc.
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§
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No periodic interest payments
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§
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No listing on any securities exchange
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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Per Unit
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Total
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Public offering price (1)
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$ 10.000
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$
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Underwriting discount (1)
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$ 0.125
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$
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Proceeds, before expenses, to HSBC
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$ 9.875
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$
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(1)
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The public offering price and underwriting discount for any purchase of 500,000 or more units in a single transaction by an individual investor will be $9.975 per unit and $0.10 per unit, respectively. The public offering price and underwriting discount for any purchase by certain fee-based trusts and fee-based discretionary accounts managed by U.S. Trust operating through Bank of America, N.A. will be $9.875 per unit and $0.00 per unit, respectively. See as well “Supplement to Plan of Distribution and Role of MLPF&S.”
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Merrill Lynch & Co.
January , 2012
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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Issuer:
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HSBC USA Inc. (“HSBC”)
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Original Offering Price:
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$10.00 per unit
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Term:
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Approximately one year
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Market Measure:
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S&P 500® Index (Bloomberg symbol: “SPX”)
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Starting Value:
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The closing level of the Market Measure on the pricing date.
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Ending Value:
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The closing level of the Market Measure on the final Observation Date. If it is determined that the scheduled final Observation Date is not a Market Measure Business Day, or if a Market Disruption Event occurs on the scheduled final Observation Date, the Ending Value will be determined as more fully described beginning on page S-23 of product supplement STR-1.
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Observation Level:
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The closing level of the Market Measure on any Observation Date
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Observation Dates:
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August , 2013, November , 2013, and February , 2013 (the final Observation Date). The Observation Dates will occur approximately six, nine, and twelve months after the pricing date, subject to postponement as described on page S-22 of product supplement STR-1.
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Call Level:
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100% of the Starting Value
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Call Amounts (per Unit):
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$10.500 - $10.700 if called on August , 2013
$10.750 - $11.050 if called on November , 2013, and
$11.000 - $11.400 if called on February , 2013. The actual Call Amounts will be determined on the pricing date.
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Call Premium:
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10% - 14% of the Original Offering Price per annum. The actual Call Premium will be determined on the pricing date.
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Call Settlement Date:
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The fifth business day following an Observation Date, if the notes are called on that Observation Date, subject to postponement as described on page S-21 of product supplement STR-1; provided however, that the Call Settlement Date related to the final Observation Date will be the maturity date.
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Threshold Value:
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95% of the Starting Value (rounded to two decimal places)
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Calculation Agent:
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HSBC USA Inc. and MLPF&S, acting jointly.
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Fees Charged:
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The public offering price of the notes includes the underwriting discount of $0.125 per unit as listed on the cover page and an additional charge of $0.050 per unit more fully described on page TS-5.
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Strategic Accelerated Redemption Securities®
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TS-2
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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Notes Are Called on an Observation Date
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Notes Are not Called on Any
Observation Date
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Example 1
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Example 2
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Example 3
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Example 4
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Example 5
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First Observation
Date
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Second
Observation Date
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Final Observation
Date
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Final Observation
Date
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Final Observation
Date
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Starting Value
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100.00
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100.00
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100.00
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100.00
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100.00
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Call Level
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100.00
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100.00
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100.00
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100.00
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100.00
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Threshold Value
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95.00
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95.00
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95.00
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95.00
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95.00
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Observation Level
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110.00
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105.00
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105.00
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97.00
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85.00
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Return of the Index
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10.00%
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5.00%
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5.00%
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-3.00%
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-15.00%
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Return of the Notes
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6.00%
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9.00%
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12.00%
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0.00%
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-10.00%
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Redemption Amount per Unit
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$10.600
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$10.900
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$11.200
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$10.000
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$9.000
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Strategic Accelerated Redemption Securities®
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TS-3
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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§
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If the notes are not called prior to maturity, your investment may result in a loss; you may not receive a return of some or all of your principal.
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Your return, if any, is limited to the return represented by the Call Premium.
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Your yield may be less than the yield on a conventional debt security of comparable maturity.
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Payments on the notes are subject to our credit risk.
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Your investment return may be less than the return on a comparable investment directly in the Index or the components included in the Index.
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You must rely on your own evaluation of the merits of an investment linked to the Index.
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Commissions, fees and hedging costs as described on page TS-5 may affect the price at which you will be able to sell the notes in secondary market transactions.
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We cannot assure you that a trading market for your notes will ever develop or be maintained. MLPF&S is not obligated to make a market for, or to repurchase, the notes.
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The amount that you receive at maturity or upon a call will not be affected by all developments relating to the Index.
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Standard & Poor’s Financial Services LLC (“S&P”) may adjust the Index in a way that affects its level, and S&P has no obligation to consider your interests.
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If you attempt to sell the notes prior to maturity, their market value, if any, will be affected by various factors that interrelate in complex ways, and their market value may be less than their Original Offering Price.
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Purchases and sales by us, MLPF&S and our respective affiliates of the stocks represented by the Index may affect your return.
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Our trading and hedging activities, and those of MLPF&S, may create conflicts of interest with you.
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Our hedging activities, and those of MLPF&S, may affect your return on the notes and their market value.
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There may be potential conflicts of interest involving the calculation agent. We may appoint and remove the calculation agent.
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§
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The notes are not insured by any governmental agency of the United States or any other jurisdiction.
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You will have no rights of a holder of the securities represented by the Index, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.
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While we or our affiliates may from time to time own shares of companies included in the Index, except to the extent that the common stock of Bank of America Corporation (the parent corporation of MLPF&S) is included in the Index, we do not control any company included in the Index, and are not responsible for any disclosure made by any other company.
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§
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Our business activities and those of MLPF&S relating to the companies represented by the Index may create conflicts of interest with you.
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The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Summary Tax Consequences” below and “U.S. Federal Income Tax Summary” beginning on page S-30 of product supplement STR-1.
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Strategic Accelerated Redemption Securities®
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TS-4
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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§
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You anticipate that the closing level of the Index will be equal to or greater than the Call Level on any Observation Date and you seek an early exit prior to maturity at a premium in that case.
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§
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You are willing to receive a pre-determined return on your investment, capped at the Call Premium, in case the notes are called, regardless of the performance of the Index from the Starting Value to the date on which the notes are called.
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You are willing to accept that the notes may not be called prior to the maturity date, in which case your return on your investment will be equal to or less than the Original Offering Price per unit.
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You accept that your investment will result in a loss, which could be significant, if the closing level of the Index is below the Threshold Value on the final Observation Date.
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You are willing to forgo interest payments on the notes, such as fixed or floating rate interest paid on traditional interest bearing debt securities.
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You seek exposure to the Index with no expectation of receiving dividends or other benefits of owning the stocks included in the Index.
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You are willing to accept that a trading market is not expected to develop for the notes. You understand that secondary market prices for the notes, if any, will be affected by various factors, including our actual and perceived creditworthiness and their market value may be less than their Original Offering Price.
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You are willing to make an investment, the payment on which depends on our creditworthiness, as the issuer of the notes.
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You wish to make an investment in notes that cannot be automatically called prior to maturity.
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You anticipate that the level of the Index will decrease from the Starting Value to the Ending Value.
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You anticipate that the Observation Level will not be equal to or greater than the Call Level on any Observation Date.
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You seek a return on your investment that will not be capped at the Call Premium.
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You seek 100% return of principal at maturity.
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You seek interest payments or other current income on your investment.
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You want to receive dividends or other distributions paid on the stocks included in the Index.
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You seek assurances that there will be a liquid market if and when you want to sell the notes prior to maturity.
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You are unwilling or are unable to assume the credit risk associated with us, as the issuer of the notes.
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Strategic Accelerated Redemption Securities®
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TS-5
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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•
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holdings by other publicly traded corporations, venture capital firms, private equity firms, strategic partners, or leveraged buyout groups;
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•
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holdings by government entities, including all levels of government in the U.S. or foreign countries; and
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•
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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.
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Strategic Accelerated Redemption Securities®
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TS-6
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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Type of Corporate Action
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Comments
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Divisor Adjustment
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Company added/deleted
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Net change in market value determines Divisor adjustment.
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Yes
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Change in shares outstanding
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Any combination of secondary issuance, share repurchase or buy back—share counts revised to reflect change.
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Yes
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Stock split
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Share count revised to reflect new count. Divisor adjustment is not required since the share count and price changes are offsetting.
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No
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Spin-off
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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).
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Yes
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Spin-off
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Spun-off company added to the Index, no company removed from the Index.
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No
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Spin-off
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Spun-off company added to the Index, another company removed to keep number of names fixed. Divisor adjustment reflects deletion.
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Yes
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Change in IWF
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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.
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Yes
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Special dividend
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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.
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Yes
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Rights offering
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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.
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Yes
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Post-Event Aggregate Market Value
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=
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Pre-Event Index Value
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New Divisor
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New Divisor
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=
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Post-Event Aggregate Market Value
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Pre-Event Index Value
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Strategic Accelerated Redemption Securities®
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TS-7
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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Strategic Accelerated Redemption Securities®
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TS-8
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Strategic Accelerated Redemption Securities®
Linked to the S&P 500® Index, due February , 2013
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·
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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·
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as a pre-paid derivative contract with respect to the Market Measure that requires you to pay us at inception an amount equal to the purchase price of the notes and that entitles you to receive at maturity or upon earlier redemption an amount in cash linked to the level of the Market Measure.
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·
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Under this characterization and tax treatment of the notes, a U.S. Holder (as defined in product supplement STR-1) generally will recognize capital gain or loss upon receipt of a cash payment at maturity or upon a sale, exchange, redemption, retirement or other disposition of the notes. This capital gain or loss generally will be long-term capital gain or loss if you hold the notes for more than one year and otherwise will be short-term capital gain or loss. Accordingly, if the notes are called on the first or second Observation Date, your capital gain or loss generally will be short-term capital gain or loss. The deductibility of capital losses is subject to limitations.
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·
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No assurance can be given that the IRS or any court will agree with this characterization and tax treatment.
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§
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Product supplement STR-1 dated November 22, 2011:
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§
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Prospectus supplement dated April 9, 2009:
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§
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Prospectus dated April 9, 2009:
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Strategic Accelerated Redemption Securities®
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TS-9
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