FWP 1 v355086_fwp.htm FREE WRITING PROPSECTUS

September 2013

Free Writing Prospectus

Registration Statement No. 333-180289

Dated September 17, 2013

Filed Pursuant to Rule 433

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

 

With Coupon Payments and Payment at Maturity Subject to the Performance of the S&P 500® Index
Principal at Risk Securities

 

The 10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity Swap Rate and the Performance of the S&P 500® Index due October 2, 2023, offer the opportunity for investors to earn a contingent coupon each quarter, but only if the level of the S&P 500® Index (the “underlying index”) is greater than or equal to the coupon barrier level of 70% of the initial index level on the related observation date. The contingent quarterly coupon, if payable, will be equal to the 10-Year Constant Maturity Swap Rate plus the spread of at least 2.25% per annum, to be determined on the pricing date. However, if the closing level of the underlying index is less than the coupon barrier level on any observation date, you will not receive a coupon payment for the related quarterly period. Depending on the performance of the underlying index, investors may receive few or no contingent quarterly coupons. At maturity, if the final index level is greater than or equal to the downside threshold level of 50% of the initial index level, the payment at maturity will be the stated principal amount and, if the final index level is also greater than or equal to the coupon barrier level, the related contingent quarterly coupon. However, if the final index level is less than the downside threshold level, you will be exposed to the decline in the underlying index on a 1 to 1 basis and will receive a payment at maturity that is less than 50% of the stated principal amount of the securities and could be zero. Accordingly, the securities do not guarantee any return of principal at maturity. These long-dated securities are intended for investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving no quarterly coupon over the entire term of the securities. Investors will not participate in any appreciation of the underlying index. All payments on the securities are subject to the credit risk of HSBC.

 

SUMMARY TERMS  
Issuer: HSBC USA Inc.
Underlying index: S&P 500® Index (Bloomberg symbol: “SPX”)
Aggregate principal amount: $
Stated principal amount: $1,000 per security
Issue price: $1,000 per security
Pricing date*: September 27, 2013
Original issue date*: October 2, 2013 (3 business days after the pricing date)
Maturity date*: October 2, 2023, subject to adjustment as described herein and in the accompanying Equity Index Underlying Supplement.
Contingent quarterly coupon: A contingent coupon will be paid on the securities on each quarterly coupon payment date on a 30/360 unadjusted basis, at a rate per annum equal to the 10-Year Constant Maturity Swap Rate (“CMS10”) plus the spread, but only if the closing level of the underlying index is at or above the coupon barrier level on the applicable observation date.  
10-Year Constant Maturity Swap Rate: The 11:00 a.m. fix of the 10-Year Constant Maturity Swap Rate as published on Reuters page “ISDAFIX1” on the applicable observation date.
Spread: At least 2.25% per annum, to be determined on the pricing date.
Coupon barrier level: 70% of the initial index level
Observation dates: Quarterly, on the third scheduled business day preceding each scheduled coupon payment date, beginning on December 30, 2013, subject to postponement as described herein.
Coupon payment dates: Quarterly, on the 2nd day of each January, April, July and October, beginning on January 2, 2014, subject to postponement as described herein and in the accompanying Equity Index Underlying Supplement; provided that if any such day is not a business day, the contingent quarterly coupon payment will be made on the next succeeding business day and no additional interest will be payable as a result of that postponement.
Payment at maturity:

·    If the final index level is greater than or equal to the downside threshold level:

  the stated principal amount and, if the final index level is also greater than or equal to the coupon barrier level, the contingent quarterly coupon with respect to the final observation date; or

·    If the final index level is less than the downside threshold level:

  (i) the stated principal amount multiplied by (ii) the index performance factor. In this case, the payment at maturity will be less than 50% of the stated principal amount of the securities and could be zero.

Index performance factor: Final index level / Initial index level
Downside threshold level: 50% of the initial index level
Initial index level: The closing level of the underlying index on the pricing date.
Final index level: The closing level of the underlying index on the final observation date.
Estimated Initial Value: The estimated initial value of the securities will be less than the price you pay to purchase the securities.  The estimated initial value does not represent a minimum price at which we or any of our affiliates would be willing to purchase your securities in the secondary market, if any, at any time. The estimated initial value will be calculated on the pricing date and will be set forth in the pricing supplement to which this free writing prospectus relates.  See “Risk Factors — The estimated initial value of the securities, which will be determined by us on the pricing date, will be less than the price to public and may differ from the market value of the securities in the secondary market, if any.”
CUSIP: 40432XL74
ISIN: US40432XL741
Listing: The securities will not be listed on any securities exchange.
Agent: HSBC Securities (USA) Inc., an affiliate of HSBC. See “Additional Information About the Securities—General Information—Supplemental plan of distribution (conflicts of interest).”
Commissions and issue price: Price to public Agent’s commissions(1) Proceeds to issuer
                              Per security: $1,000 $25.00 $975.00
                              Total:      

  

(1)HSBC Securities (USA) Inc., acting as agent for HSBC, will receive a fee of up to $25.00 per $1,000 stated principal amount and will pay the entire fee to Morgan Stanley Wealth Management as a fixed sales commission of up to $25.00 for each security they sell. See “Additional Information About the Securities”—“General Information”—“Supplemental plan of distribution; conflicts of interest.”

 

* The pricing date, original issue date and the other dates set forth above are subject to change, and will be set forth in the pricing supplement relating to the securities.

 

The estimated initial value of the securities at the time the terms of the securities are set is expected to be between $930 and $960 per security, which will be less than the price to public. The market value of the securities at any time will reflect many factors and cannot be predicted with accuracy. See “Estimated initial value” above and “Risk Factors” beginning on page 5 of this document for additional information.

 

Investment in the securities involves certain risks. See “Risk Factors” beginning on page 5 of this free writing prospectus, page S-1 of the Equity Index Underlying Supplement and page S-3 of the prospectus supplement.

 

Neither the U.S. Securities and Exchange Commission (the “SEC”), nor any state securities commission has approved or disapproved the securities, or determined that this free writing prospectus or the accompanying Equity Index Underlying Supplement, prospectus supplement or prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

You should read this document together with the related Equity Index Underlying Supplement, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below.

 

The Equity Index Underlying Supplement at: http://www.sec.gov/Archives/edgar/data/83246/000114420412016693/v306691_424b2.htm

 

The prospectus supplement at: http://www.sec.gov/Archives/edgar/data/83246/000104746912003151/a2208335z424b2.htm

 

The prospectus at: http://www.sec.gov/Archives/edgar/data/83246/000104746912003148/a2208395z424b2.htm

 

The securities are not deposit liabilities or other obligations of a bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency of the United States or any other jurisdiction, and involve investment risks including possible loss of the stated principal amount invested due to the credit risk of HSBC.

 

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

Investment Summary

 

The 10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023, which we refer to as the securities, provide an opportunity for investors to earn a contingent quarterly coupon based on the CMS10, but only if the closing level of the S&P 500® Index on the related observation date is greater than or equal to the coupon barrier level, which is 70% of the index initial level. The contingent quarterly coupon rate will equal the CMS10 on the applicable observation date plus the spread, and if payable, will be paid quarterly on each coupon payment date or on the maturity date, as applicable. The spread will be at least 2.25% per annum, and will be determined on the pricing date.

 

If the closing level of the underlying index is less than the coupon barrier level on any observation date, you will not receive a contingent quarterly coupon for the related quarterly period. Even if the closing level of the underlying index is greater than or equal to the coupon barrier level on a particular quarterly observation date, it may fluctuate below the coupon barrier level on other observation dates. It is possible that the closing level of the underlying index could remain below the coupon barrier level for extended periods of time, or even throughout the entire 10-year term of the securities, so that you will receive few or no contingent quarterly coupons. In addition, if the final index level is less than the downside threshold level, you will be exposed to the decline in the underlying index on a 1 to 1 basis and will receive a payment at maturity that is less than 50% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities must be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent quarterly coupons throughout the entire 10-year term of the securities.

 

Maturity: Approximately 10 years
Contingent quarterly coupon:

A contingent coupon will be paid on the securities on each quarterly coupon payment date on a 30/360 unadjusted basis, at a rate per annum equal to the CMS10 plus the spread, but only if the closing level of the underlying index is at or above the coupon barrier level on the applicable observation date.

 

If on any observation date, the closing level of the underlying index is less than the coupon barrier level, we will not pay a coupon for the applicable quarterly period.

 

Payment at maturity:

If the final index level is greater than or equal to the downside threshold level, investors will receive at maturity the stated principal amount and, if the final index level is also greater than or equal to the coupon barrier level, the contingent quarterly coupon with respect to the final observation date.

 

If the final index level is less than the downside threshold level, investors will receive a payment at maturity equal to the stated principal amount times the index performance factor, which will be less than 50% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities must be willing to accept the risk of losing their entire initial investment.

 

HSBC has filed a registration statement (including a prospectus, a prospectus supplement and an Equity Index Underlying Supplement) with the SEC for the offering to which this free writing prospectus relates. Before you invest, you should read the prospectus, prospectus supplement and Equity Index Underlying 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’s web site at www.sec.gov. Alternatively, HSBC Securities (USA) Inc. or any dealer participating in this offering will arrange to send you the prospectus, prospectus supplement, and Equity Index Underlying Supplement if you request them by calling toll-free 1-866-811-8049.

 

 

September 2013 Page 2

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

Key Investment Rationale

 

The securities do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon based on the CMS10 only if the closing level of the underlying index is greater than or equal to the coupon barrier level on the related observation date. The securities have been designed for investors who are willing to forgo market floating interest rates and accept the risk of not receiving any coupon payments for the entire 10-year term of the securities in exchange for an opportunity to earn interest at a potentially above-market rate if the underlying index closes at or above the coupon barrier level on each quarterly observation date until maturity. The following scenarios are for illustrative purposes only to demonstrate how the payment at maturity is calculated, and do not attempt to demonstrate every situation that may occur. The payment at maturity may be less than 50% of the stated principal amount of the securities and may be zero.

 

Scenario 1: Investors receive principal back at maturity In this scenario, on the final observation date, the underlying index closes at or above the downside threshold level.  At maturity, investors will receive the stated principal amount and, depending on whether the final index level is greater than, equal to or below the coupon barrier level, the contingent quarterly coupon with respect to the final observation date.
Scenario 2:  Investors suffer a substantial loss of principal at maturity In this scenario, on the final observation date, the underlying index closes below the downside threshold level.  At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor, which will be less than 50% of the stated principal amount and could be zero.  No coupon will be paid at maturity in this scenario.

 

 

September 2013 Page 3

 
 

  

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

  

Hypothetical Examples

 

The examples below are based on the following terms:

 

Hypothetical Initial Index Level: 1,500
Hypothetical Coupon Barrier Level: 1,050, which is 70% of the hypothetical initial index level
Hypothetical Downside Threshold Level: 750, which is 50% of the hypothetical initial index level
Contingent Quarterly Coupon: A contingent coupon will be paid on the securities on each quarterly coupon payment date on a 30/360 unadjusted basis, at a rate per annum equal to the CMS10 plus the spread, but only if the closing level of the underlying index is at or above the coupon barrier level on the applicable observation date.  The spread will be at least 2.25% per annum and will be determined on the pricing date.
Hypothetical 10-Year Constant Maturity Swap Rate: 3.00% per annum. The actual CMS10 will be determined on each observation date.

  

Example 1—The closing level of the underlying index is at or above the coupon barrier level on all 40 quarterly observation dates, including the final observation date, on which the closing level is 1,300. Therefore, you would receive (i) the contingent quarterly coupons with respect to the 39 observation dates prior to the final observation date and (ii) the payment at maturity calculated as $1,000 + $13.125 = $1,013.125.

 

Each contingent quarterly payment will be calculated as $1,000 x (3.00% + 2.25%) x 90/360 = $13.125

 

The total payment over the 10-year term for each $1,000 in principal amount of the securities is ($13.125 x 39) + $1,013.125 = $1,525.00

 

This example illustrates the scenario where you receive a contingent quarterly coupon on every coupon payment date throughout the term of the securities and you receive your principal back at maturity.

  

Example 2—The closing level of the underlying index is at or above the coupon barrier level on 14 out of the 40 quarterly observation dates during the term of the securities. On the final observation date, the underlying index closes at 920, which is below the coupon barrier level but above the downside threshold level. Therefore, you would receive (i) the contingent quarterly coupons with respect to those 14 observation dates immediately preceding the maturity date and (ii) the payment at maturity equal to $1,000.

 

Each contingent quarterly payment will be calculated as $1,000 x (3.00% + 2.25%) x 90/360 = $13.125

 

The total payment over the 10-year term for each $1,000 in principal amount of the securities is ($13.125 x 14) + $1,000 = $1,183.75

  

Example 3—The closing level of the underlying index is below the coupon barrier level on all of the quarterly observation dates, including the final observation date, on which the closing level is 600. Therefore, you would receive (i) no contingent quarterly coupons and (ii) because the final index level is not only below the coupon barrier level but also below the downside threshold level, the payment at maturity calculated as $1,000 × 600 / 1,500 = $400.

 

The total payment over the 10-year term for each $1,000 in principal amount of the securities is $0 + $400 = $400. In this example, you will lose 60% of the principal amount of the securities, and will not receive any coupon payments over the 10-year term of the securities.

 

 

September 2013 Page 4

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

Risk Factors

 

We urge you to read the section “Risk Factors” on page S-3 in the accompanying prospectus supplement and on page S-1 of the Equity Index Underlying Supplement. Investing in the securities is not equivalent to investing directly in the underlying index. You should understand the risks of investing in the securities and should reach an investment decision only after careful consideration, with your advisors, of the suitability of the securities in light of your particular financial circumstances and the information set forth in this free writing prospectus and the accompanying Equity Index Underlying Supplement, prospectus supplement and prospectus.

 

In addition to the risks discussed below, you should review “Risk Factors” in the accompanying prospectus supplement and Equity Index Underlying Supplement, including the explanation of risks relating to the securities described in the following sections:

 

“— Risks Relating to All Note Issuances” in the prospectus supplement; and

 

“—General Risks Related to Indices” in the Equity Index Underlying Supplement.

 

You will be subject to significant risks not associated with conventional fixed-rate or floating-rate debt securities.

 

§You may lose your entire initial investment. The securities do not guarantee any return of principal. The securities differ from ordinary debt securities in that we will not necessarily pay the full principal amount of the securities at maturity. If the final index level is less than the downside threshold level, you will be exposed to the decline in the closing level of the underlying index, as compared to the initial index level, on a 1 to 1 basis and you will receive for each security that you hold at maturity an amount equal to the stated principal amount times the index performance factor. In this case, the payment at maturity will be less than 50% of the stated principal amount and could be zero.

 

§The securities do not provide for the regular payment of interest. The terms of the securities differ from those of ordinary debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon, but only if the closing level of the underlying index is greater than or equal to the coupon barrier level on the related observation date. If the closing level is lower than the coupon barrier level on the related observation date for any interest period, you will not receive a coupon payment on the applicable coupon payment date. It is possible that the closing level could remain below the coupon barrier level for extended periods of time or even throughout the entire 10-year term of the securities so that you will not receive any contingent quarterly coupons. In addition, even if a contingent quarterly coupon is payable for any interest period, CMS10 may remain low or decline from its current rate during the term of the securities. If you do not earn sufficient contingent coupons over the term of the securities, and particularly if we pay to you less than the principal amount at maturity, the overall return on the securities may be less than the amount that would be paid on a conventional debt security of the issuer of comparable maturity.

 

§Your return on the securities is limited to the contingent quarterly coupons, if any, regardless of any appreciation in the level of the underlying index. You will not participate in any appreciation in the underlying index from the initial index level, and the return on the securities will be limited to the contingent quarterly coupon paid with respect to each observation date on which the closing level of the underlying index is greater than or equal to the coupon barrier level, if any. It is possible that the closing level of the underlying index could be below the coupon barrier level on most or all of the observation dates, in which case you will receive few or no contingent quarterly coupons. Accordingly, the return on the securities may be significantly less than the return on an investment in the stocks comprising the underlying index during the term of the securities.

 

§The market price will be influenced by many unpredictable factors. Several factors will influence the value of the securities in the secondary market and the price at which HSBC Securities (USA) Inc. may be willing to purchase or sell the securities in the secondary market, including: the level and volatility (frequency and magnitude of changes in level) of the underlying index, the then current CMS10 and changes in, or in perceptions of, the CMS10, whether the closing level has been below the coupon barrier level on any observation date, interest and yield rates, the time remaining to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events that affect the underlying index and which may affect the payments on the securities, and any actual or anticipated changes in our credit ratings or credit spreads. The level of the underlying index may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen. You may receive less, and possibly significantly less, than the stated principal amount per security if you sell your securities prior to maturity.

 

 

September 2013 Page 5

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

§The securities are not insured or guranteed 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 or guaranteed 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 amounts due on the securities.

 

§Credit risk of HSBC USA Inc. The securities are senior unsecured debt obligations of the Issuer, 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 payments to be made on the securities 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 the amounts owed to you under the terms of the securities.

 

§The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. HSBC Securities (USA) Inc. may, but is not obligated to, make a market in the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Because we do not expect that other broker-dealers will participate significantly in the 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 HSBC Securities (USA) Inc. is willing to transact. If, at any time, HSBC Securities (USA) Inc. were to cease making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities to maturity.

 

§The estimated initial value of the securities, which will be determined by us on the pricing date, will be less than the price to public and may differ from the market value of the securities in the secondary market, if any. The estimated initial value of the securities will be calculated by us on the pricing date and will be less than the price to public. The estimated initial value will reflect the implied borrowing rate we use to issue market-linked securities, as well as the mid-market value of the embedded derivatives in the securities. The implied borrowing rate is typically lower than the rate we would use when we issue conventional fixed or floating rate debt securities. As a result of the difference between our implied borrowing rate and the rate we would use when we issue conventional fixed or floating rate debt securities, the estimated initial value of the securities may be lower if it were based on the levels at which our fixed or floating rate debt securities trade in the secondary market. In addition, if we were to use the rate we use for our conventional fixed or floating rate debt issuances, we would expect the economic terms of the securities to be more favorable to you. We will determine the value of the embedded derivatives in the securities by reference to our or our affiliates’ internal pricing models. These pricing models consider certain assumptions and variables, which can include volatility and interest rates. Different pricing models and assumptions could provide valuations for the securities that are different from our estimated initial value. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect. The estimated initial value does not represent a minimum price at which we or any of our affiliates would be willing to purchase your securities in the secondary market (if any exists) at any time.

 

§The price of your securities in the secondary market, if any, immediately after the pricing date will be less than the price to public. The price to public takes into account certain costs. These costs will include our affiliates’ projected hedging profits (which may or may not be realized) for assuming risks inherent in hedging our obligations under the securities, the underwriting discount and the costs associated with structuring and hedging our obligations under the securities. These costs, except for the underwriting discount, will be used or retained by us or one of our affiliates. If you were to sell your securities in the secondary market, if any, the price you would receive for your securities may be less than the price you paid for them because secondary market prices will not take into account these costs. The price of your securities in the secondary market, if any, at any time after issuance will vary based on many factors, including the value of the Index and changes in market conditions, and cannot be predicted with accuracy. The securities are not designed to be short-term trading instruments, and you should, therefore, be able and willing to hold the securities to maturity. Any sale of the securities prior to maturity could result in a loss to you.

 

 

September 2013 Page 6

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

§If HSBC Securities (USA) Inc. were to repurchase your securities immediately after the original issue date, the price you receive may be higher than the estimated initial value of the securities. Assuming that all relevant factors remain constant after the original issue date, the price at which HSBC Securities (USA) Inc. may initially buy or sell the securities in the secondary market, if any, and the value that we may initially use for customer account statements, if we provide any customer account statements at all, may exceed the estimated initial value on the pricing date for a temporary period expected to be approximately eighteen months after the original issue date. This temporary price difference may exist because, in our discretion, we may elect to effectively reimburse to investors a portion of the estimated cost of hedging our obligations under the securities and other costs in connection with the securities that we will no longer expect to incur over the term of the securities. We will make such discretionary election and determine this temporary reimbursement period on the basis of a number of factors, including the tenor of the securities and any agreement we may have with the distributors of the securities. The amount of our estimated costs which we effectively reimburse to investors in this way may not be allocated ratably throughout the reimbursement period, and we may discontinue such reimbursement at any time or revise the duration of the reimbursement period after the original issue date of the securities based on changes in market conditions and other factors that cannot be predicted.

 

§Hedging and trading activity by our affiliates could potentially affect the value of the securities. One or more of our affiliates expect to carry out hedging and trading activities related to the securities and the underlying index. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial index level and, as a result, the coupon barrier level and the downside threshold level. Additionally, such hedging or trading activities during the term of the securities could adversely affect the closing level of the underlying index on the observation dates and, accordingly, the payment to you at maturity.

 

§The calculation agent, which is HSBC or one of its affiliates, will make determinations with respect to the securities. As calculation agent, HSBC or one of its affiliates will determine the initial index level, the coupon barrier level, the downside threshold level, the final index level, the CMS10, whether the contingent quarterly coupon will be paid on each coupon payment date, and whether a market disruption event has occurred. Determinations made by HSBC or one of its affiliates in its capacity as calculation agent, including with respect to the occurrence or non-occurrence of market disruption events, may adversely affect the payments on the securities.

 

§The 10-year Constant Maturity Swap Rate, and therefore the value of the securities, may be volatile and will be affected by a number of factors. The CMS10, and therefore the value of the securities, is subject to volatility due to a variety of factors, including but not limited to:
§interest and yield rates in the market,
§changes in, or perceptions, about the future level of the CMS10,
§general economic conditions,
§policies of the Federal Reserve Board regarding interest rates,
§sentiment regarding underlying strength in the U.S. and global economies,
§expectations regarding the level of price inflation,
§sentiment regarding credit quality in the U.S. and global credit markets,
§central bank policy regarding interest rates,
§inflation and expectations concerning inflation,
§performance of capital markets,
§geopolitical conditions and economic, financial, political, regulatory or judicial events that affect markets generally and that may affect the CMS10,
§the time remaining to the maturity of the securities, and
§the creditworthiness of the Issuer.

 

The impact of any of the factors set forth above may enhance or offset some or any of the changes resulting from another factor or factors. Decreases in the CMS10 will result in the corresponding contingent coupon (if payable) decreasing or a contingent coupon equal to zero.

 

 

September 2013 Page 7

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

§The U.S. federal income tax consequences of an investment in the securities are uncertain. There is no direct legal authority as to the proper treatment of the securities for U.S. federal income tax purposes.

 

Please read the discussion under “Fact Sheet – General Information – Tax considerations” in this document concerning the U.S. federal income tax consequences of an investment in the securities. Pursuant to the terms of the securities, you agree to treat a security for U.S. federal income tax purposes as a single financial contract that provides for a contingent quarterly coupon that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. If the IRS were successful in asserting an alternative treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the tax treatment described herein. Non-U.S. Holders should note that we currently intend to withhold on any contingent quarterly coupon paid to Non-U.S. Holders and will not be required to pay any additional amounts with respect to amounts withheld. We do not plan to request a ruling from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described herein.

 

On December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts described in the notice, it is possible that any Treasury regulations or other guidance issued after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdictions.

 

 

September 2013 Page 8

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

Information About the S&P 500® Index

 

The underlying index is a capitalization-weighted index of 500 U.S. stocks. It is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The top 5 industry groups by market capitalization as of September 11, 2013 were: information technology, financials, health care, consumer discretionary, and energy.

 

In September 2012, S&P Dow Jones Indices LLC updated its index methodology so that, subject to several exceptions, shareholdings by specified types of insiders that represent more than 5% of the outstanding shares of a security are removed from the float for purposes of calculating the underlying index.

 

For more information about the underlying index, see “The S&P 500Ò Index” beginning on page S-6 of the accompanying Equity Index Underlying Supplement.

 

Information as of market close on September 11, 2013:

 

Bloomberg Ticker Symbol: SPX
Current Closing Level: 1,689.13
52 Weeks Ago: 1,437.92
52 Week High (on 8/2/2013): 1,709.67
52 Week Low (on 11/16/2012): 1,343.35

 

The following graph sets forth the historical performance of the underlying index based on the daily historical closing levels from September 11, 2008 through September 11, 2013. The closing level for the underlying index on September 11, 2013 was 1,689.13. We obtained the closing levels below from the Bloomberg Professional® service. We have not independently verified the accuracy or completeness of the information obtained from the Bloomberg Professional® service. The historical levels of the underlying index should not be taken as an indication of future performance, and no assurance can be given as to the level of the underlying index on any observation date.

 

S&P 500® Index
Daily Closing Levels
September 11, 2008 to September 11, 2013

 

* The black dashed line in the graph indicates the hypothetical coupon barrier level and the red solid line indicates the hypothetical downside threshold level, in each case, assuming the index closing value on September 11, 2013 were the initial index value.

 

 

September 2013 Page 9

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

License Agreement

 

Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC.  “Standard & Poor’s®”, “S&P 500®” and “S&P®” are trademarks of S&P and have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by HSBC.  The S&P 500® Index is a product of S&P Dow Jones Indices LLC, and has been licensed for use by HSBC.  

 

The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or any of their respective affiliates (collectively, “S&P Dow Jones Indices”).  S&P Dow Jones Indices 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 underlying index to track general market performance.  S&P Dow Jones Indices’s only relationship to HSBC with respect to the underlying index is the licensing of the underlying index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices.  The underlying index is determined, composed and calculated by S&P Dow Jones Indices without regard to HSBC or the securities.  S&P Dow Jones Indices has no obligation to take the needs of HSBC or the holders of the securities into consideration in determining, composing or calculating the underlying index.  S&P Dow Jones Indices is not responsible for and has not participated in the determination of the prices, and amount of the securities or the timing of the issuance or sale of the securities or in the determination or calculation of the equation by which the securities are to be converted into cash.  S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of the securities. There is no assurance that investment products based on the underlying index will accurately track index performance or provide positive investment returns.  S&P Dow Jones Indices LLC is not an investment advisor.  Inclusion of a security within the underlying index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.   Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to the securities currently being issued by HSBC, but which may be similar to and competitive with the securities.  In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the underlying index.  It is possible that this trading activity will affect the value of the underlying index and the securities.

 

S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO.  S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.  S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY HSBC, HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES 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 POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND HSBC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

 

 

September 2013 Page 10
 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

  

Historical Performance of the 10-Year Constant Maturity Swap Rate

 

The following graph sets forth the historical performance of the CMS10 based on the daily historical closing levels from September 11, 2008 through September 11, 2013. We obtained the closing rates below from Bloomberg Professional® Service. We make have not independently verified the accuracy or completeness of the information obtained from Bloomberg Professional® Service. The closing rates displayed in the graph below are for illustrative purposes only and do not form part of the calculation of the contingent coupon on the securities.

 

The CMS10, as appeared on Bloomberg Professional® Service on September 11, 2013 was 3.107%. The closing rate reported by Bloomberg Professional® Service may not be indicative of the CMS10 that will be derived from the applicable Reuters page.

 

Historical Performance of the 10-Year Constant Maturity Swap Rate

 

 

Source: Bloomberg Professional® Service

 

The historical CMS10 should not be taken as an indication of future performance, and no assurance can be given as to the CMS10 on any observation date, or as to whether or not any contingent quarterly coupon payment is payable. We cannot give you assurance that the performance of the CMS10 will result in contingent quarterly coupon payments that will provide a satisfactory return on your investment.

 

 

September 2013 Page 11

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

 

Additional Information About the Securities

 

This is a summary of the terms and conditions of the securities. We encourage you to read the accompanying Equity Index Underlying Supplement, prospectus supplement and prospectus for this offering, which can be accessed via the hyperlinks on the cover page of this document

 

General Information  
Listing: The securities will not be listed on any securities exchange.
Day count convention: 30/360
CUSIP: 40432XL74
ISIN: US40432XL741
Minimum ticketing size: $1,000 in principal amount.
10-Year Constant Maturity
Swap Rate:		 The 11:00 a.m. fix of the 10-Year Constant Maturity Swap Rate as published on Reuters page “ISDAFIX1” on the applicable observation date.
Tax considerations:

Prospective investors should note that the discussion under the section called “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement does not apply to the securities issued under this document and is superseded by the following discussion.

 

The following summary is a general discussion of the material U.S. federal tax consequences of ownership and disposition of the securities. This discussion applies only to initial investors in the securities who:

 

·      purchase the securities at their “issue price”; and

 

·      will hold the securities as capital assets, within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

This discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules, such as:

·      certain financial institutions;

 

·      insurance companies;

 

·      certain dealers and traders in securities, commodities or foreign currencies;

 

·      investors holding the securities as part of a “straddle,” conversion transaction, integrated transaction or constructive sale transaction;

 

·      U.S. Holders, as defined below, whose functional currency is not the U.S. dollar;

 

·      partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

 

·      regulated investment companies;

 

·      real estate investment trusts;

 

·      tax-exempt entities, including an “individual retirement account” or “Roth IRA”, as defined in Section 408 or 408A of the Code, respectively; or

 

·      persons subject to the alternative minimum tax.

 

As the law applicable to the U.S. federal income taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general summary. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed.

 

This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent to the date of this document may affect the tax consequences described herein. Persons considering the purchase of the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

 

General

 

There is no direct legal authority as to the proper tax treatment of the securities, and therefore significant aspects of the tax treatment of the securities are uncertain as to both the timing and character of any inclusion in income in respect of the securities. Under one approach, a security could be treated as a single financial contract that provides for a contingent quarterly payment. Pursuant to the

 

 

September 2013 Page 12

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

 

terms of the securities, you agree to treat a security for U.S. federal income tax purposes as a single financial contract that provides for a contingent quarterly coupon that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. Subject to the limitations described herein, and based on certain factual representations received from us, in the opinion of our special U.S. tax counsel, Morrison & Foerster LLP, it would be reasonable to treat a security with terms described herein as a single financial contract that provides for a contingent quarterly coupon for U.S. federal income tax purposes. We intend to treat the securities consistent with this characterization for all tax purposes (in the absence of a change in law or an administrative or judicial ruling to the contrary).

 

Due to the absence of statutory, judicial or administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”) or the courts will agree with the tax treatment described herein. Accordingly, you should consult your tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities) and with respect to any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Unless otherwise stated, the following discussion is based on the treatment of each security as described in the previous paragraph.

 

We will not attempt to ascertain whether any of the components of the underlying index would be treated as a passive foreign investment company (“PFIC”) or United States real property holding corporation (“USRPHC”), both as defined for U.S. federal income tax purposes. If any of the components of the underlying index 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 components of the underlying index, and consult your tax adviser regarding the possible consequences to you if any of the components of the underlying index are or become a PFIC or a USRPHC.

 

Tax Consequences to U.S. Holders

 

This section applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal income tax purposes:

 

·      an individual who is a citizen or resident of the United States, for U.S. federal income tax purposes;

 

·      a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof; or

 

·      an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

 

The term “U.S. Holder” also includes certain former citizens and residents of the United States.

 

Tax Treatment of the Securities

 

Assuming the treatment of the securities as set forth above is respected, the following U.S. federal income tax consequences should result.

 

Tax Basis. A U.S. Holder’s tax basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.

 

Tax Treatment of Contingent Quarterly Coupon. Any contingent quarterly coupon on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.

 

Sale, Exchange, Early Redemption or Settlement of the Securities. Upon a sale, exchange, early redemption or settlement of the securities, a U.S. Holder should recognize capital gain or loss equal to the difference between the amount realized (other than with respect to cash attributable to the contingent quarterly coupon, which should be treated as discussed above) on the sale, exchange, early redemption or settlement and the U.S. Holder’s tax basis in the securities sold, exchanged, redeemed or settled. Any such gain or loss should be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange, early redemption or settlement, and should be short-term capital gain or loss otherwise. The deductibility of capital losses is subject to limitations.

 

Possible Alternative Tax Treatments of an Investment in the Securities

 

Due to the absence of authorities that directly address the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the tax treatment described above. In particular, the IRS could seek to treat a security as a single debt instrument. Such a debt instrument would be subject to the special tax rules governing contingent payment debt instruments. If the securities are so treated, a holder would generally be required to accrue interest income over the term of the securities based upon the yield at which we would issue a non-contingent fixed-rate debt instrument with other terms and conditions similar to the securities. In addition, any gain a holder might recognize upon the sale, exchange, or maturity of the securities would be ordinary income and any loss recognized by a holder at such time would be ordinary loss to the extent of interest that same holder included in income in the current or previous taxable years in respect of the securities, and thereafter, would be capital loss. Because of the absence of authority regarding the appropriate tax characterization of the securities, it is also possible that the IRS could seek to characterize the securities in a manner that results in other tax consequences that are different from those described

 

 

September 2013 Page 13

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

 

 

above. For example, the IRS could possibly assert that any gain or loss that a holder may recognize upon the sale, exchange, or maturity of the securities should be treated as ordinary gain or loss.

 

Other alternative federal income tax treatments of the securities are also possible, which if applied could also affect the timing and character of the income or loss with respect to the securities. On December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates. While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders should consult their tax adviserregarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this notice.

 

Backup Withholding and Information Reporting

 

Backup withholding may apply in respect of the amounts paid to a U.S. Holder, unless such U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number, or otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is furnished to the IRS.  In addition, information returns may be filed with the IRS in connection with payments on the securities and the proceeds from a sale, exchange, early redemption or other disposition of the securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.

 

Tax Consequences to Non-U.S. Holders

 

This section applies to you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax purposes:

 

·      an individual who is classified as a nonresident alien;

 

·      a foreign corporation; or

 

·      a foreign trust or estate.

 

The term “Non-U.S. Holder” does not include any of the following holders:

 

·      a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes;

 

·      certain former citizens or residents of the United States; or

 

·      a holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in the United States.

 

Such holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities.

 

Although significant aspects of the tax treatment of each security are uncertain, we intend to withhold on any contingent quarterly coupon made to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from or a reduction in the 30% withholding tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person and is eligible for a reduction of, or an exemption from withholding under, an applicable tax treaty. If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding tax and the certification requirement described above.

 

A “dividend equivalent” payment is treated as a dividend from sources within the U.S. and such payments generally would be subject to a 30% U.S. withholding tax if paid to a Non-U.S. Holder. Under proposed U.S. Treasury Department regulations, certain payments or deemed payments that are contingent upon or determined by reference to U.S. source dividends, including payments reflecting adjustments for extraordinary dividends, with respect to equity-linked instruments, including the securities, may be treated as dividend equivalents. If enacted in their current form, the regulations will impose a withholding tax on payments or deemed payments made on the securities on or after January 1, 2014 that are treated as dividend equivalents. In that case, we (or the applicable paying agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld. Further, Non-U.S. Holders may be required to provide certifications prior to, or upon the sale, redemption or maturity of the securities in order to minimize or avoid U.S. withholding taxes.

 

September 2013 Page 14
 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

 

 

U.S. Federal Estate Tax

 

Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty benefit, the securities may be treated as U.S. situs property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the securities.

 

Backup Withholding and Information Reporting

 

Information returns may be filed with the IRS in connection with payments on the securities and the proceeds from a sale, exchange, early redemption or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is furnished to the IRS.

 

Foreign Account Tax Compliance Act

 

The Foreign Account Tax Compliance Act was enacted on March 18, 2010 and will impose a 30% U.S. withholding tax on certain U.S. source payments, including interest (and original issue discount), dividends, other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S. source interest or dividends (“Withholdable Payments”), if paid to a foreign financial institution (including amounts paid to a foreign financial institution on behalf of a holder), unless such institution enters into an agreement with the Treasury Department to collect and provide to the Treasury Department substantial information regarding U.S. account holders, including certain account holders that are foreign entities with U.S. owners, with such institution. The legislation also generally imposes a withholding tax of 30% on Withholdable Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity.

 

These withholding and reporting requirements will generally apply to payments made after June 30, 2014. However, the withholding tax will not be imposed on payments pursuant to obligations outstanding as of July 1, 2014. Holders are urged to consult with their own tax advisers regarding the possible implications of this recently enacted legislation on their investment in the securities.

Paying agent: HSBC Bank USA, N.A.
Calculation agent: HSBC USA Inc., or one of its affiliates.
Non-trading days and market disruption events:

If an observation date with respect to the underlying index is not a scheduled trading day (as defined in the Equity Index Underlying Supplement), or if a market disruption event occurs on that day, then that observation date will be the next succeeding day that is a scheduled trading day on which no market disruption event occurs or is continuing. If a market disruption event exists or continues for five consecutive scheduled trading days, then the fifth of such consecutive scheduled trading days will nonetheless be the observation date and the calculation agent will determine, in its discretion, the closing level of the underlying index by means of the formula for and method of calculating the underlying index which applied just prior to the market disruption event, using the underlying index’s traded or quoted price of each stock or other security in the underlying index (or if an event giving rise to a market disruption event has occurred with respect to a stock or other security in the underlying 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 an observation date with respect to the underlying index is postponed, then the related coupon payment date or the maturity date, as applicable, will also be postponed by the same number of business days and no interest will be paid in respect of such postponement. For the avoidance of doubt, if the observation date is postponed with respect to the index, in no circumstances will the observation date be postponed with respect to the determination of the CMS10, unless that observation date for the CMS10 is not a U.S. government securities business day (as defined herein).

 

If an observation date with respect to the determination of the CMS10 is not a U.S. government securities business day, then that observation date will be the next succeeding day that is a U.S. government securities business day. If the CMS10 cannot be determined on any observation date (or postponed observation date) as described herein, the calculation agent will determine the CMS10 in accordance with the procedures set forth under “Description of Notes—CMS Rate Notes” in the accompanying prospectus supplement; provided, that if the CMS10 cannot be determined as provided in the first bullet in that section, the calculation agent will determine the CMS10 on that day in a manner that it considers commercially reasonable under the circumstances. If an observation date with respect to the determination of the CMS10 is postponed, then the related coupon payment date or the maturity date, as applicable, will also be postponed by the same number of business days, and no interest will be paid as a result of that postponement. For the avoidance of doubt, if the observation date is postponed with respect to the determination of the CMS10, in no circumstances will the observation date be postponed with respect to the underlying index, unless that observation date for the underlying index is not a scheduled trading day or if a market disruption event occurs on that day.

 

“U.S. government securities business day” means any day except for a Saturday, Sunday or a day on which The Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.

 


September 2013 Page 15

 
 

 

 

10 Year Contingent Floating Rate Income Securities Based on the 10-Year Constant Maturity
Swap Rate and the Performance of the S&P 500® Index, due October 2, 2023

With Coupon Payments and Payment at Maturity Subject to the 10-Year Constant Maturity Swap Rate
and the Performance of the S&P 500® Index
Principal at Risk Securities

   

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 due and payable at maturity in the same general manner as described as described about under “Fact Sheet—Key Terms” in this free writing prospectus except that the accelerated contingent quarterly coupon will be calculated on the basis of a 360-day year consisting of twelve 30-day months. In that case, the scheduled trading day preceding the date of acceleration will be used as the final observation date for purposes of determining the final index level and the CMS10. If a market disruption event exists with respect to the underlying index on that scheduled trading day, then the accelerated final observation date for the underlying index will be postponed for up to five scheduled trading days (in the same manner used for postponing the originally scheduled final observation date). The accelerated maturity date will then be the third business day following the postponed accelerated final observation date.

 

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—Events of Default” and “Securities—Events of Default; Defaults” in the prospectus.

Supplemental plan of
distribution (conflicts of
interest):

Pursuant to the terms of a distribution agreement, HSBC Securities (USA) Inc., an affiliate of HSBC, will purchase the securities from HSBC for distribution to Morgan Stanley Wealth Management. HSBC Securities (USA) Inc. will act as agent for the securities and will receive a fee of up to $25.00 per $1,000 stated principal amount and will pay the entire fee to Morgan Stanley Wealth Management as a fixed sales commission of up to $25.00 for each security they sell.

 

In addition, HSBC Securities (USA) Inc. or another of its affiliates or agents may use the pricing supplement to which this free writing prospectus relates in market-making transactions after the initial sale of the securities, but is under no obligation to do so and may discontinue any market-making activities at any time without notice.

 

See “Supplemental Plan of Distribution” on page S-52 in the prospectus supplement.

 

 

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