FWP 1 v471943_fwp.htm FREE WRITING PROSPECTUS

 

 

Subject to Completion

Preliminary Term Sheet dated August 2,
2017

 Filed Pursuant to Rule 433
Registration Statement No. 333-202524
(To Prospectus dated March 5, 2015,
Prospectus Supplement dated March 5, 2015 and
Product Supplement EQUITY INDICES SUN-1 dated April 23, 2015)

 

     Units
$10 principal amount per unit
CUSIP No.    		 Pricing Date*
Settlement Date*
Maturity Date*		 August  , 2017
September  , 2017
August  , 2019

  * Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)

 

Market-Linked Step Up Notes Linked to a
Euro Index Basket

 

§Maturity of approximately two years

 

§If the Basket is flat or increases up to the Step Up Value, a return of [23% to 27%]

 

§If the Basket increases above the Step Up Value, a return equal to the percentage increase in the Basket

 

§The Basket will be comprised of the EURO STOXX 50® Index and the EURO STOXX® Mid Index. The EURO STOXX 50® Index will be given an initial weight of 70% and the EURO STOXX® Mid Index will be given an initial weight of 30%

 

§1-to-1 downside exposure to decreases in the Basket, with up to 100% of the principal amount at risk

 

§All payments occur at maturity and are subject to the credit risk of HSBC USA Inc.

 

§No interest payments

 

§In addition to the underwriting discount set forth below, the notes include a hedging-related charge of $0.075 per unit. See “Supplement to the Plan of Distribution—Role of MLPF&S”

 

§No listing on any securities exchange

 

 

The notes are being issued by HSBC USA Inc. (“HSBC”). Investing in the notes involves a number of risks. There are important differences between the notes and a conventional debt security, including different investment risks and costs. See “Risk Factors” beginning on page TS-6 of this term sheet and beginning on page PS-7 of product supplement EQUITY INDICES SUN-1.

 

The estimated initial value of the notes on the pricing date is expected to be between $9.55 and $9.80 per unit, which will be less than the public offering price listed below. The market value of the notes at any time will reflect many factors and cannot be predicted with accuracy. See “Summary” on page TS-2 and “Risk Factors” beginning on page TS-6 of this term sheet for additional information.

_________________________

 

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this document, the accompanying product supplement, prospectus or prospectus supplement. Any representation to the contrary is a criminal offense.

 ________________________

 

  Per Unit   Total
Public offering price(1) $ 10.00   $
Underwriting discount(1) $ 0.20   $
Proceeds, before expenses, to HSBC $ 9.80   $

 

(1)For any purchase of 500,000 units or more in a single transaction by an individual investor or in combined transactions with the investor’s household in this offering, the public offering price and the underwriting discount will be $9.95 per unit and $0.15 per unit, respectively. See “Supplement to the Plan of Distribution” below.

 

The notes: 

Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value

 

Merrill Lynch & Co.

August     , 2017

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

Summary

 

The Market-Linked Step Up Notes Linked to a Euro Index Basket, due August , 2019 (the “notes”) are our senior unsecured debt securities and are not a direct or indirect obligation of any third party. The notes are not deposit liabilities or other obligations of a bank and are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other governmental agency of the United States or any other jurisdiction. The notes will rank equally with all of our other senior unsecured debt. Any payments due on the notes, including any repayment of principal, depend on the credit risk of HSBC and its ability to satisfy its obligations as they come due. The notes provide you with a Step Up Payment if the Ending Value (as determined below) of the Market Measure, which is the Euro Index Basket described below (the “Basket”), is equal to or greater than the Starting Value, but is not greater than the Step Up Value. If the Ending Value is greater than the Step Up Value, you will participate on a 1-for-1 basis in the increase in the level of the Index above the Starting Value. If the Ending Value is less than the Starting Value, you will lose all or a portion of the principal amount of your notes. Payments on the notes, including the amount you receive at maturity, will be calculated based on the $10 principal amount per unit and will depend on the performance of the Basket, subject to our credit risk. See “Terms of the Notes” below.

 

The Basket will be comprised of the EURO STOXX 50® Index and the EURO STOXX® Mid Index (each, a “Basket Component”). On the pricing date, the EURO STOXX 50® Index will be given an initial weight of 70% and the EURO STOXX® Mid Index will be given an initial weight of 30%.

 

The estimated initial value of the notes will be less than the price you pay to purchase the notes. The estimated initial value is determined by reference to our or our affiliates’ internal pricing models and reflects our internal funding rate, which is the borrowing rate we pay to issue market-linked notes, and the market prices for hedging arrangements related to the notes (which may include call options, put options or other derivatives). This internal funding rate is typically lower than the rate we would use when we issue conventional fixed or floating rate debt securities. The difference in the borrowing rate, as well as the underwriting discount and the costs associated with hedging the notes, including the hedging related charge described below, will reduce the economic terms of the notes (including the Step Up Payment). The estimated initial value will be calculated on the pricing date and will be set forth in the pricing supplement to which this term sheet relates.

 

Terms of the Notes   Redemption Amount Determination
       
Issuer: HSBC USA Inc. (“HSBC ”)   On the maturity date, you will receive a cash payment per unit determined as follows:
Principal Amount: $10.00 per unit  

 

 

Term: Approximately two years  
Market Measure: A euro index basket comprised of the EURO STOXX 50® Index (Bloomberg symbol: “SX5E”) and the EURO STOXX® Mid Index (Bloomberg symbol: “MCXE”). Each Basket Component is a price return index.  
Starting Value: The Starting Value will be set to 100.00 on the pricing date.  
Ending Value: The value of the Market Measure on the scheduled calculation day. The calculation day is subject to postponement in the event of Market Disruption Events, as described beginning on page PS-25 of product supplement EQUITY INDICES SUN-1.  
Step Up Value: [123% to 127%] of the Starting Value. The actual Step Up Value will be determined on the pricing date.  
Step Up Payment: [$2.30 to $2.70] per unit, which represents a return of [23% to 27%] over the principal amount. The actual Step Up Payment will be determined on the pricing date.  
Threshold Value: 100% of the Starting Value  
Calculation Day: Approximately the fifth scheduled Market Measure Business Day immediately preceding the maturity date.  
Fees Charged: The public offering price of the notes includes the underwriting discount of $0.20 per unit as listed on the cover page and an additional charge of $0.075 per unit more fully described on page TS-13.  
Calculation Agent:   Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and HSBC, acting jointly.  

 

Market-Linked Step Up Notes TS-2

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

The terms and risks of the notes are contained in this term sheet and the documents listed below (together, the “Note Prospectus”). The documents have been filed as part of a registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated below or obtained from MLPF&S by calling 1-800-294-1322:

 

§Product supplement EQUITY INDICES SUN-1 dated April 23, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000114420415024586/v408139_424b2.htm

 

§Prospectus supplement dated March 5, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000114420415014311/v403645_424b2.htm

 

§Prospectus dated March 5, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000119312515078931/d884345d424b3.htm

 

Our Central Index Key, or CIK, on the SEC website is 83246. Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering. Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus. You should carefully consider, among other things, the matters set forth under “Risk Factors” in the section indicated on the cover of this term sheet. The notes involve risks not associated with conventional debt securities. Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement EQUITY INDICES SUN-1. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar references are to HSBC.

 

Investor Considerations

 

You may wish to consider an investment in the notes if:   The notes may not be an appropriate investment for you if:
     

§      You anticipate that the Basket will increase from the Starting Value to the Ending Value.

 

§      You accept that your investment will result in a loss, which could be significant, if the Basket decreases from the Starting Value to the Ending Value.

 

§      You are willing to forgo the interest payments that are paid on traditional interest bearing debt securities.

 

§      You are willing to forgo dividends or other benefits of owning the stocks included in the Basket Components.

 

§      You are willing to accept that a secondary market is not expected to develop for the notes, and understand that the market prices for the notes, if any, may be less than the principal amount and will be affected by various factors, including our actual and perceived creditworthiness, our internal funding rate and the fees charged, as described on page TS-2.

 

§      You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.

  

§      You believe that the Basket will decrease from the Starting Value to the Ending Value.

 

§      You seek principal repayment or preservation of capital.

 

§      You seek interest payments or other current income on your investment.

 

§      You want to receive dividends or other distributions paid on the stocks included in the Basket Components.

 

§      You seek an investment for which there will be a liquid secondary market.

 

§      You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.

 

We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.

 

Market-Linked Step Up Notes TS-3

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

Hypothetical Payout Profile

 

The below graph is based on hypothetical numbers and values.

 

Market-Linked Step Up Notes

 

 

This graph reflects the returns on the notes based on a Threshold Value of 100% of the Starting Value, a Step Up Payment of $2.50 per unit (the midpoint of the Step Up Payment range of [$2.30 to $2.70] per unit) and a Step Up Value of 125% of the Starting Value (the midpoint of the Step Up Value range of [123% to 127%]). The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the Basket Components, excluding dividends.

 

This graph has been prepared for purposes of illustration only.

 

Hypothetical Payments at Maturity

 

The following table and examples are for purposes of illustration only. They are based on hypothetical values and show hypothetical returns on the notes. The actual amount you receive and the resulting total rate of return will depend on the actual Ending Value, Step Up Payment and term of your investment.

 

The following table is based on the Starting Value of 100, the Threshold Value of 100, a hypothetical Step Up Value of 125 and a hypothetical Step Up Payment of $2.50 per unit. It illustrates the effect of a range of Ending Values on the Redemption Amount per unit of the notes and the total rate of return to holders of the notes. The following examples do not take into account any tax consequences from investing in the notes.

 

Ending Value

  

Percentage Change from the Starting
Value to the Ending Value

  

Redemption Amount per Unit

  

Total Rate of Return on the
Notes

0.00   -100.00%   $0.00   -100.00%
50.00   -50.00%   $5.00   -50.00%
80.00   -20.00%   $8.00   -20.00%
90.00   -10.00%   $9.00   -10.00%
94.00   -6.00%   $9.40   -6.00%
97.00   -3.00%   $9.70   -3.00%
100.00(1)   0.00%   $12.50(2)   25.00%
102.00   2.00%   $12.50   25.00%
105.00   5.00%   $12.50   25.00%
110.00   10.00%   $12.50   25.00%
120.00   20.00%   $12.50   25.00%
125.00(3)   25.00%   $12.50   25.00%
130.00   30.00%   $13.00   30.00%
140.00   40.00%   $14.00   40.00%
143.00   43.00%   $14.30   43.00%
150.00   50.00%   $15.00   50.00%
160.00   60.00%   $16.00   60.00%

 

(1)The Starting Value and Threshold Value will be set to 100.00 on the pricing date.

 

(2)This amount represents the sum of the principal amount and the hypothetical Step Up Payment of $2.50.

 

(3)This is the hypothetical Step Up Value.

 

For recent hypothetical levels of the Basket, see “The Basket” section below. For recent actual levels of the Basket Components, see “The Basket Components” section below. Each Basket Component is a price return index and as such the Ending Value will not include any income generated by dividends paid on the stocks included in any of the Basket Components, which you would otherwise be entitled to receive if you invested in those stocks directly. In addition, all payments on the notes are subject to issuer credit risk.

 

Market-Linked Step Up Notes TS-4

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

Redemption Amount Calculation Examples

 

Example 1
The Ending Value is 90.00, or 90.00% of the Starting Value:
Starting Value: 100.00
Threshold Value: 100.00
Ending Value: 90.00

   Redemption Amount per unit

 

Example 2
The Ending Value is 110.00, or 110.00% of the Starting Value:
Starting Value: 100.00
Step Up Value: 125.00
Ending Value: 110.00

  Redemption Amount per unit, the principal amount plus the Step Up Payment, since the Ending Value is equal to or greater than the Starting Value, but less than the Step Up Value.

 

Example 3
The Ending Value is 143.00, or 143.00% of the Starting Value:
Starting Value: 100.00
Step Up Value: 125.00
Ending Value: 143.00

  Redemption Amount per unit

 

Market-Linked Step Up Notes TS-5

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

Risk Factors

 

We urge you to read the section “Risk Factors” in the product supplement and in the accompanying prospectus supplement. Investing in the notes is not equivalent to investing directly in the stocks included in the Basket Components. You should understand the risks of investing in the notes and should reach an investment decision only after careful consideration, with your advisers, with respect to the notes in light of your particular financial and other circumstances and the information set forth in this term sheet and the accompanying product supplement, prospectus supplement and prospectus.

 

In addition to the risks in the product supplement identified below, you should review “Risk Factors” in the accompanying prospectus supplement, including the explanation of risks relating to the notes described in the section “—Risks Relating to All Note Issuances.”

 

§Depending on the performance of the Basket as measured shortly before the maturity date, your investment may result in a loss; there is no guaranteed return of principal.

 

§Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.

 

§Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or are unable to pay our obligations, you may lose your entire investment.

 

§Your investment return may be less than a comparable investment directly in the stocks included in the Basket Components.

 

§The estimated initial value of the notes will be less than the public offering price and may differ from the market value of the notes in the secondary market, if any. We will determine the estimated initial value 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. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect. Different pricing models and assumptions could provide valuations for the notes that are different from our estimated initial value. The estimated initial value will reflect our internal funding rate we use to issue market-linked notes, as well as the mid-market value of the hedging arrangements related to the notes (which may include call options, put options or other derivatives).

 

§Our internal funding rate for the issuance of these notes is lower than the rate we would use when we issue conventional fixed or floating rate debt securities. This is one of the factors that may result in the market value of the notes being less than their estimated initial value. As a result of the difference between our internal funding rate and the rate we would use when we issue conventional fixed or floating rate debt securities, the estimated initial value of the notes 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 notes to be more favorable to you.

 

§The price of your notes in the secondary market, if any, immediately after the pricing date will be less than the public offering price. The public offering price takes into account certain costs, principally the underwriting discount, the hedging costs described on page TS-13 and the costs associated with issuing the notes. The costs associated with issuing the notes will be used or retained by us or one of our affiliates. If you were to sell your notes in the secondary market, if any, the price you would receive for your notes may be less than the price you paid for them.

 

§The estimated initial value does not represent a minimum price at which we, MLPF&S or any of our respective affiliates would be willing to purchase your notes in the secondary market (if any exists) at any time. The price of your notes in the secondary market, if any, at any time after issuance will vary based on many factors, including the value of the Market Measure and changes in market conditions, and cannot be predicted with accuracy. The notes are not designed to be short-term trading instruments, and you should, therefore, be able and willing to hold the notes to maturity. Any sale of the notes prior to maturity could result in a loss to you.

 

§A trading market is not expected to develop for the notes. Neither we nor MLPF&S is obligated to make a market for, or to repurchase, the notes. There is no assurance that any party will be willing to purchase your notes at any price in any secondary market.

 

§Our business, hedging and trading activities, and those of MLPF&S and our respective affiliates (including trades in shares of companies included in the Basket Components) and any hedging and trading activities we, MLPF&S or our respective affiliates engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.

 

§Changes in the level of one of the Basket Components may be offset by changes in the level of the other Basket Component. Due to the different Initial Component Weights, changes in the levels of the SX5E will have a more substantial impact on the value of the Basket than similar changes in the level of the MCXE.

 

§The index sponsor may adjust each Basket Component in a way that affects its level, and the index sponsor have no obligation to consider your interests.

 

§You will have no rights of a holder of the securities included in the Basket Components, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.

 

Market-Linked Step Up Notes TS-6

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

§While we, MLPF&S or our respective affiliates may from time to time own securities of the companies included in the Basket Components, we, MLPF&S and our respective affiliates do not control any company included in any Basket Component, and have not verified any disclosure made by any other company.

 

§Your return on the notes may be affected by factors affecting the international securities markets, specifically changes within the Eurozone. The Eurozone is and has been undergoing severe financial stress and the political, legal, and regulatory ramifications are impossible to predict. Changes within the Eurozone could adversely affect the performance of the Basket Components and, consequently, the value of the notes. In addition, you will not obtain the benefit of any increase in the value of the euro against the U.S. dollar, which you would have received if you had owned the securities in the Basket Components during the term of your notes, although the level of the Basket Components may be adversely affected by general exchange rate movements in the market.

 

§There may be potential conflicts of interest involving the calculation agents, one of which is us and one of which is MLPF&S. We have the right to appoint and remove the calculation agents.

 

§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 PS-32 of product supplement EQUITY INDICES SUN-1.

 

Other Terms of the Notes

 

Market Measure Business Day

 

The following definition shall supersede and replace the definition of “Market Measure Business Day” set forth in product supplement EQUITY INDICES SUN-1.

 

A “Market Measure Business Day” means a day on which:

 

(A)the Eurex (or any successor) is open for trading; and

 

(B)the Basket Components or any successors thereto are calculated and published.

 

Market-Linked Step Up Notes TS-7

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

The Basket

 

The Basket is designed to allow investors to participate in the percentage changes in the levels of the Basket Components from the Starting Value to the Ending Value of the Basket. The Basket Components are described in the section “The Basket Components” below. Each Basket Component will be assigned an initial weight on the pricing date, as set forth in the table below.

 

For more information on the calculation of the value of the Basket, please see the section entitled “Description of the Notes—Basket Market Measures” beginning on page PS-23 of product supplement EQUITY INDICES SUN-1.

 

If July 27, 2017 were the pricing date, for each Basket Component, the Initial Component Weight, the closing level, the hypothetical Component Ratio and the initial contribution to the Basket value would be as follows:

 

Basket Component   Bloomberg
Symbol		   Initial
Component
Weight		   Closing
Level(1)(2)		   Hypothetical
Component
Ratio(1)(3)		   Initial Basket
Value
Contribution
EURO STOXX 50® Index   SX5E   70.00   3,493.14   0.02003928   70.00
EURO STOXX Mid® Index   MCXE   30.00   433.85   0.06914832   30.00
                Starting Value   100.00

 

(1)The actual closing level of each Basket Component and the resulting actual Component Ratios will be determined on the pricing date, subject to adjustment as more fully described in the section entitled “Description of the Notes—Basket Market Measures—Determination of the Component Ratio for Each Basket Component” beginning on page PS-23 of product supplement EQUITY INDICES SUN-1 if a Market Disruption Event occurs on the pricing date as to any Basket Component.

 

(2)These were the closing levels of the Basket Components on July 27, 2017.

 

(3)Each hypothetical Component Ratio equals the Initial Component Weight of the relevant Basket Component (as a percentage) multiplied by 100, and then divided by the closing level of that Basket Component on July 27, 2017 and rounded to eight decimal places.

 

The calculation agent will calculate the value of the Basket by summing the products of the closing level for each Basket Component on the calculation day and the Component Ratio applicable to such Basket Component. If a Market Disruption Event occurs as to any Basket Component on the scheduled calculation day, the closing level of that Basket Component will be determined as more fully described in the section entitled “Description of the Notes—Basket Market Measures—Observation Level or Ending Value of the Basket” on page PS-25 of product supplement EQUITY INDICES SUN-1.

 

Market-Linked Step Up Notes TS-8

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

While actual historical information on the Basket will not exist before the pricing date, the following graph sets forth the hypothetical historical performance of the Basket from January 1, 2008 through July 27, 2017. The graph is based upon actual daily historical levels of the Basket Components, hypothetical Component Ratios based on the closing levels of the Basket Components as of December 31, 2007, and a Basket value of 100.00 as of that date. This hypothetical historical data on the Basket is not necessarily indicative of the future performance of the Basket or what the value of the notes may be. Any hypothetical historical upward or downward trend in the value of the Basket during any period set forth below is not an indication that the value of the Basket is more or less likely to increase or decrease at any time over the term of the notes.

 

Hypothetical Historical Performance of the Basket

 

 

 

Market-Linked Step Up Notes TS-9

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

The Basket Components

 

All disclosures contained in this term sheet regarding the Basket Components, including, without limitation, their make-up, method of calculation, and changes in their components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by STOXX Limited. The STOXX Limited has no obligation to continue to publish, and may discontinue or suspend the publication of any Basket Component at any time. The consequences of STOXX Limited discontinuing publication of a Basket Component are discussed in the section entitled “Description of the Notes—Discontinuance of an Index” beginning on page PS-22 of product supplement EQUITY INDICES SUN-1. None of us, the calculation agent, or MLPF&S accepts any responsibility for the calculation, maintenance, or publication of any Basket Component or any successor index.

 

The EURO STOXX 50® Index (“SX5E”) and the EURO STOXX® Mid Index (“MCXE”)

 

The SX5E and the MCXE were created by STOXX Limited, which is owned by Deutsche Börse AG. Publication of the SX5E began on February 28, 1998, based on an initial index value of 1,000 at December 31, 1991. Publication of the MCXE began on October 11, 1999, based on an initial index value of 100 at December 31, 1991. The SX5E and the MCXE are reported daily by Bloomberg L.P. under the symbols “SX5E” and “MCXE,” respectively, and on the STOXX Limited website. Information contained in the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this term sheet.

 

SX5E Composition and Maintenance

 

The SX5E is composed of 50 component stocks from of market sectors from within the 19 EURO STOXX Supersector indices, which represent the Eurozone portion of the STOXX Europe 600 Supersector indices. The STOXX 600 Supersector indices contain the 600 largest stocks traded on the major exchanges of 18 European countries and are organized into the following 19 Supersectors: automobiles & parts; banks; basic resources; chemicals; construction & materials; financial services; food & beverage; health care; industrial goods & services; insurance; media; oil & gas; personal & household goods; real estate; retail; technology; telecommunications; and utilities.

 

The SX5E is weighted by free float market capitalization. Each component’s weight is capped at 10% of the SX5E’s total free float market capitalization. Free float weights are reviewed quarterly and the SX5E composition is reviewed annually September.

 

Within each of the 19 EURO STOXX Supersector indices, the component stocks are ranked by free float market capitalization. The largest stocks are added to the selection list until the coverage is close to, but still less than, 60% of the free float market capitalization of the corresponding EURO STOXX Total Market Index Supersector index. If the next-ranked stock brings the coverage closer to 60% in absolute terms, then it is also added to the selection list. Any remaining stocks that are current Index components are added to the selection list. The stocks on the selection list are ranked by free float market capitalization. In exceptional cases, the STOXX Limited Supervisory Board may make additions and deletions to the selection list.

 

The 40 largest stocks on the selection list are chosen as components. Any remaining current components of the SX5E ranked between 41 and 60 are added as index components. If the component number is still below 50, then the largest remaining stocks on the selection list are added until the SX5E contains 50 stocks.

 

MCXE Composition and Maintenance

 

The MCXE is composed of a variable number of component stocks representing mid-cap companies in 11 Eurozone countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The MCXE is derived from the STOXX® Europe 600 Index.

 

The MCXE is a price-return index denominated in euro and represents the middle 33 1/3% of the STOXX® Europe 600 Index. The largest 58⅓% of the stocks in STOXX® Europe 600 Index qualify for selection in the MCXE. Of the 58⅓% stocks, 33⅓% are included in the EURO STOXX® Large Index, with the remaining 25% (58⅓% - 33⅓%) included in the MCXE. To achieve the remaining 8⅓% to reach 33⅓%, stocks are selected from the largest remaining current large-capitalization and mid-capitalization components of the STOXX® Europe 600 Index ranked between 58⅓% and 75%.

 

SX5E and MCXE Index Calculation

 

The SX5E and the MCXE are calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the index value can be expressed as follows:

 

 

The “free float market capitalization of the Index” is equal to the sum of the product of the price, number of shares, free float factor and weighting cap factor for each component stock as of the time the index is being calculated.

 

The SX5E and the MCXE are also subject to a divisor, which is adjusted to maintain the continuity of index values despite changes due to corporate actions.

 

Market-Linked Step Up Notes TS-10

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

The following graph shows the daily historical performance of the SX5E in the period from January 1, 2008 through July 27, 2017. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On July 27, 2017, the closing level of the SX5E was 3,493.14.

 

Historical Performance of the SX5E

 

 

This historical data on the SX5E is not necessarily indicative of the future performance of the SX5E or what the value of the notes may be. Any historical upward or downward trend in the level of the SX5E during any period set forth above is not an indication that the level of the SX5E is more or less likely to increase or decrease at any time over the term of the notes.

 

Before investing in the notes, you should consult publicly available sources for the levels of the SX5E.

 

The following graph shows the daily historical performance of the MCXE in the period from January 1, 2008 through July 27, 2017. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On July 27, 2017, the closing level of the MCXE was 433.85.

 

Historical Performance of the MCXE

 

 

This historical data on the MCXE is not necessarily indicative of the future performance of the MCXE or what the value of the notes may be. Any historical upward or downward trend in the level of the MCXE during any period set forth above is not an indication that the level of the MCXE is more or less likely to increase or decrease at any time over the term of the notes.

 

Before investing in the notes, you should consult publicly available sources for the levels of the MCXE.

 

Market-Linked Step Up Notes TS-11

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

License Agreement

 

HSBC or one of its affiliates has entered into a nonexclusive license agreement providing for the license to it, in exchange for a fee, of the right to use certain indices owned and published by STOXX Limited in connection with some products, including the notes.

 

STOXX and its licensors (the “Licensors”) have no relationship to the HSBC USA Inc., other than the licensing of the indices and the related trademarks for use in connection with the notes.

 

STOXX and its Licensors do not:

 

§Sponsor, endorse, sell or promote the notes.

 

§Recommend that any person invest in the notes or any other securities.

 

§Have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes.

 

§Have any responsibility or liability for the administration, management or marketing of the notes.

 

§Consider the needs of the notes or the owners of the notes in determining, composing or calculating the indices or have any obligation to do so.

 

STOXX and its Licensors will not have any liability in connection with the notes. Specifically,

 

§STOXX and its Licensors do not make any warranty, express or implied and disclaim any and all warranty about:

 

oThe results to be obtained by the notes, the owner of the notes or any other person in connection with the use of the Index and the data included in the indices;

 

oThe accuracy or completeness of the indices and its data;

 

oThe merchantability and the fitness for a particular purpose or use of the indices and its data;

 

oSTOXX and its Licensors will have no liability for any errors, omissions or interruptions in the indices or its data;

 

§Under no circumstances will STOXX or its Licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX or its Licensors knows that they might occur.

 

The licensing agreement between HSBC USA Inc. and STOXX is solely for their benefit and not for the benefit of the owners of the notes or any other third parties.

 

Market-Linked Step Up Notes TS-12

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

Supplement to the Plan of Distribution

 

We may deliver the notes against payment therefor in New York, New York on a date that is greater than three business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, if the initial settlement of the notes occurs more than three business days from the pricing date, purchasers who wish to trade the notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.

 

The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units. If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.

 

MLPF&S may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices, and these will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. At MLPF&S’s discretion, for a short, undetermined initial period after the issuance of the notes, MLPF&S may offer to buy the notes in the secondary market at a price that may exceed the estimated initial value of the notes. Any price offered by MLPF&S for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Basket, the remaining term of the notes, and the issuer’s creditworthiness. However, neither we nor any of our affiliates is obligated to purchase your notes at any price, or at any time, and we cannot assure you that we, MLPF&S or any of our respective affiliates will purchase your notes at a price that equals or exceeds the estimated initial value of the notes.

 

The value of the notes shown on your account statement provided by MLPF&S will be based on their estimate of the value of the notes if MLPF&S or one of its affiliates were to make a market in the notes, which it is not obligated to do. This estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions, and other considerations, as mentioned above, and will include transaction costs. At certain times, this price may be higher than or lower than the estimated initial value of the notes.

 

The distribution of the Note Prospectus in connection with these offers or sales will be solely for the purpose of providing investors with the description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding HSBC or for any purpose other than that described in the immediately preceding sentence.

 

An investor’s household, as referenced on the cover of this term sheet, will generally include accounts held by any of the following, as determined by MLPF&S in its discretion and acting in good faith based upon information then available to MLPF&S:

 

·the investor’s spouse (including a domestic partner), siblings, parents, grandparents, spouse’s parents, children and grandchildren, but excluding accounts held by aunts, uncles, cousins, nieces, nephews or any other family relationship not directly above or below the individual investor;
   
·a family investment vehicle, including foundations, limited partnerships and personal holding companies, but only if the beneficial owners of the vehicle consist solely of the investor or members of the investor’s household as described above; and
   
·a trust where the grantors and/or beneficiaries of the trust consist solely of the investor or members of the investor’s household as described above; provided that, purchases of the notes by a trust generally cannot be aggregated together with any purchases made by a trustee’s personal account.

 

Purchases in retirement accounts will not be considered part of the same household as an individual investor’s personal or other non-retirement account, except for individual retirement accounts (“IRAs”), simplified employee pension plans (“SEPs”), savings incentive match plan for employees (“SIMPLEs”), and single-participant or owners only accounts (i.e., retirement accounts held by self-employed individuals, business owners or partners with no employees other than their spouses).

 

Please contact your Merrill Lynch financial advisor if you have any questions about the application of these provisions to your specific circumstances or think you are eligible.

 

Role of MLPF&S

 

MLPF&S will participate as selling agent in the distribution of the notes. Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.

 

At maturity, we are required to pay the Redemption Amount to holders of the notes, which will be calculated based on the performance of the Basket and the $10 per unit principal amount. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by MLPF&S seeking bids from market participants, which could include one of our affiliates and MLPF&S and its affiliates. These hedging arrangements take into account a number of factors, including the issuer’s creditworthiness, interest rate movements, the volatility of the Basket Components, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes depend in part on the terms of the hedging arrangements.

 

MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by

 

Market-Linked Step Up Notes TS-13

 

 

 

 

Market-Linked Step Up Notes
Linked to a Euro Index Basket, due August  , 2019		  

 

unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.

 

For further information, see “Risk Factors—General Risks Relating to the Notes” beginning on page PS-7 and “Use of Proceeds” on page PS-17 of product supplement EQUITY INDICES SUN-1.

 

Summary Tax Consequences 

 

You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:

 

§There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.

 

§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 pre-paid executory contracts with respect to the Basket.

 

§Under this characterization and tax treatment of the notes, a U.S. holder (as defined in the prospectus supplement) generally will recognize capital gain or loss upon maturity or upon a sale or exchange of the notes prior to maturity. This capital gain or loss generally will be long-term capital gain or loss if you held the notes for more than one year.

 

§No assurance can be given that the IRS or any court will agree with this characterization and tax treatment.

 

§U.S. Treasury regulations provide that withholding on “dividend equivalent” payments (as discussed in the product supplement and prospectus supplement), if any, will not apply to specified equity-linked instruments that are not delta-one instruments and that are issued before January 1, 2018. Additionally, the IRS has announced that withholding under the Foreign Account Tax Compliance Act (as discussed in the prospectus supplement) on payments of gross proceeds from a sale or redemption of the notes will only apply to payments made after December 31, 2018.

 

You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the notes, as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws. You should review carefully the discussion under the section entitled “U.S. Federal Income Tax Summary” beginning on page PS-32 of product supplement EQUITY INDICES SUN-1.

 

Where You Can Find More Information

 

We have filed a registration statement (including a product supplement, a prospectus supplement and a prospectus) with the SEC for the offering to which this term sheet relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by calling MLPF&S toll-free at 1-800-294-1322.

 

Market-Linked Investments Classification

 

 

 

MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories, each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to represent any particular Enhanced Return Market-Linked Investment or guarantee any performance.

 

Enhanced Return Market-Linked Investments are short- to medium-term investments that offer you a way to enhance exposure to a particular market view without taking on a similarly enhanced level of market downside risk. They can be especially effective in a flat to moderately positive market (or, in the case of bearish investments, a flat to moderately negative market). In exchange for the potential to receive better-than market returns on the linked asset, you must generally accept market downside risk and capped upside potential. As these investments are not market downside protected, and do not assure full repayment of principal at maturity, you need to be prepared for the possibility that you may lose all or part of your investment.

 

Market-Linked Step Up Notes TS-14