Filed Pursuant to Rule 433
Registration No. 333-223208
May 22, 2019
FREE WRITING PROSPECTUS
(To Prospectus dated February 26, 2018,
Prospectus Supplement dated February 26, 2018 and
ETF Underlying Supplement dated February 26, 2018)
Linked to the Invesco S&P 500® Low Volatility Portfolio ETF (the “Reference Asset”)
| ► | 1.00x uncapped exposure to any positive return of the Reference Asset |
| ► | Protection from at least the first 15.00% of any losses of the Reference Asset (to be determined on the Pricing Date) |
| ► | Approximate 3 year maturity |
| ► | All payments on the Notes are subject to the credit risk of HSBC USA Inc. |
The Buffered Uncapped Market Participation SecuritiesTM (each a “Note” and collectively the “Notes") offered hereunder will not be listed on any U.S. securities exchange or automated quotation system. The Notes will not bear interest.
Neither the U.S. 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 prospectus, prospectus supplement or ETF Underlying Supplement. Any representation to the contrary is a criminal offense. We have appointed HSBC Securities (USA) Inc., an affiliate of ours, as the agent for the sale of the Notes. HSBC Securities (USA) Inc. will purchase the Notes from us for distribution to other registered broker-dealers or will offer the Notes directly to investors. 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 in any Notes after their initial sale. Unless we or our agent inform you otherwise in the confirmation of sale, the pricing supplement to which this free writing prospectus relates is being used in a market-making transaction. See “Supplemental Plan of Distribution (Conflicts of Interest)” on page FWP-15 of this document.
Investment in the Notes involves certain risks. You should refer to “Risk Factors” beginning on page FWP-7 of this document, page S-1 of the accompanying prospectus supplement and page S-1 of the accompanying ETF Underlying Supplement.
The Estimated Initial Value of the Notes on the Pricing Date is expected to be between $945.00 and $985.00 per Note, which will be less than the price to public. The market value of the Notes at any time will reflect many factors and cannot be predicted with accuracy. See “Estimated Initial Value” on page FWP-4 and “Risk Factors” beginning on page FWP-7 of this document for additional information.
| Price to Public | Underwriting Discount(1) | Proceeds to Issuer | |
| Per Note | $1,000 | ||
| Total |
(1) HSBC USA Inc. or one of our affiliates may pay varying underwriting discounts of up to 0.50% per $1,000 Principal Amount in connection with the distribution of the Notes to other registered broker-dealers. See “Supplemental Plan of Distribution (Conflicts of Interest)” on page FWP-15 of this document.
The Notes:
| Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value |
Indicative Terms1
| Principal Amount | $1,000 per Note |
| Term | Approximate 3 year maturity |
| Reference Asset | The Invesco S&P 500® Low Volatility Portfolio ETF (Ticker: SPLV) |
| Upside Participation Rate | 100% (1.00x) exposure to any positive Reference Return |
| Buffer Percentage | At least -15.00% (to be determined on the Pricing Date) |
| Reference Return |
Final Value – Initial Value Initial Value |
|
Payment at Maturity per Note |
If the Reference Return is greater than zero: $1,000 + ($1,000 × Reference Return × Upside Participation Rate). If the Reference Return is less than or equal to zero but greater than or equal to the Buffer Percentage: $1,000 (zero return). If the Reference Return is less than the Buffer Percentage: $1,000 + ($1,000 × (Reference Return + 15.00%*)). For example, assuming a Buffer Level of -15%, if the Reference Return is -30%, you will suffer a 15% loss and receive 85% of the Principal Amount, subject to the credit risk of HSBC USA Inc. If the Reference Return is less than the Buffer Percentage, you will lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your investment. |
| Initial Value | The Official Closing Price of the Reference Asset on the Pricing Date |
| Final Value | The Official Closing Price of the Reference Asset on the Final Valuation Date |
| Pricing Date | June 4, 2019 |
| Trade Date | June 4, 2019 |
| Original Issue Date | June 7, 2019 |
| Final Valuation Date(2) | June 2, 2022 |
| Maturity Date(2) | June 7, 2022 |
| CUSIP/ISIN | 40435UNX8/US40435UNX80 |
The Notes
HSBC Buffered Uncapped Market Participation SecuritiesTM offer investors uncapped upside exposure to the upside return of the Invesco S&P 500® Low Volatility Portfolio ETF, while providing a pre-defined level of downside buffered protection at maturity.
The Notes are designed for investors who believe the Reference Asset will appreciate over the term of the Notes. If the Reference Return is below the Buffer Percentage, then the Notes are subject to a 1:1 exposure to any potential decline of the Reference Asset beyond the Buffer Percentage of at least -15.00% (to be determined on the Pricing Date).
If the Reference Asset appreciates over the term of the Notes, you will realize a return equal to 100% (1.00x) of the Reference Asset appreciation. Should the Reference Asset decline, you will lose 1% of your investment for every 1% decline in the Reference Asset beyond the Buffer Percentage.
Educational Video: HSBC Buffered Uncapped Notes
(1)As more fully described on page FWP-4.
(2)Subject to adjustment as described under “Additional Terms of the Notes” in the accompanying ETF Underlying Supplement.
*To be determined on the Pricing Date and will not be less than 15%.
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| Payoff Example | ||
| The table at right shows the hypothetical payout profile of an investment in the Notes reflecting the Upside Participation Rate of 100% (1.00x) and assuming a Buffer Percentage of at least -15.00% (to be determined on the Pricing Date). |  |
| Information about the Reference Asset | ||
|
The Reference Asset seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500® Low Volatility Index (the “Underlying Index”). The returns of the Reference Asset may be affected by certain management fees and other expenses, which are detailed in its prospectus.
The Underlying Index measures the performance of the 100 least volatile stocks over the previous year in the S&P 500® Index. It is designed to serve as a benchmark for low volatility strategies in the U.S. stock market |
 |
The graph above illustrates the performance of the Reference Asset from its launch date of May 6, 2011 through May 20, 2019. The closing prices in the graph above were obtained from the Bloomberg Professional® Service. Past performance is not necessarily an indication of future results. For further information on the Reference Asset, please see “Description of the Reference Asset” on page FWP-12 of this document. We have derived all disclosure regarding the Reference Asset from publicly available information. Neither HSBC USA Inc. nor any of its affiliates have undertaken any independent review of, or made any due diligence inquiry with respect to, the publicly available information about the Reference Asset or the Underlying Index.
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| HSBC USA Inc. |  |
| Buffered Uncapped Market Participation SecuritiesTM |
Linked to the Invesco S&P 500® Low Volatility Portfolio ETF
This document relates to a single offering of Buffered Uncapped Market Participation SecuritiesTM. The Notes will have the terms described in this document and the accompanying prospectus, prospectus supplement and ETF Underlying Supplement. If the terms of the Notes offered hereby are inconsistent with those described in the accompanying prospectus, prospectus supplement, or ETF Underlying Supplement, the terms described in this document shall control. You should be willing to forgo interest and dividend payments during the term of the Notes and, if the Reference Return is less than the Buffer Percentage, lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your principal.
This document relates to an offering of Notes linked to the performance of the Invesco S&P 500® Low Volatility Portfolio ETF (the “Reference Asset”). The purchaser of a Note will acquire a senior unsecured debt security of HSBC USA Inc. linked to the Reference Asset as described below. The following key terms relate to the offering of the Notes:
| Issuer: | HSBC USA Inc. |
| Principal Amount: | $1,000 per Note |
| Reference Asset: |
The Invesco S&P 500® Low Volatility Portfolio ETF (Ticker: SPLV) The Reference Asset seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500® Low Volatility Index (the “Underlying Index”). |
| Trade Date: | June 4, 2019 |
| Pricing Date: | June 4, 2019 |
| Original Issue Date: | June 7, 2019 |
| Final Valuation Date: | June 2, 2022, subject to adjustment as described under “Additional Terms of the Notes—Valuation Dates” in the accompanying ETF Underlying Supplement. |
| Maturity Date: | 3 business days after the Final Valuation Date, which is expected to be June 7, 2022. The Maturity Date is subject to adjustment as described under “Additional Terms of the Notes—Coupon Payment Dates, Call Payment Dates and Maturity Date” in the accompanying ETF Underlying Supplement. |
| Upside Participation Rate: | 100% (1.00x) |
| Payment at Maturity: | On the Maturity Date, for each Note, we will pay you the Final Settlement Value. |
| Reference Return: | The quotient, expressed as a percentage, calculated as follows: |
|
Final Value – Initial Value Initial Value | |
| Final Settlement Value: |
If the Reference Return is greater than zero, you will receive a cash payment on the Maturity Date, per $1,000 Principal Amount, calculated as follows: $1,000 + ($1,000 × Reference Return × Upside Participation Rate). If the Reference Return is less than or equal to zero but greater than or equal to the Buffer Percentage, you will receive $1,000 per $1,000 Principal Amount (zero return). If the Reference Return is less than the Buffer Percentage, you will receive a cash payment on the Maturity Date, per $1,000 Principal Amount, calculated as follows: $1,000 + [$1,000 × (Reference Return + 15.00%*)]. *To be determined on the Pricing Date and will not be less than 15%. Under these circumstances, you will lose 1% of the Principal Amount of your Notes for each percentage point that the Reference Return is below the Buffer Percentage. For example, assuming a Buffer Level of -15%, if the Reference Return is -30%, you will suffer a 15% loss and receive 85% of the Principal Amount, subject to the credit risk of HSBC. If the Reference Return is less than the Buffer Percentage, you will lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your investment. |
| Buffer Percentage: | At least -15.00% (to be determined on the Pricing Date) |
| Initial Value: | The Official Closing Price of the Reference Asset on the Pricing Date. |
| Final Value: | The Official Closing Price of the Reference Asset on the Final Valuation Date. |
| Form of Notes: | Book-Entry |
| Listing: | The Notes will not be listed on any U.S. securities exchange or quotation system. |
| CUSIP/ISIN: | 40435UNX8/US40435UNX80 |
| Estimated Initial Value: | The Estimated Initial Value of the Notes will be less than the price you pay to purchase the Notes. The Estimated Initial Value does not represent a minimum price at which we or any of our affiliates would be willing to purchase your Notes in the secondary market, if any, at any time. The Estimated Initial Value will be calculated on the Pricing Date. See “Risk Factors — The Estimated Initial Value of the Notes, 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 Notes in the secondary market, if any.” |
The Trade Date, the Pricing Date and the other dates set forth above are subject to change, and will be set forth in the pricing supplement relating to the Notes.
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GENERAL
This document relates to an offering of Notes linked to the Reference Asset. The purchaser of a Note will acquire a senior unsecured debt security of HSBC USA Inc. We reserve the right to withdraw, cancel or modify this offering and to reject orders in whole or in part. Although the offering of Notes relates to the Reference Asset, you should not construe that fact as a recommendation as to the merits of acquiring an investment linked to the Reference Asset or any component security held by the Reference Asset or as to the suitability of an investment in the Notes.
You should read this document together with the prospectus dated February 26, 2018, the prospectus supplement dated February 26, 2018 and the ETF Underlying Supplement dated February 26, 2018. If the terms of the Notes offered hereby are inconsistent with those described in the accompanying prospectus, prospectus supplement or ETF Underlying Supplement, the terms described in this document shall control. You should carefully consider, among other things, the matters set forth in “Risk Factors” beginning on page FWP-7 of this document, page S-1 of the prospectus supplement and page S-1 of the ETF Underlying Supplement, as the Notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes. As used herein, references to the “Issuer”, “HSBC”, “we”, “us” and “our” are to HSBC USA Inc.
HSBC has filed a registration statement (including a prospectus, prospectus supplement and ETF 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 ETF 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 ETF Underlying Supplement if you request them by calling toll-free 1-866-811-8049.
You may also obtain:
| 4 | The ETF Underlying Supplement at: https://www.sec.gov/Archives/edgar/data/83246/000114420418010788/tv486720_424b2.htm | |
| 4 | The prospectus supplement at: https://www.sec.gov/Archives/edgar/data/83246/000114420418010762/tv486944_424b2.htm | |
| 4 | The prospectus at: https://www.sec.gov/Archives/edgar/data/83246/000114420418010720/tv487083_424b3.htm |
We are using this document to solicit from you an offer to purchase the Notes. You may revoke your offer to purchase the Notes at any time prior to the time at which we accept your offer by notifying HSBC Securities (USA) Inc. We reserve the right to change the terms of, or reject any offer to purchase, the Notes prior to their issuance. In the event of any material changes to the terms of the Notes, we will notify you.
PAYMENT AT MATURITY
On the Maturity Date, for each Note you hold, we will pay you the Final Settlement Value, which is an amount in cash, as described below:
If the Reference Return is greater than zero, you will receive a cash payment on the Maturity Date, per $1,000 Principal Amount, calculated as follows:
$1,000 + ($1,000 × Reference Return × Upside Participation Rate).
If the Reference Return is less than or equal to zero but greater than or equal to the Buffer Percentage, you will receive $1,000 per $1,000 Principal Amount (zero return).
If the Reference Return is less than the Buffer Percentage, you will receive a cash payment on the Maturity Date, per $1,000 Principal Amount, calculated as follows:
$1,000 + [$1,000 × (Reference Return + 15.00%*)].
*To be determined on the Pricing Date and will not be less than 15%.
Under these circumstances, you will lose 1% of the Principal Amount of your Notes for each percentage point that the Reference Return is below the Buffer Percentage. For example, assuming a Buffer Level of -15%, if the Reference Return is -30%, you will suffer a 15% loss and receive 85% of the Principal Amount, subject to the credit risk of HSBC. You should be aware that if the Reference Return is less than the Buffer Percentage, you will lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your investment.
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Interest
The Notes will not pay interest.
Calculation Agent
We or one of our affiliates will act as calculation agent with respect to the Notes.
Reference Issuer
The reference issuer is Invesco Capital Management LLC.
INVESTOR SUITABILITY
The Notes may be suitable for you if:
| ► | You seek an investment with a return linked to the potential positive performance of the Reference Asset and you believe the price of the Reference Asset will increase over the term of the Notes. | |
| ► | You are willing to make an investment that is exposed to the negative Reference Return on a 1-to-1 basis for each percentage point that the Reference Return is below the Buffer Percentage of at least -15.00% (to be determined on the Pricing Date). | |
| ► | You are willing to forgo dividends or other distributions paid to holders of the Reference Asset or the stocks held by the Reference Asset. | |
| ► | You are willing to accept the risk and return profile of the Notes versus a conventional debt security with a comparable maturity issued by HSBC or another issuer with a similar credit rating. | |
| ► | You do not seek current income from your investment. | |
| ► | You do not seek an investment for which there is an active secondary market. | |
| ► | You are willing to hold the Notes to maturity. | |
| ► | You are comfortable with the creditworthiness of HSBC, as Issuer of the Notes. |
The Notes may not be suitable for you if:
| ► | You believe the Reference Return will be negative or that the Reference Return will not be sufficiently positive to provide you with your desired return. | |
| ► | You are unwilling to make an investment that is exposed to the negative Reference Return on a 1-to-1 basis for each percentage point that the Reference Return is below the Buffer Percentage of at least -15.00% (to be determined on the Pricing Date). | |
| ► | You seek an investment that provides full return of principal. | |
| ► | You prefer the lower risk, and therefore accept the potentially lower returns, of conventional debt securities with comparable maturities issued by HSBC or another issuer with a similar credit rating. | |
| ► | You prefer to receive the dividends or other distributions paid to the holders of the Reference Asset or the stocks held by the Reference Asset. | |
| ► | You seek current income from your investment. | |
| ► | You seek an investment for which there will be an active secondary market. | |
| ► | You are unable or unwilling to hold the Notes to maturity. | |
| ► | You are not willing or are unable to assume the credit risk associated with HSBC, as Issuer of the Notes. |
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RISK FACTORS
We urge you to read the section “Risk Factors” beginning on page S-1 of the accompanying prospectus supplement and on page S-1 of the accompanying ETF Underlying Supplement. Investing in the Notes is not equivalent to investing directly in the Reference Asset or any of the stocks included in the Underlying Index. You should understand the risks of investing in the Notes and should reach an investment decision only after careful consideration, with your advisors, of the suitability of the Notes in light of your particular financial circumstances and the information set forth in this document and the accompanying, prospectus, prospectus supplement and ETF Underlying Supplement.
In addition to the risks discussed below, you should review “Risk Factors” in the accompanying prospectus supplement and ETF Underlying Supplement including the explanation of risks relating to the Notes described in the following sections:
| 4 | “— Risks Relating to All Note Issuances” in the prospectus supplement; and | |
| 4 | “— General Risks Related to Index Funds” in the ETF Underlying Supplement |
You will be subject to significant risks not associated with conventional fixed-rate or floating-rate debt securities.
Your investment in the Notes may result in a loss.
You will be exposed to the decline in the Final Value from the Initial Value beyond the Buffer Percentage of at least -15.00% (to be determined on the Pricing Date). Accordingly, if the Reference Return is less than the Buffer Percentage of at least -15.00%, your Payment at Maturity will be less than the Principal Amount of your Notes. You will lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your investment at maturity if the Reference Return is less than the Buffer Percentage.
The amount payable on the Notes is not linked to the price of the Reference Asset at any time other than on the Final Valuation Date.
The Final Value will be based on the Official Closing Price of the Reference Asset on the Final Valuation Date, subject to postponement for non-trading days and certain market disruption events. Even if the price of the Reference Asset appreciates during the term of the Notes other than on the Final Valuation Date but then decreases on the Final Valuation Date to a price that is less than the Initial Value, the Payment at Maturity may be less, and may be significantly less, than it would have been had the Payment at Maturity been linked to the price of the Reference Asset prior to such decrease. Although the actual price of the Reference Asset on the Maturity Date or at other times during the term of the Notes may be higher than the Final Value, the Payment at Maturity will be based solely on the Official Closing Price of the Reference Asset on the Final Valuation Date.
Credit risk of HSBC USA Inc.
The Notes 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 Notes will rank on par with all of the other unsecured and unsubordinated debt obligations of HSBC, except such obligations as may be preferred by operation of law. Any payment to be made on the Notes, including any return of principal at maturity, depends on the ability of HSBC to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of HSBC may affect the market value of the Notes 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 Notes.
The Notes will not bear interest.
As a holder of the Notes, you will not receive interest payments.
Owning the Notes is not the same as owning the Reference Asset or the stocks included in the Underlying Index.
The return on your Notes may not reflect the return you would realize if you actually owned the Reference Asset or stocks included in the Underlying Index. As a holder of the Notes, you will not have voting rights or rights to receive dividends or other distributions or other rights as would holders of the Reference Asset or the stocks included in the Underlying Index.
Changes that affect the Reference Asset or the Underlying Index may affect the price of the Reference Asset and the market value of the Notes and the amount you will receive at maturity.
The policies of the reference issuer or S&P Dow Jones Indices LLC (the “Index Sponsor”), the index sponsor of the Underlying Index, concerning additions, deletions and substitutions of the stocks held by the Reference Asset or included in the Underlying Index, as applicable, and the manner in which the reference issuer or the Index Sponsor takes account of certain changes affecting those stocks may affect the price of the Reference Asset. The policies of the reference issuer or the Index Sponsor with respect to the calculation of the Reference Asset or the Underlying Index, as applicable, could also affect the price of the Reference Asset. The reference issuer or the Index Sponsor may discontinue or suspend calculation or dissemination of the Reference Asset or the Underlying Index, as applicable. Any such actions could affect the price of the Reference Asset and the value of the Notes.
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The Notes are not insured or guaranteed by any governmental agency of the United States or any other jurisdiction.
The Notes 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 Notes is subject to the credit risk of HSBC, and in the event that HSBC is unable to pay its obligations as they become due, you may not receive the full Payment at Maturity of the Notes.
The Estimated Initial Value of the Notes, 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 Notes in the secondary market, if any.
The Estimated Initial Value of the Notes will be calculated by us on the Pricing Date and will be less than the price to public. The Estimated Initial Value will reflect our internal funding rate, which is the borrowing rate we pay to issue market-linked securities, as well as the mid-market value of the embedded derivatives in the Notes. This internal funding 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 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 prices 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. We will determine the value of the embedded derivatives in the Notes 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 Notes 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 Notes in the secondary market (if any exists) at any time.
The price of your Notes 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, which will be used or retained by us or one of our affiliates, include the underwriting discount, our affiliates’ projected hedging profits (which may or may not be realized) for assuming risks inherent in hedging our obligations under the Notes and the costs associated with structuring and hedging our obligations under the Notes. 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 because secondary market prices will not take into account these costs. The price of your Notes in the secondary market, if any, at any time after issuance will vary based on many factors, including the price of the Reference Asset 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.
If we were to repurchase your Notes immediately after the Original Issue Date, the price you receive may be higher than the Estimated Initial Value of the Notes.
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 Notes in the secondary market, if any, and the value that may initially be used for customer account statements, if any, may exceed the Estimated Initial Value on the Pricing Date for a temporary period expected to be approximately 7 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 Notes and other costs in connection with the Notes that we will no longer expect to incur over the term of the Notes. 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 Notes and any agreement we may have with the distributors of the Notes. 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 Notes based on changes in market conditions and other factors that cannot be predicted.
The Notes lack liquidity.
The Notes will not be listed on any securities exchange. HSBC Securities (USA) Inc. is not required to offer to purchase the Notes in the secondary market, if any exists. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely to depend on the price, if any, at which HSBC Securities (USA) Inc. is willing to buy the Notes.
The performance and market value of the Reference Asset during periods of market volatility may not correlate with the performance of the Underlying Index as well as the net asset value per share of the Reference Asset.
During periods of market volatility, securities underlying the Reference Asset may be unavailable in the secondary market, market participants may be unable to calculate accurately its net asset value per share and its liquidity may be adversely affected. This kind of market volatility may also disrupt the ability of market participants to create and redeem shares of the Reference Asset. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the
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Reference Asset. As a result, under these circumstances, the market value of shares of the Reference Asset may vary substantially from its net asset value per share. For all of the foregoing reasons, the performance of the Reference Asset may not correlate with the performance of the Underlying Index as well as its net asset value per share, which could materially and adversely affect the value of the Notes in the secondary market and/or reduce your payment at maturity.
A low volatility index may be volatile.
While the Underlying Index has been designed in part to mitigate the effects of volatility, there is no assurance that it will be successful in doing so. It is also possible that the features of the Underlying Index designed to address the effects of volatility will instead adversely affect the return of the Reference Asset and, consequently, the return on the securities.
Potential conflicts of interest may exist.
An affiliate of HSBC has a minority equity interest in the owner of an electronic platform, through which we may make available certain structured investments offering materials. HSBC and its affiliates play a variety of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under the Notes. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the Notes. We will not have any obligation to consider your interests as a holder of the Notes in taking any action that might affect the value of your Notes.
Uncertain tax treatment.
For a discussion of the U.S. federal income tax consequences of your investment in a Note, please see the discussion under “U.S. Federal Income Tax Considerations” herein and the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement.
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ILLUSTRATIVE EXAMPLES
The following table and examples are provided for illustrative purposes only and are hypothetical. They do not purport to be representative of every possible scenario concerning increases or decreases in the price of the Reference Asset relative to its Initial Value. We cannot predict the Final Value. The assumptions we have made in connection with the illustrations set forth below may not reflect actual events, and the hypothetical Initial Value used in the table and examples below is not expected to be the actual Initial Value of the Reference Asset. You should not take this illustration or these examples as an indication or assurance of the expected performance of the Reference Asset or the return on your Notes. The Final Settlement Value may be less than the amount that you would have received from a conventional debt security with the same stated maturity, including such a security issued by HSBC. The numbers appearing in the table below and following examples have been rounded for ease of analysis.
The table below illustrates the Payment at Maturity on a $1,000 investment in the Notes for a hypothetical range of Reference Returns from -100% to +100%. The following results are based solely on the assumptions outlined below. The “Hypothetical Return on the Notes” as used below is the number, expressed as a percentage, that results from comparing the Final Settlement Value per $1,000 Principal Amount to $1,000. The potential returns described here assume that your Notes are held to maturity. You should consider carefully whether the Notes are suitable to your investment goals. The following table and examples assume the following:
| 4 | Principal Amount: | $1,000 |
| 4 | Hypothetical Initial Value: | $100.00 |
| 4 | Upside Participation Rate: | 100% |
| 4 | Hypothetical Buffer Percentage*: | -15.00% |
The actual Initial Value will be determined on the Pricing Date.
*To be determined on the Pricing Date and will not be less than 15%.
|
Hypothetical Final Value |
Hypothetical Reference Return |
Hypothetical Payment at Maturity |
Hypothetical Return on the Notes |
| $200.00 | 100.00% | $2,000.00 | 100.00% |
| $180.00 | 80.00% | $1,800.00 | 80.00% |
| $160.00 | 60.00% | $1,600.00 | 60.00% |
| $140.00 | 40.00% | $1,400.00 | 40.00% |
| $130.00 | 30.00% | $1,300.00 | 30.00% |
| $120.00 | 20.00% | $1,200.00 | 20.00% |
| $115.00 | 15.00% | $1,150.00 | 15.00% |
| $110.00 | 10.00% | $1,100.00 | 10.00% |
| $105.00 | 5.00% | $1,050.00 | 5.00% |
| $102.00 | 2.00% | $1,020.00 | 2.00% |
| 101.00 | 1.00% | $1,010.00 | 1.00% |
| $100.00 | 0.00% | $1,000.00 | 0.00% |
| $99.00 | -1.00% | $1,000.00 | 0.00% |
| $98.00 | -2.00% | $1,000.00 | 0.00% |
| $95.00 | -5.00% | $1,000.00 | 0.00% |
| $90.00 | -10.00% | $1,000.00 | 0.00% |
| $85.00 | -15.00% | $1,000.00 | 0.00% |
| $80.00 | -20.00% | $950.00 | -5.00% |
| $70.00 | -30.00% | $850.00 | -15.00% |
| $60.00 | -40.00% | $750.00 | -25.00% |
| $50.00 | -50.00% | $650.00 | -35.00% |
| $20.00 | -80.00% | $350.00 | -65.00% |
| $0.00 | -100.00% | $150.00 | -85.00% |
| FWP-10 |
The following examples indicate how the Final Settlement Value would be calculated with respect to a hypothetical $1,000 investment in the Notes.
Example 1: The price of the Reference Asset increases from the Initial Value of $100.00 to a Final Value of $110.00.
| Reference Return: | 10.00% |
| Final Settlement Value: | $1,100.00 |
Because the Reference Return is positive, the Final Settlement Value would be $1,100.00 per $1,000 Principal Amount, calculated as follows:
$1,000 + ($1,000 × Reference Return × Upside Participation Rate)
= $1,000 + ($1,000 × 10.00% × 100%)
= $1,100.00
Example 1 shows that you will receive the return of your principal investment plus a return equal to the Reference Return multiplied by the Upside Participation Rate of 100% when the Reference Asset appreciates.
Example 2: The price of the Reference Asset decreases from the Initial Value of $100.00 to a Final Value of $95.00.
| Reference Return: | -5.00% |
| Final Settlement Value: | $1,000.00 |
Because the Reference Return is less than zero but greater than the hypothetical Buffer Percentage of -15.00%, the Final Settlement Value would be $1,000.00 per $1,000 Principal Amount (a zero return).
Example 3: The price of the Reference Asset decreases from the Initial Value of $100.00 to a Final Value of $60.00.
| Reference Return: | -40.00% |
| Final Settlement Value: | $750.00 |
Because the Reference Return is less than the hypothetical Buffer Percentage of -15.00%, the Final Settlement Value would be $750.00 per $1,000 Principal Amount, calculated as follows:
$1,000 + [$1,000 × (Reference Return + 15.00%)]
= $1,000 + [$1,000 × (-40.00% + 15.00%)]
= $750.00
Example 3 shows that you are exposed on a 1-to-1 basis to declines in the price of the Reference Asset beyond the hypothetical Buffer Percentage of at least -15.00%. You will lose some or a significant portion (up to 85.00%, to be determined on the Pricing Date) of your investment.
| FWP-11 |
DESCRIPTION OF THE REFERENCE ASSET
Description of the SPLV
We have derived all information contained in this document regarding the Reference Asset, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by, Invesco Capital Management LLC (“Invesco”). The Reference Asset is an investment portfolio maintained and managed by Invesco. The Reference Asset is an exchange traded fund (“ETF”) that trades on the NYSE Arca under the ticker symbol “SPLV”. We have not undertaken any independent review of, or made any due diligence inquiry with respect to, the information derived from these public sources.
Invesco is a registered investment company that consists of numerous separate investment portfolios, including the Reference Asset. Information provided to or filed with the SEC by Invesco pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to SEC file numbers 333-138490 and 811-21977, respectively, through the SEC’s website at http://www.sec.gov. For additional information regarding Invesco and the Reference Asset, please see the Reference Asset’s prospectus, dated December 28, 2018 and supplemented on January 11, 2019. You can obtain the price of the Reference Asset at any time from the Bloomberg Financial Markets page “SPLV UP <Equity> <GO>” or from the Invesco website. Information from outside sources is not incorporated by reference in, and should not be considered a part of, this document.
Investment Objective and Strategy
The Reference Asset seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500® Low Volatility Index (the “Underlying Index”). The Reference Asset generally will invest at least 90% of its total assets in common stocks that comprise the Underlying Index. S&P Dow Jones Indices LLC ("S&P") compiles, maintains and calculates the Underlying Index. Strictly in accordance with its existing guidelines and mandated procedures, S&P selects 100 securities from the S&P 500® Index for inclusion in the Underlying Index that have the lowest realized volatility over the past 12 months as determined by S&P. Volatility is a statistical measurement of the magnitude of up and down asset price fluctuations (increases or decreases in a stock's price) over time. The Reference Asset generally invests in all of the securities comprising the Underlying Index in proportion to their weightings in the Underlying Index. The returns of the Reference Asset may be affected by certain management fees and other expenses, which are detailed in its prospectus.
Industry Concentration Policy
The Reference Asset will concentrate its investments (i.e., invest 25% or more of the value of its total assets) in securities of issuers in any one industry or sector only to the extent that the Underlying Index reflects a concentration in that industry or sector. The Reference Asset will not otherwise concentrate its investments in securities of issuers in any one industry or sector.
Holdings Information
The following table summarizes the Reference Asset’s holdings by sector as of May 20, 2019.
| Sector | Percentage of Total Holdings |
| Utilities | 24.98% |
| Financials | 21.09% |
| Real Estate | 20.69% |
| Consumer Staples | 9.71% |
| Industrials | 6.10% |
| Information Technology | 4.95% |
| Consumer Discretionary | 4.74% |
| Health Care | 3.78% |
| Materials | 2.09% |
| Communication Services | 0.96% |
| Energy | 0.90% |
The S&P 500® Low Volatility Index
We have derived all information relating to the Underlying Index, including, without limitation, its make-up, performance, method of calculation and changes in its components, from publicly available sources. That information reflects the policies of and is subject to change by, S&P. S&P is under no obligation to continue to publish, and may discontinue or suspend the publication of the Underlying Index at any time.
S&P Publishes the S&P 500 Low Volatility Index
The Underlying Index has been calculated since April 20, 2011 and measures the performance of the 100 least volatile stocks in the S&P 500® Index. Volatility is defined as the standard deviation of the stock’s daily price returns over the prior 252 trading days. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights. The Underlying Index is designed to serve as a benchmark for low volatility or low variance strategies in the U.S. stock market
| FWP-12 |
and S&P may from time to time, in its sole discretion, add companies to or delete companies from the Underlying Index to achieve these objectives.
Changes in the Underlying Index are reported daily in the financial pages of many major newspapers, on the Bloomberg Professional® service under the symbol “SP5LVI” and on the S&P website. Information contained in the S&P website is not incorporated by reference in, and should not be considered a part of, this document.
Construction of the Reference Asset
The methodology employs a volatility driven weighting scheme, using the divisor methodology used in all of S&P’s equity indices. There are two steps in the creation of the Underlying Index. The first is the selection of the companies; the second is the weighting of the index constituents.
To be eligible for inclusion into the Underlying Index, stocks must first become constituents in the S&P 500® Index. Relevant criteria employed by S&P for inclusion in the S&P 500® Index include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the market price of that company’s common stock is generally responsive to changes in the affairs of the respective industry and the market value and trading activity of the common stock of that company.
Additionally, to be eligible for the Underlying Index, constituents must have traded on all trading days in the 12 months leading up to the rebalancing reference date; however, index committee discretion may be used in situations where a stock was subject to a temporary trading halt during that period..
The selection of constituents included in the SPLV is done as follows:
| 1. | Using available price return data for the trailing one year of trading days leading up to each index rebalancing reference date, the volatilities of the constituents within each eligible universe are calculated. |
| 2. | Constituents are, then, ranked in ascending order based on the inverse of the realized volatility. The top 100 securities with the least volatility form the SPLV. |
At each rebalancing, the weight for each index constituent is set inversely proportional to its volatility. Volatility is defined as the standard deviation of the security’s daily price returns in local currency over the past year. The Underlying Index is calculated by means of the divisor methodology used in all S&P’s equity indices. The index value is simply the index market value divided by the Divisor. In order to maintain basket series continuity, S&P also adjusts the divisor at the rebalancing.
Maintenance of the S&P 500 Low Volatility Index
Rebalancing
The Underlying Index is rebalanced after the close on the third Friday of each February, May, August and November using market data as of the last trading day of every January, April, July and October. The constituents’ shares are calculated using closing prices on the second Friday of the rebalancing month as the reference price. Index share amounts are calculated and assigned to each stock to arrive at the weights determined on the reference date. Since index shares are assigned based on prices one week prior to rebalancing, the actual weight of each stock at the rebalancing will differ from these weights due to market movements.
Corporate Actions
| Corporate Action | Adjustment Made to the Underlying Index | Divisor Adjustment? | ||
| Spin-off | Spin off companies are not added to the Underlying Index. See below for more information. | See below | ||
| Rights Offering | The price is adjusted to the Price of the Parent Company minus (the Price of the Rights Offering/Rights Ratio). Index shares change so that the company’s weight remains the same as its weight before the rights offering. | No | ||
| Stock Split | Index shares are multiplied by and the price is divided by the split factor. | No | ||
| Share Issuance or Share Repurchase | None. Actual shares outstanding of the company play no role in the daily index calculation. | No | ||
| Special Dividends | The price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend ex-date. | Yes | ||
| Delisting, acquisition or any other corporate action resulting in the deletion of the stock from the Underlying Index. | The stock is dropped from the Underlying Index. This will cause the weights of the rest of the stocks in the Underlying Index to change proportionately. Additions are made to the Underlying Index only at the time of the quarterly rebalancing. | Yes |
| FWP-13 |
Spin-offs
The spun-off company is added to all the indices of which the parent is a constituent, at a zero price at the market close of the day before the ex-date (with no divisor adjustment). The spun-off company is removed after at least one day of regular way trading (with a divisor adjustment).
Historical Performance of the SPLV
The following graph sets forth the historical performance of the SPLV based on the daily historical closing prices from May 6, 2011 through May 20, 2019. We obtained the data below from the Bloomberg Professional® service. We have not undertaken any independent review of, or made any due diligence inquiry with respect to, the information obtained from the Bloomberg Professional® service.
The historical prices of the SPLV should not be taken as an indication of future performance, and no assurance can be given as to the Official Closing Price of the SPLV on the Final Valuation Date.
License Agreement with S&P
HSBC has entered into a nonexclusive license agreement providing for the license to it, in exchange for a fee, of the right to use indices owned and published by S&P in connection with some products, including the Notes.
Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“Standard & Poor’s”); 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. “Standard & Poor’s®,” “S&P 500®” and “S&P®” are trademarks of Standard & Poor’s and have been licensed for use by S&P and its affiliates and sublicensed for certain purposes by HSBC. The SPLV is a product of S&P, and has been licensed for use by HSBC.
The Notes are not sponsored, endorsed, sold or promoted by S&P, Dow Jones, Standard & Poor’s or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P makes any representation or warranty, express or implied, to the owners of the Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly or the ability of the SPLV to track general market performance. S&P’s only relationship to HSBC is the licensing of the SPLV and certain trademarks, service marks and/or trade names of S&P. The SPLV is determined, composed and calculated by S&P without regard to HSBC or the Notes. S&P has no obligation to take the needs of HSBC or the owners of the Notes into consideration in determining, composing or calculating the SPLV. S&P is not responsible for and has not participated in the determination of the prices and amount of the Notes or the timing of the issuance or sale of the Notes or in the determination or calculation of the equation by which the Notes are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Notes. There is no assurance that investment products based on the SPLV will accurately track index performance or provide positive investment returns. S&P is not an investment advisor. Inclusion of a security within the SPLV is not a recommendation by S&P to buy, sell or hold such security, nor is it considered to be investment advice.
S&P DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500® LOW VOLATILITY 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 SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P 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, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500® LOW VOLATILITY INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P 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 POSSIBILITY 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 AND HSBC, OTHER THAN THE LICENSORS OF S&P.
| FWP-14 |
EVENTS OF DEFAULT AND ACCELERATION
If the Notes have become immediately due and payable following an Event of Default (as defined in the accompanying prospectus) with respect to the Notes, the calculation agent will determine the accelerated payment due and payable at maturity in the same general manner as described in “Payment at Maturity” in this document. In that case, the scheduled trading day immediately preceding the date of acceleration will be used as the Final Valuation Date for purposes of determining the Reference Return, and the accelerated maturity date will be three business days after the accelerated Final Valuation Date. If a Market Disruption Event exists with respect to the Reference Asset on that scheduled trading day, then the accelerated Final Valuation Date for the Reference Asset will be postponed for up to five scheduled trading days (in the same manner used for postponing the originally scheduled Final Valuation Date). The accelerated maturity date will also be postponed by an equal number of business days.
If the Notes have become immediately due and payable following an Event of Default, you will not be entitled to any additional payments with respect to the Notes. For more information, see “Description of Debt Securities — Senior Debt Securities — Events of Default” in the accompanying prospectus.
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We have appointed HSBC Securities (USA) Inc., an affiliate of HSBC, as the agent for the sale of the Notes. Pursuant to the terms of a distribution agreement, HSBC Securities (USA) Inc. will purchase the Notes from HSBC at the price to public less the underwriting discount set forth on the cover page of the pricing supplement to which this free writing prospectus relates, for distribution to other registered broker-dealers, or will offer the Notes directly to investors. HSBC Securities (USA) Inc. proposes to offer the Notes at the price to public set forth on the cover page of this document. HSBC USA Inc. or one of our affiliates may pay varying underwriting discounts of up to 0.50% per $1,000 Principal Amount in connection with the distribution of the Notes to other registered broker-dealers.
An affiliate of HSBC has paid or may pay in the future an amount to broker-dealers in connection with the costs of the continuing implementation of systems to support the Notes.
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 Notes, but is under no obligation to make a market in the Notes and may discontinue any market-making activities at any time without notice.
See “Supplemental Plan of Distribution (Conflicts of Interest)” on page S-61 in the prospectus supplement.
We expect that delivery of the Notes will be made against payment for the Notes on or about the Original Issue Date set forth on the inside cover page of this document, which is more than two business days following the Trade Date. Under Rule 15c6-1 under the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in two business days, unless the parties to that trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes more than two business days prior to the Original Issue Date will be required to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement, and should consult their own advisors.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
There is no direct legal authority as to the proper tax treatment of the Notes, and therefore significant aspects of the tax treatment of the Notes are uncertain as to both the timing and character of any inclusion in income in respect of the Notes. Under one approach, a Note should be treated as a pre-paid executory contract with respect to the Reference Asset. We intend to treat the Notes consistent with this approach. Pursuant to the terms of the Notes, you agree to treat the Notes under this approach for all U.S. federal income tax purposes. Subject to the limitations described therein, and based on certain factual representations received from us, in the opinion of our special U.S. tax counsel, Mayer Brown LLP, it is reasonable to treat a Note as a pre-paid executory contract with respect to the Reference Asset. Pursuant to this approach, and subject to the discussion below regarding “constructive ownership transactions,” we do not intend to report any income or gain with respect to the Notes prior to their maturity or an earlier sale or exchange and we intend to treat any gain or loss upon maturity or an earlier sale or exchange as long-term capital gain or loss, provided that you have held the Note for more than one year at such time for U.S. federal income tax purposes.
Despite the foregoing, U.S. holders (as defined under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement) should be aware that the Internal Revenue Code of 1986, as amended (the “Code”), contains a provision, Section 1260 of the Code, which sets forth rules which are applicable to what it refers to as “constructive ownership transactions.” Due to the manner in which it is drafted, the precise applicability of Section 1260 of the Code to any particular transaction is often uncertain. In general, a “constructive ownership transaction” includes a contract under which an investor will receive payment equal to or credit for the future value of any equity interest in a regulated investment company (such as shares of the Reference Asset (the “Underlying Shares”). Under the “constructive ownership” rules, if an investment in the Notes is treated as a “constructive ownership transaction,” any long-term capital gain recognized by a U.S. holder in respect of a Note will be recharacterized as ordinary income to the extent such gain exceeds
| FWP-15 |
the amount of “net underlying long-term capital gain” (as defined in Section 1260 of the Code) (the “Excess Gain”). In addition, an interest charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have resulted in gross income inclusion for the U.S. holder in taxable years prior to the taxable year of the sale, exchange or maturity of the Note (assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange or maturity of the Note). Furthermore, unless otherwise established by clear and convincing evidence, the “net underlying long-term capital gain” is treated as zero.
Although the matter is not clear, there exists a risk that an investment in the Notes will be treated as a “constructive ownership transaction.” If such treatment applies, it is not entirely clear to what extent any long-term capital gain recognized by a U.S. holder in respect of the Notes will be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that would be recharacterized as ordinary income in respect of each Note will equal the excess of (i) any long-term capital gain recognized by the U.S. holder in respect of such a Note and attributable to the Underlying Shares over (ii) the “net underlying long-term capital gain” such U.S. holder would have had if such U.S. holder had acquired a number of the Underlying Shares at fair market value on the original issue date of such Note for an amount equal to the “issue price” of the Note allocable to the Unerlying Shares and, upon the date of sale, exchange or maturity of the Note, sold such Underlying Shares at fair market value (which would reflect the percentage increase in the value of the Underlying Shares over the term of the Note). Accordingly, it is possible that all or a portion of any gain on the sale or settlement of the Note after one year could be treated as “Excess Gain” from a “constructive ownership transaction,” which gain would be recharacterized as ordinary income, and subject to an interest charge. U.S. holders should consult their tax advisors regarding the potential application of the “constructive ownership” rules.
We will not attempt to ascertain whether the Reference Asset or any of the entities whose stock is owned by the Reference Asset 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 the Reference Asset or one or more of the entities whose stock is owned by the Reference Asset 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 Reference Asset or the entities whose stock is owned by the Reference Asset and consult your tax advisor regarding the possible consequences to you if the Reference Asset or one or more of the entities whose stock is owned by the Reference Asset is or becomes a PFIC or a USRPHC.
Under current law, while the matter is not entirely clear, individual non-U.S. holders, and entities whose property is potentially includible in those individuals’ gross estates 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 Notes are likely to be treated as U.S. situs property, subject to U.S. federal estate tax. These individuals and entities should consult their own tax advisors regarding the U.S. federal estate tax consequences of investing in the Notes.
A “dividend equivalent” payment is treated as a dividend from sources within the United States and such payments generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments (“ELIs”) that are “specified ELIs” may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such interest could give rise to a U.S. source dividend. However, Internal Revenue Service guidance provides that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2021. Based on the Issuer’s determination that the Notes are not “delta-one” instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is possible that the Notes could be treated as deemed reissued for U.S. federal income tax purposes upon the occurrence of certain events affecting the Reference Asset or the Notes, and following such occurrence the Notes could be treated as subject to withholding on dividend equivalent payments. Non-U.S. holders that enter, or have entered, into other transactions in respect of the Reference Asset or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Notes and their other transactions. If any payments are treated as dividend equivalents subject to withholding, 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.
For a discussion of the U.S. federal income tax consequences of your investment in a Note, please see the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement.
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| TABLE OF CONTENTS |
You should only rely on the information contained in this free writing prospectus, the accompanying ETF Underlying Supplement, prospectus supplement and prospectus. We have not authorized anyone to provide you with information or to make any representation to you that is not contained in this free writing prospectus, the accompanying ETF Underlying Supplement, prospectus supplement and prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This free writing prospectus, the accompanying ETF Underlying Supplement, prospectus supplement and prospectus are not an offer to sell these Notes, and these documents are not soliciting an offer to buy these Notes, in any jurisdiction where the offer or sale is not permitted. You should not, under any circumstances, assume that the information in this free writing prospectus, the accompanying ETF Underlying Supplement, prospectus supplement and prospectus is correct on any date after their respective dates.
HSBC USA Inc.
$
Buffered Uncapped Market
May 22, 2019
Free Writing Prospectus
| ||
| Free Writing Prospectus | |||
| General | FWP-5 | ||
| Payment at Maturity | FWP-5 | ||
| Investor Suitability | FWP-6 | ||
| Risk Factors | FWP-7 | ||
| Illustrative Examples | FWP-10 | ||
| Description of the Reference Asset | FWP-12 | ||
| Events of Default and Acceleration | FWP-15 | ||
| Supplemental Plan of Distribution (Conflicts of Interest) | FWP-15 | ||
| U.S. Federal Income Tax Considerations | FWP-15 | ||
| ETF Underlying Supplement | |||
| Risk Factors | S-1 | ||
| Reference Sponsors and Index Funds | S-9 | ||
| The Energy Select Sector SPDR® Fund | S-10 | ||
| The Financial Select Sector SPDR® Fund | S-12 | ||
| The Health Care Select Sector SPDR® Fund | S-14 | ||
| The iShares® China Large-Cap ETF | S-16 | ||
| The iShares® Latin America 40 ETF | S-19 | ||
| The iShares® MSCI Brazil Capped ETF | S-21 | ||
| The iShares® MSCI EAFE ETF | S-24 | ||
| The iShares® MSCI Emerging Markets ETF | S-26 | ||
| The iShares® MSCI Mexico Capped ETF | S-28 | ||
| The iShares® Transportation Average ETF | S-30 | ||
| The iShares® U.S. Real Estate ETF | S-31 | ||
| The Market Vectors® Gold Miners ETF | S-32 | ||
| The Powershares QQQ TrustSM, Series 1 | S-34 | ||
| The SPDR® Dow Jones Industrial AverageSM ETF Trust | S-37 | ||
| The SPDR® S&P 500® ETF Trust | S-39 | ||
| The Vanguard® FTSE Emerging Markets ETF | S-41 | ||
| The WisdomTree® Japan Hedged Equity Fund | S-44 | ||
| Additional Terms of the Notes | S-47 | ||
| Prospectus Supplement | |||
| Risk Factors | S-1 | ||
| Pricing Supplement | S-10 | ||
| Description of Notes | S-12 | ||
| Use of Proceeds and Hedging | S-36 | ||
| Certain ERISA Considerations | S-37 | ||
| U.S. Federal Income Tax Considerations | S-39 | ||
| Supplemental Plan of Distribution (Conflicts of Interest) | S-61 | ||
| Prospectus | |||
| About this Prospectus | 1 | ||
| Risk Factors | 2 | ||
| Where You Can Find More Information | 3 | ||
| Special Security Regarding Forward-Looking Statements | 4 | ||
| HSBC USA Inc. | 7 | ||
| Use of Proceeds | 8 | ||
| Description of Debt Securities | 9 | ||
| Description of Preferred Stock | 20 | ||
| Description of Warrants | 25 | ||
| Description of Purchase Contracts | 30 | ||
| Description of Units | 33 | ||
| Book-Entry Procedures | 36 | ||
| Limitations on Issuances in Bearer Form | 40 | ||
| U.S. Federal Income Tax Considerations Relating to Debt Securities | 41 | ||
| Plan of Distribution (Conflicts of Interest) | 49 | ||
| Notice to Canadian Investors | 52 | ||
| Notice to EEA Investors | 53 | ||
| Notice to UK Investors | 54 | ||
| UK Financial Promotion | 54 | ||
| Certain ERISA Matters | 55 | ||
| Legal Opinions | 57 | ||
| Experts | 58 |