You should read
this document together with the prospectus dated March 22, 2012, the prospectus supplement dated March 22, 2012 and the ETF Underlying
Supplement dated March 22, 2012. If the terms of the Securities offered hereby are inconsistent with those described in the accompanying
ETF Underlying Supplement, prospectus supplement or prospectus, the terms described in this pricing supplement shall control. You
should carefully consider, among other things, the matters set forth in “Key Risks” beginning on page 5 of this pricing
supplement and in “Risk Factors” beginning on page S-2 of the ETF Underlying Supplement and beginning on page S-3 of
the prospectus supplement, as the Securities involve risks not associated with conventional debt securities. You are urged to consult
your investment, legal, tax, accounting and other advisors before you invest in the Securities.
HSBC USA Inc. has
filed a registration statement (including the ETF Underlying Supplement, prospectus and prospectus supplement) with the SEC for
the offering to which this pricing supplement relates. Before you invest, you should read the ETF Underlying Supplement, prospectus
and prospectus supplement in that registration statement and other documents HSBC USA Inc. has filed with the SEC for more complete
information about HSBC USA Inc. 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 ETF Underlying Supplement, prospectus and prospectus supplement if you request them by calling toll-free 1-866-811-8049.
You may access these documents on the SEC web
site at www.sec.gov as follows:
Issuer
|
HSBC USA Inc.
|
Issue Price
|
$10.00 per Security
|
Principal Amount
|
$10.00 per Security
|
Term
|
Approximately five years
|
Trade Date
|
March 25, 2013
|
Settlement Date
|
March 28, 2013
|
Final Valuation Date
|
March 23, 2018, subject to adjustment as described under “Additional Terms of the Notes” in the accompanying ETF Underlying Supplement.
|
Maturity Date
|
March 29, 2018, subject to adjustment as described under “Additional Terms of the Notes” in the accompanying ETF Underlying Supplement.
|
Index Fund
|
Vanguard
®
FTSE Emerging Markets ETF (Ticker: VWO)
|
Trigger Price
|
$31.68, which is 75.00% of the Initial Price.
|
Participation Rate
|
126.00%
|
Payment
at Maturity (per $10 Security)
1
|
If the Index Fund Return is greater than zero
,
HSBC will pay a cash payment per Security that provides you with the $10 Principal Amount plus a return equal to the Index Fund
Return multiplied by the Participation Rate, calculated as follows:
$10 + [$10
×
(Index Fund Return
×
Participation Rate)]
If the Index Fund Return is less than or equal
to zero and the Final Price is greater than or equal to the Trigger Price on the Final Valuation Date,
HSBC will pay
you
a cash payment of:
$10 per $10 Security
If the Final Price is less than the Trigger Price
on the Final Valuation Date,
HSBC will pay you a cash payment at maturity less than the Principal Amount of $10 per Security,
if anything, resulting in a loss of principal that is proportionate to the negative Index Fund Return, equal to:
$10 + ($10
×
Index Fund Return)
|
Index Fund Return
|
Final Price – Initial
Price
Initial Price
|
Initial Price
|
$42.24, which was the Official Closing Price of the Index Fund on the Trade Date.
|
Final Price
|
The Official Closing Price of the Index Fund on the Final Valuation Date.
|
Official Closing Price
|
The Official Closing Price on any scheduled trading day will be the closing price of the Index Fund as determined by the calculation agent and based on the value displayed on Bloomberg Professional
®
service page “VWO UP <EQUITY>”, or on any successor page on the Bloomberg Professional
®
service or on any successor service, as applicable.
|
Calculation Agent
|
HSBC USA Inc. or one of its affiliates
|
CUSIP/ISIN
|
40433T125/US40433T1253
|
Investing in the Securities
involves significant risks. You may lose some or all of your principal amount. Any payment on the Securities, including any
repayment of principal AT MATURITY, is subject to the creditworthiness of HSBC. If HSBC were to default on its payment obligations,
you may not receive any amounts owed to you under the Securities and you could lose your entire investment.
1
Payment at maturity
and any repayment of principal is provided by HSBC USA Inc., and therefore, is dependent on the ability of HSBC USA Inc. to satisfy
its obligations when they come due
An investment
in the Securities involves significant risks. Some of the risks that apply to the Securities are summarized here, but we urge you
to read the more detailed explanation of risks relating to the Securities generally in the “Risk Factors” section of
the accompanying ETF Underlying Supplement and the accompanying prospectus supplement. We also urge you to consult your investment,
legal, tax, accounting and other advisors before you invest in the Securities.
|
¨
|
Risk of Loss at Maturity
–
The Securities differ from ordinary debt securities
in that HSBC will not necessarily pay the full Principal Amount of the Securities at maturity. The return on the Securities at
maturity is linked to the performance of the Index Fund and will depend on whether, and to the extent which, the Index Fund Return
is positive or negative and if the Index Fund Return is negative, whether the Final Price is less than the Trigger Price. If the
Final Price is less than the Trigger Price, you will be fully exposed to any negative Index Fund Return and HSBC will pay you less
than the Principal Amount at maturity, if anything, resulting in a loss of principal that is proportionate to the decline in the
Final Price as compared to the Initial Price.
Under these circumstances, you will lose a significant portion, and could lose
all, of the Principal Amount.
|
|
¨
|
The Contingent Repayment of Principal Applies Only if You Hold the Securities to Maturity
– You should be willing to hold your Securities to maturity. If you are able to sell your Securities prior to maturity
in the secondary market, you may have to sell them at a loss even if the share price of the Index Fund is above the Trigger Price.
|
|
¨
|
The Participation Rate Applies Only if You Hold the Securities to Maturity
– You
should be willing to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary
market, the price you receive will likely not reflect the full economic value of the Participation Rate or the Securities themselves,
and the return you realize may be less than the return of the Index Fund, even if that return is positive. You can receive the
full benefit of the Participation Rate from HSBC only if you hold your Securities to maturity.
|
|
¨
|
Certain Built-in Costs Are Likely to Adversely Affect the Value of the Securities Prior to
Maturity
– Generally, the price of the Securities in the secondary market, if any, is likely to be lower than the initial
offering price since the issue price includes, and the secondary market prices are likely to exclude, hedging costs, commissions
and other compensation paid with respect to the Securities. You should be willing to hold your Securities to maturity. The Securities
are not designed to be short-term trading instruments. The price at which you will be able to sell your Securities to HSBC, its
affiliates or any party in the secondary market prior to maturity, if at all, may be at a substantial discount from the Principal
Amount of the Securities, even in cases where the Index Fund has appreciated since the Trade Date.
|
|
¨
|
No Interest
– HSBC will not make any interest payments with respect to the Securities.
|
|
¨
|
Credit of Issuer
–
The Securities are senior
unsecured debt obligations of the Issuer, HSBC, and are not, either directly or indirectly, an obligation of any third party. As
further described in the accompanying prospectus supplement and prospectus, the Securities will rank on par with all of the other
unsecured and unsubordinated debt obligations of HSBC, except such obligations as may be preferred by operation of law. Any payment
to be made on the Securities, including any repayment 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 Securities
and, in the event HSBC were to default on its obligations, you may not receive any amounts owed to you under the terms of the Securities
and could lose your entire investment.
|
|
¨
|
Owning the Securities Is Not the Same as Owning the Index Fund or the Stocks Comprising the
Index Fund
– The return on your Securities may not reflect the return you would realize if you actually owned the Index
Fund or the stocks included in the Index Fund. As a holder of the Securities, you will not have voting rights or rights to receive
dividends or other distributions or other rights that holders of the stocks included in the Index Fund would have.
|
|
¨
|
The Securities Are Not Insured or Guaranteed by any Governmental
Agency of the United States or any Other Jurisdiction
– The Securities are not deposit liabilities or other obligations
of a bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or program
of the United States or any other jurisdiction. An investment in the Securities is subject to the credit risk of HSBC, and in the
event
HSBC is unable to pay its obligations when due, you may not receive any amounts owed
to you under the Securities
and you could lose your entire investment.
|
|
¨
|
Lack of Liquidity
– The Securities will not be listed on any securities exchange
or quotation system. One of our affiliates may offer to repurchase the Securities in the secondary market but is not required to
do so and may cease any such market-making activities at any time without notice. Because other dealers are not likely to make
a secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on the price,
if any, at which one of our affiliates is willing to buy the Securities. This price, if any, will exclude any fees or commissions
and therefore will generally be lower than such purchase price.
|
|
¨
|
The Index Fund’s Underlying Index Is Currently in a Process of Transition to a New
Underlying Index, Which Could Reduce the Index Fund Return, and Limits the Utility of Available Information About the Performance
of the Index Fund.
Until 2013, the Index Fund’s underlying index was the MSCI Emerging Markets Index (the “MXEA”).
In January 2013, The Vanguard Group, Inc. (“Vanguard”) announced that the Index Fund is expected to adopt the FTSE
Emerging Index as its new target index over the coming months. In the first phase of the transition, which began on January 10,
2013, the Index Fund ceased tracking the MXEA, and began temporarily tracking the FTSE Emerging Transition Index, a “dynamic”
index that is gradually reducing its exposure to South Korean equities by approximately 4% each week for a period of 25 weeks,
while proportionately adding exposure to stocks of companies located in other countries based on their weightings in the new index.
In the second phase of the transition, the Index Fund will cease tracking the FTSE Emerging Transition Index and begin tracking
the FTSE Emerging Index. Please see the section below, “The Vanguard
®
FTSE Emerging Markets ETF”, for
additional information about the Index and the transition.
|
The adjustments to the
Index Fund’s portfolio holdings are expected to result in temporary increases in the Index Fund’s transaction costs
and turnover rate. The transition also may cause the Index Fund to realize taxable capital gains. The Index Fund’s actual
transaction costs, turnover rate, and capital gains will be dependent upon a number of factors, including the market environment
at the time of the portfolio adjustments. These factors could reduce the Index Fund’s performance, and your return on the
Securities.
In addition, as a result
of this transition, the historical performance of the Index Fund may be of limited use in evaluating the Index Fund’s past
performance, as there is no historical information available at this time to reflect the Index Fund’s tracking of the FTSE
Emerging Index. The Fund’s new underlying index could provide different investment returns (either lower or higher) or different
levels of volatility than those of the former or current underlying index over any period of time.
|
¨
|
Non-U.S. securities markets risks
–
The Index Fund holds stocks that are
issued by non-U.S. companies and are traded on various non-U.S. exchanges. These stocks may be more volatile and may be subject
to different political, market, economic, exchange rate, regulatory and other risks than stocks issued by US companies and listed
on US exchanges. The foreign securities held by the Index Fund may have less liquidity and could be more volatile than many of
the securities traded in U.S. or other longer-established securities markets. Direct or indirect government intervention to stabilize
the relevant foreign securities markets, as well as cross shareholdings in foreign companies, may affect trading levels or prices
and volumes in those markets. The other special risks associated with foreign securities may include, but are not limited to: less
liquidity and smaller market capitalizations; less rigorous regulation of securities markets; different accounting and disclosure
standards; governmental interference; currency fluctuations; higher inflation; and social, economic and political uncertainties.
These factors may adversely affect the performance of the Index Fund and, as a result, the value of the Securities.
|
|
¨
|
Exchange rate risk
– Because the Index Fund will hold stocks denominated in foreign
currencies, changes in certain currency exchange rates may negatively impact the Index Fund’s returns. The values of the
foreign currencies may be subject to a high degree of fluctuation due to changes in interest rates, the effects of monetary policies
issued by the United States, foreign governments, central banks or supranational entities, the imposition of currency controls
or other national or international political or economic developments. Therefore, exposure to exchange rate risk may adversely
impact the performance of the Index Fund, and therefore reduce the payments on the Securities.
|
|
¨
|
There are risks associated with emerging markets
–
An investment in the
Securities will involve risks not generally associated with investments which have no emerging market component. In particular,
many emerging nations are undergoing rapid change, involving the restructuring of economic, political, financial and legal systems.
Regulatory and tax environments may be subject to change without review or appeal. Many emerging markets suffer from underdevelopment
of capital markets and tax regulation. The risk of expropriation and nationalization remains a threat. Guarding against such risks
is made more difficult by low levels of corporate disclosure and unreliability of economic and financial data.
|
|
¨
|
There Is Limited Anti-Dilution Protection
–
For certain events affecting
the Index Fund, such as stock splits or extraordinary dividends, the Calculation Agent may make adjustments to the Final Price
which may affect your Payment at Maturity.
However, the Calculation Agent is not required to make an adjustment for every
corporate action that affects the Index Fund. If an event occurs that does not require the Calculation Agent to adjust the Final
Price, the market price of the Securities and the Payment at Maturity may be materially and adversely affected.
|
|
¨
|
An Index Fund and its Underlying Index Are Different
–
The performance of
an index fund may not exactly replicate the performance of its underlying index, because the index fund will reflect transaction
costs and fees that are not included in the calculation of its underlying index. It is also possible that an index fund may not
fully replicate or may in certain circumstances diverge significantly from the performance of its underlying index due to the temporary
unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in the index
fund or due to other circumstances. An index fund may use futures contracts, options, swap agreements, currency forwards and repurchase
agreements in seeking performance that corresponds to its underlying index and in managing cash flows.
|
|
¨
|
The Index Fund is Subject to Management Risk
– The Index Fund is not managed according
to traditional methods of ‘‘active’’ investment management, which involve the buying and selling of securities
based on economic, financial and market analysis and investment judgment. Instead, the Index Fund, utilizing a ‘‘passive’’
or indexing investment approach, attempts to approximate the investment performance of the Index Fund’s underlying index
by investing in a portfolio of securities that generally replicate its underlying index. Therefore, unless a specific security
is removed from its underlying index, the Index Fund generally would not sell a security because the security’s issuer was
in financial trouble. In addition, the Index Fund is subject to the risk that the investment strategy of the Index Fund’s
investment advisor may not produce the intended results.
|
|
¨
|
Potential Conflict of Interest
– HSBC, UBS Financial Services Inc., or any of their
respective affiliates may engage in business with the issuers of the stocks comprising the Index Fund, which could affect the price
of such stocks or the price of the Index Fund and thus, may present a conflict between the obligations of HSBC and you, as a holder
of the Securities. Additionally, potential conflicts of interest may exist between the Calculation Agent, which may be HSBC or
any of its affiliates, and you with respect to certain determinations and judgments that the Calculation Agent must make, which
include determining the Payment at Maturity based on the Final Price as well as whether to postpone the determination of the Final
Price and the Maturity Date if a Market Disruption Event occurs and is continuing on the Final Valuation Date.
|
|
¨
|
Potentially Inconsistent Research, Opinions or Recommendations by HSBC, UBS or Their Respective
Affiliates
– HSBC, UBS Financial Services Inc., or their respective affiliates may publish research, express opinions
or provide recommendations that are inconsistent with investing in or holding the Securities and which may be revised at any time.
Any such research, opinions or recommendations could affect the price of the Index Fund or the price of the stocks included in
the Index Fund, and therefore, the market value of the Securities.
|
|
¨
|
The
Amount Payable on the Securities Is Not Linked to the Price of the Index Fund at any Time Other than on the
|
|
|
Final Valuation Date.
The Final Price will be based on the Official Closing Price of
the Index Fund on the Final Valuation Date, subject to postponement for non-trading days and certain Market Disruption Events.
Even if the price of the Index Fund appreciates prior to the Final Valuation Date but then decreases on the Final Valuation Date
to a price that is below the Trigger Price, the Payment at Maturity will be less, and may be significantly less, than it would
have been had the Payment at Maturity been linked to the price of the Index Fund prior to such decrease. Although the actual price
of the Index Fund on the Maturity Date or at other times during the term of the Securities may be higher than the Final Price,
the Payment at Maturity will be based solely on the Official Closing Price of the Index Fund on the Final Valuation Date.
|
|
¨
|
Market Price Prior to Maturity
– The market price of the Securities will be influenced
by many unpredictable and interrelated factors, including the price of the Index Fund; the volatility of the Index Fund; dividends;
the time remaining to the maturity of the Securities; interest rates in the markets in general; geopolitical conditions and economic,
financial, political, regulatory, judicial or other events; and the creditworthiness of HSBC.
|
|
¨
|
Potential HSBC Impact on Price
–
Trading or transactions by HSBC, UBS Financial Services Inc., or any of their respective affiliates in shares of the Index
Fund, the stocks comprising the Index Fund or in futures, options, exchange-traded funds or other derivative products on these
securities, may adversely affect the market value of the stocks comprising the Index Fund, the price of the Index Fund, and, therefore,
the market value of your Securities
.
|
|
¨
|
Uncertain Tax Treatment
– Significant aspects of the tax treatment of the Securities
are uncertain. You should consult your tax advisor about your own tax situation. See “What Are the Tax Consequences of the
Securities?” beginning on page 10 of this pricing supplement.
|
Scenario Analysis and Examples at Maturity
|
The scenario analysis
and examples below 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 Index Fund relative to the Initial Price. We cannot
predict the Final Price. You should not take the scenario analysis and these examples as an indication or assurance of the expected
performance of the Index Fund. The numbers set forth in the examples below have been rounded for ease of analysis. The following
scenario analysis and examples illustrate the Payment at Maturity for a $10.00 Security based on the following terms:
Investment term:
|
Approximately five years
|
Initial Price:
|
$42.24
|
Trigger Price:
|
$31.68 (75.00% of the Initial Price)
|
Participation Rate:
|
126.00%
|
Example 1
—
The price of the Index Fund
increases
from the Initial Price of
$42.24
to
a Final Price of $46.46.
The Index Fund Return is greater than zero and expressed as a
formula:
Index
Fund Return = (
$46.46
-
$42.24
) /
$42.24
= 10.00%
Payment at Maturity
= $10 + [$10
×
(10.00%
×
126.00%)] = $11.26
Because the Index Fund
Return is equal to 10.00%, the Payment at Maturity is equal to $11.26 per $10.00 Principal Amount of Securities, and the re
turn
on the Securities is 12.60%.
Example 2
—
The Final Price is equal to the Initial Price of
$42.24
.
The
Index Fund Return is zero and expressed as a formula:
Index
Fund Return = (
$42.24
-
$42.24
) /
$42.24
= 0.00%
Payment at Maturity
= $10.00
Because the Index Fund Return is
zero, the Payment at Maturity per Security is equal to the original $10.00 Principal Amount per Security (a return of zero percent).
Example 3
—
The price of the Index Fund
decreases
from the Initial Price of
$42.24
to
a Final Price of $33.79.
The Index Fund Return is negative and expressed as a formula:
Index
Fund Return = ($33.79 -
$42.24
) /
$42.24
= -20.00%
Payment at Maturity
= $10.00
Because the Index Fund Return is
less than zero, but the Final Price is greater than or equal to the Trigger Price on the Final Valuation Date, HSBC will pay you
a Payment at Maturity equal to $10.00 per $10.00 Principal Amount of Securities (a return of zero percent).
Example 4
—
The price of the Index Fund
decreases
from the Initial Price of
$42.24
to
a Final Price of $8.45.
The Index Fund Return is negative and expressed as a formula:
Index
Fund Return = ($8.45 -
$42.24
) /
$42.24
= -80.00%
Payment at Maturity
= $10 + ($10
×
-80.00%) = $2.00
Because the Index Fund Return is
less than zero and the Final Price is below the Trigger Price on the Final Valuation Date, the Securities will be fully exposed
to any decline in the price of the Index Fund on the Final Valuation Date. Therefore, the return on the Securities is -80.00%.
In this case, you would incur a loss of 80.00% on the Securities.
If the Final Price is below
the Trigger Price on the Final Valuation Date, the Securities will be fully exposed to any decline in the Index Fund, and you will
lose some or all of your Principal Amount at maturity.
Scenario Analysis –
Hypothetical Payment at Maturity for each $10.00 Principal Amount of Securities.
Performance
of the Index Fund
|
Performance
of the Securities
|
Final
Price
|
Index
Fund
Return
(1)
|
Participation
Rate
|
Payment
at
Maturity
|
Return
on
Securities at
Maturity
|
$84.48
|
100.00%
|
126.00%
|
$22.60
|
126.00%
|
$80.26
|
90.00%
|
126.00%
|
$21.34
|
113.40%
|
$76.03
|
80.00%
|
126.00%
|
$20.08
|
100.80%
|
$71.81
|
70.00%
|
126.00%
|
$18.82
|
88.20%
|
$67.58
|
60.00%
|
126.00%
|
$17.56
|
75.60%
|
$63.36
|
50.00%
|
126.00%
|
$16.30
|
63.00%
|
$59.14
|
40.00%
|
126.00%
|
$15.04
|
50.40%
|
$54.91
|
30.00%
|
126.00%
|
$13.78
|
37.80%
|
$50.69
|
20.00%
|
126.00%
|
$12.52
|
25.20%
|
$46.46
|
10.00%
|
126.00%
|
$11.26
|
12.60%
|
$42.24
|
0.00%
|
N/A
|
$10.00
|
0.00%
|
$38.02
|
-10.00%
|
N/A
|
$10.00
|
0.00%
|
$33.79
|
-20.00%
|
N/A
|
$10.00
|
0.00%
|
$31.68
|
-25.00%
|
N/A
|
$10.00
|
0.00%
|
$25.34
|
-40.00%
|
N/A
|
$6.00
|
-40.00%
|
$21.12
|
-50.00%
|
N/A
|
$5.00
|
-50.00%
|
$16.90
|
-60.00%
|
N/A
|
$4.00
|
-60.00%
|
$12.67
|
-70.00%
|
N/A
|
$3.00
|
-70.00%
|
$8.45
|
-80.00%
|
N/A
|
$2.00
|
-80.00%
|
$4.22
|
-90.00%
|
N/A
|
$1.00
|
-90.00%
|
$0.00
|
-100.00%
|
N/A
|
$0.00
|
-100.00%
|
|
|
|
|
|
|
(1)
The Index Fund
Return excludes cash dividend payments on the stocks included in the Index Fund.
What
Are the Tax Consequences of the Securities?
|
You should carefully
consider, among other things, the matters set forth in the section “U.S. Federal Income Tax Considerations” in the
prospectus supplement. The following discussion summarizes the U.S. federal income tax consequences of the purchase, beneficial
ownership, and disposition of each of the Securities. This summary supplements the section “U.S. Federal Income Tax Considerations”
in the prospectus supplement and supersedes it to the extent inconsistent therewith.
There are no statutory
provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes
of securities with terms that are substantially the same as those of the Securities. Under one reasonable approach, the Securities
should be treated as pre-paid executory contracts with respect to the Index Fund. HSBC intends to treat the Securities consistent
with this approach and pursuant to the terms of the Securities, you agree to treat the Securities under this approach for all U.S.
federal income tax purposes. Subject to certain limitations described in the accompanying prospectus supplement, and based on certain
factual representations received from HSBC, in the opinion of HSBC’s special U.S. tax counsel, Morrison & Foerster LLP,
it is reasonable to treat the Securities in accordance with this approach. Pursuant to this approach, and subject to the discussion
below regarding “constructive ownership transactions,” HSBC does not intend to report any income or gain with respect
to the Securities prior to their maturity or an earlier sale or exchange and if you receive cash upon maturity or an earlier sale
or exchange, HSBC intends to treat any gain or loss upon maturity or such earlier sale or exchange as long-term capital gain or
loss, provided that you have held the Security for more than one year at such time for U.S. federal income tax purposes. See "U.S.
Federal Income Tax Considerations — Certain Equity-Linked Notes — Certain Notes Treated as Forward Contracts or Executory
Contracts" in the prospectus supplement for certain U.S. federal income tax considerations applicable to Securities that are
treated as pre-paid cash-settled executory contracts.
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 Index Fund (the “Underlying Shares”)). Under the “constructive ownership” rules, if an investment
in a Security is treated as a “constructive ownership transaction,” any long-term capital gain recognized by a U.S.
holder in respect of the Security will be recharacterized as ordinary income to the extent such gain exceeds the amount of “net
underlying long-term capital gain” (as defined in Section 1260 of the Code) of the U.S. holder determined as if the U.S.
holder had acquired the Underlying Shares on the original issue date of the Security at fair market value and sold them at fair
market value on the Maturity Date (if the Security was held until the Maturity Date) or on the date of sale or exchange of the
Security (if the Security was sold or exchanged prior to the Maturity Date) (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
Security (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 Security).
Although the matter
is not clear, there exists a risk that an investment in a Security 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 a Security 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 Security will equal the excess of (i) any long-term capital
gain recognized by the U.S. holder in respect of such a Security 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 Security for an amount equal to the “issue price” of the Security and, upon the date of
sale, exchange or maturity of the Security, 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 Security). Accordingly, U.S. holders should consult their tax
advisors regarding the potential application of the “constructive ownership” rules.
HSBC will not attempt
to ascertain whether any of the entities whose stock is owned by the Index Fund 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 one or more of the entities whose stock is owned by the Index Fund 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
entities whose stock is owned by the Index Fund and consult your tax advisor regarding the possible consequences to you if one
or more of the entities whose stock is owned by the Index Fund is or becomes a PFIC or USRPHC.
Because there are
no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal
income tax purposes of securities with terms that are substantially the same as those of the Securities, other characterizations
and treatments are possible and the timing and character of income in respect of the Securities might differ from the treatment
described above. For example, the Securities could be treated as debt instruments that are “contingent payment debt instruments”
for U.S. federal income tax purposes subject to the treatment described under the heading “U.S. Federal Income Tax Considerations
— U.S. Federal Income Tax Treatment of the Notes as Indebtedness for U.S. Federal Income Tax Purposes — Contingent
Payment Debt Instruments” in the prospectus supplement.
In Notice 2008-2, the Internal Revenue Service (“IRS”) and the Treasury Department requested comments
as to whether the purchaser of an exchange traded note or pre-paid forward contract (which may include the Securities) should be
required to accrue income during its term under a mark-to-market, accrual or other methodology, whether income and gain on such
a note or contract should be ordinary or capital, and whether foreign holders should be subject to withholding tax on any deemed
income accrual. Accordingly, it is possible that regulations or other guidance could provide that a U.S. holder (as defined in
the prospectus supplement) of a Security is required to accrue income in respect of the Security prior to the receipt of payments
with respect to the Security or its earlier sale. Moreover, it is possible that any such regulations or other guidance could treat
all income and gain of a U.S. holder in respect of a Security as ordinary income (including gain on a sale). Finally, it is possible
that a non-U.S. holder (as defined in the prospectus supplement) of the Security could be subject to U.S. withholding tax in respect
of a Security. It is unclear whether any regulations or other guidance would apply to the Securities (possibly on a
retroactive basis).
Prospective investors are urged to consult with their tax advisors regarding Notice 2008-2 and the possible effect to them of the
issuance of regulations or other guidance that affects the U.S. federal income tax treatment of the Securities.
Withholding and
reporting requirements under the legislation enacted on March 18, 2010 (as discussed beginning on page S-48 of the prospectus supplement)
will generally apply to payments made after December 31, 2013. However, this withholding tax will not be imposed on payments pursuant
to obligations outstanding on January 1, 2014. Additionally, with respect to non-U.S. Holders, withholding due to any payment being
treated as a “dividend equivalent” (as discussed beginning on page S-47 of the prospectus supplement) will begin no
earlier than January 1, 2014. Holders are urged to consult with their own tax advisors regarding the possible implications of this
recently enacted legislation on their investment in the Securities.
PROSPECTIVE PURCHASERS OF SECURITIES SHOULD CONSULT
THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF SECURITIES.
The Vanguard
®
FTSE Emerging Markets ETF
|
We have derived all information contained in this pricing supplement
regarding the Index Fund, including, without limitation, its make-up, method of calculation and changes in its components, from
publicly available information. This information reflects the policies of, and is subject to change by The Vanguard International
Equity Index Funds (the “Vanguard Trust”) and The Vanguard Group, Inc. (“Vanguard”). The Index Fund is
an exchange-traded class of shares issued by the Vanguard
®
Emerging Markets Stock Index Fund and is maintained and
managed by Vanguard. Vanguard is the investment adviser to the Index Fund. Shares of the Index Fund trade on the NYSE Arca under
the ticker symbol “VWO.” We have not independently verified the accuracy or completeness of the information derived
from these public sources.
The Vanguard Trust is a registered investment company that consists
of separate funds, each of which may consist of different share classes, including ETF shares. Information provided to or filed
with the SEC by the Vanguard Trust under the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference
to Investment Company Act file numbers 033-32548 and 811-05972, through the SEC’s website at http://www.sec.gov. For additional
information regarding the Vanguard Trust, Vanguard and the Index Fund, please see the Index Fund’s prospectus dated February
28, 2013. In addition, information about the Vanguard Trust and the Index Fund may be obtained from other sources, including the
Vanguard website at www.vanguard.com. We have not independently verified the accuracy or completeness of such information. Information
contained in the Vanguard website and other information from Vanguard is not incorporated by reference in, and should not be considered
a part of, this pricing supplement.