Summary
The Accelerated Return Notes
®
Linked to the Financials
Select Sector Index, due September 26, 2014 (the “notes”) are our senior unsecured debt securities and are not a direct
or indirect obligation of any third party. The notes are not deposit liabilities or other obligations of a bank and are not guaranteed
or insured by the Federal Deposit Insurance Corporation or any other governmental agency of the United States or any other jurisdiction.
The notes will rank equally with all of our other
senior unsecured debt. Any payments due on the notes, including any
repayment of principal, depends on the credit risk of HSBC and its ability to satisfy its obligations as they come due.
The
notes provide you a leveraged return, subject to a cap, if the Ending Value (as determined below) of the Financials Select Sector
Index (the “Index”) is greater than the Starting Value. If the Ending Value is less than the Starting Value, you will
lose all or a portion of the principal amount of your notes. Payments on the notes, including the amount you receive at maturity,
will be calculated based on the $10 Original Offering Price per unit and will depend on our credit risk and the performance of
the Index. See “Terms of the Notes” below.
The estimated initial value of the notes is less than the price
you pay to purchase the notes. The estimated initial value was determined by reference to our or our affiliates’ internal
pricing models and reflects the implied borrowing rate we pay to issue market-linked notes, which is typically lower than the rate
we would use when we issue conventional fixed or floating rate debt securities, and the market prices for hedging arrangements
related to the notes (which may include call options, put options or other derivatives). The difference in the borrowing rate,
as well as the underwriting discount and the costs associated with hedging the notes, including the hedging related charge described
below, reduced the economic terms of the notes (including the Capped Value).
Terms of the Notes
Issuer:
|
HSBC USA Inc. (“HSBC”)
|
Original Offering Price:
|
$10.00 per unit
|
Term:
|
Approximately 14 months
|
Market Measure:
|
The Financial Select Sector Index (Bloomberg symbol: "IXM"), a price return index.
|
Starting Value:
|
206.36
|
Ending Value:
|
The average of the closing levels of the Index on each scheduled calculation day occurring during the Maturity Valuation Period. The calculation days are subject to postponement in the event of Market Disruption Events, as described on page S-22 of product supplement ARN-2.
|
Capped Value:
|
$11.47 per unit of the notes, which represents a return of 14.70% over the Original Offering Price.
|
Maturity Valuation Period:
|
September 17, 2014, September 18, 2014, September 19, 2014, September 22, 2014, and September 23, 2014
|
Participation Rate:
|
300%
|
Fees Charged:
|
The public offering price of the notes includes the underwriting discount of $0.20 per unit as listed on the cover page and an additional charge of $0.075 per unit more fully described on page TS-13.
|
Calculation Agent:
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and HSBC, acting jointly.
|
Redemption Amount Determination
On the maturity date, you will receive a cash payment per unit
determined as follows:
Accelerated Return Notes
®
|
TS-2
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
The terms and risks of the notes are contained in this term
sheet and the documents listed below (together, the “Note Prospectus”). The documents have been filed as part of a
registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated below or obtained from
MLPF&S by calling 1-866-500-5408:
Our Central Index Key, or CIK, on the SEC Website is 83246.
Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering.
Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus.
You should carefully consider, among other things, the matters set forth under “Risk Factors” in the section indicated
on the cover of this term sheet. The notes involve risks not associated with conventional debt securities. Capitalized terms used
but not defined in this term sheet have the meanings set forth in product supplement ARN-2. Unless otherwise indicated or unless
the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar
references are to HSBC.
Investor Considerations
You may wish to consider an investment in the notes if:
|
|
The notes may not be an appropriate investment for you if:
|
§
You
anticipate that the Index will increase moderately from the Starting Value to the Ending Value
.
§
You
accept that your investment will result in a loss, which could be significant, if the Index decreases from the Starting Value
to the Ending Value.
§
You
accept that the return on the notes, if any, will be capped.
§
You
are willing to forgo the interest payments that are paid on traditional interest bearing debt securities.
§
You
are willing to forgo dividends or other benefits of owning the stocks included in the Index.
§
You
are willing to accept that a secondary market is not expected to develop for the notes, and understand that the market prices for
the notes, if any, may be less than the Original Offering Price and will be affected by various factors, including our actual and
perceived creditworthiness, the implied borrowing rate and the fees charged, as described on page TS-2.
§
You
are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
|
|
§
You
believe that the Index will decrease from the Starting Value or that it will not increase sufficiently over the term of the notes
to provide you with your desired return.
§
You
seek 100% return of principal at maturity.
§
You
seek an uncapped return on your investment.
§
You
seek interest payments or other current income on your investment.
§
You
want to receive dividends or other distributions paid on the stocks included in the Index.
§
You
seek an investment for which there will be a liquid secondary market.
§
You
are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
|
We urge you to consult your investment, legal, tax, accounting,
and other advisors before you invest in the notes.
Accelerated Return Notes
®
|
TS-3
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
Hypothetical Payout Profile
Accelerated Return Notes
®
|
This graph reflects the returns on
the notes, based on the Participation Rate of 300% and the Capped Value of $11.47 per unit. The green line reflects the returns
on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the Index, excluding
dividends.
This graph has been prepared for
purposes of illustration only.
|
Hypothetical Payments at Maturity
The following table and examples are for purposes of illustration
only. They are based on
hypothetical
values and show
hypothetical
returns on the notes.
The actual amount you
receive and the resulting total rate of return will depend on the actual Starting Value, Ending Value, and term of your investment.
The following table is based on a Starting Value of 100, the
Participation Rate of 300%, and the Capped Value of $11.47 per unit. It illustrates the effect of a range of Ending Values on the
Redemption Amount per unit of the notes and the total rate of return to holders of the notes. The following examples do not take
into account any tax consequences from investing in the notes.
Ending
Value
|
|
Percentage
Change from
the Starting Value to the
Ending Value
|
|
Redemption
Amount per Unit
|
|
Total
Rate of Return on the
Notes
|
60.00
|
|
-40.00%
|
|
$6.00
|
|
-40.00%
|
70.00
|
|
-30.00%
|
|
$7.00
|
|
-30.00%
|
80.00
|
|
-20.00%
|
|
$8.00
|
|
-20.00%
|
90.00
|
|
-10.00%
|
|
$9.00
|
|
-10.00%
|
94.00
|
|
-6.00%
|
|
$9.40
|
|
-6.00%
|
97.00
|
|
-3.00%
|
|
$9.70
|
|
-3.00%
|
100.00
(1)
|
|
0.00%
|
|
$10.00
|
|
0.00%
|
102.00
|
|
2.00%
|
|
$10.60
|
|
6.00%
|
105.00
|
|
5.00%
|
|
$11.47
(2)
|
|
14.70%
|
110.00
|
|
10.00%
|
|
$11.47
|
|
14.70%
|
120.00
|
|
20.00%
|
|
$11.47
|
|
14.70%
|
130.00
|
|
30.00%
|
|
$11.47
|
|
14.70%
|
140.00
|
|
40.00%
|
|
$11.47
|
|
14.70%
|
150.00
|
|
50.00%
|
|
$11.47
|
|
14.70%
|
160.00
|
|
60.00%
|
|
$11.47
|
|
14.70%
|
|
(1)
|
The
hypothetical
Starting Value of 100 used in these examples has been chosen for illustrative purposes only. The actual
Starting Value is 206.36, which was the closing level of the Index on the pricing date.
|
|
|
|
|
(2)
|
The Redemption Amount per unit cannot exceed the Capped Value.
|
For recent actual levels of the Index, see “The Index”
section below. The Index is a price return index and as such the Ending Value will not include any income generated by dividends
paid on the stocks included in the Index, which you would otherwise be entitled to receive if you invested in those stocks directly.
In addition, all payments on the notes are subject to issuer credit risk.
Accelerated Return Notes
®
|
TS-4
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
Redemption Amount Calculation Examples
Example 1
|
The Ending Value is 80.00, or 80.00% of the Starting Value:
|
Starting Value: 100.00
|
Ending Value: 80.00
|
|
= $8.00
Redemption Amount per unit
|
Example 2
|
The Ending Value is 102.00, or 102.00% of the Starting Value:
|
Starting Value: 100.00
|
Ending Value: 102.00
|
|
= $10.60
Redemption Amount per unit
|
Example 3
|
The Ending Value is 130.00, or 130.00% of the Starting Value:
|
Starting Value: 100.00
|
Ending Value: 130.00
|
|
= $19.00, however, because the Redemption Amount for the notes cannot exceed the Capped Value, the Redemption Amount will be $11.47 per unit
|
Accelerated Return Notes
®
|
TS-5
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
Additional Risk Factors
MLPF&S, acting as the
Index Compilation Agent, determines the composition of the Select Sector Indices based on the sector classification methodology
of S&P Dow Jones Indices (as defin
ed below).
The stocks included in each Select Sector Index, including the
Index, are selected by MLPF&S (the “Index Compilation Agent”). The Index Compilation Agent assigns a company’s
stock to a particular Select Sector Index based on S&P Dow Jones Indices’s sector classification methodology as set forth
in its Global Industry Classification Standard. S&P Dow Jones Indices has sole control over the removal of stocks from the
S&P 500
®
Index and the selection of replacement stocks to be added to the S&P 500
®
Index.
The Index Compilation Agent will compile the Select Sector Indices without regard to the notes. The Index Compilation Agent has
no obligation to take the interests of the holders of the notes into consideration in compiling the Select Sector Indices, including
when compiling the Index.
S&P Dow Jones Indices may cause an adjustment to the
S&P 500
®
Index in a way that affects its level, and has no obligation to consider your interests.
S&P Dow Jones Indices is responsible for calculating and
maintaining the S&P 500
®
Index, from which the stocks included in the Index are selected. S&P Dow Jones
Indices can add, delete, or substitute the stocks included in the S&P 500
®
Index or make other methodological
changes that could change the level of the S&P 500
®
Index and therefore the composition and level of the Index.
Changing the companies included in the Index may affect the level of the Index, as a newly added company may perform significantly
better or worse than the company or companies it replaces. Additionally, S&P Dow Jones Indices may alter, discontinue or suspend
calculation or dissemination of the S&P 500
®
Index, any of which could adversely affect the value of the notes.
S&P Dow Jones Indices has no obligation to consider your interests in calculating or revising the S&P 500
®
Index.
The stocks included in the Index are concentrated in one
sector.
All of the stocks included in the Index are issued by companies
in the financial sector. As a result, the stocks that will determine the performance of the notes are concentrated in one sector.
Although an investment in the notes will not give holders any ownership or other direct interests in the stocks underlying the
Index, the return on an investment in the notes will be subject to certain risks associated with a direct equity investment in
companies in the financial sector. Accordingly, by investing in the notes, you will not benefit from the diversification which
could result from an investment linked to companies that operate in multiple sectors.
Economic conditions have adversely impacted the stock prices
of many companies in the financial services sector, and may do so during the term of the notes.
In recent years, economic conditions in the U.S. have resulted,
and may continue to result, in significant losses among many companies that operate in the financial services sector. These conditions
have also resulted, and may continue to result, in a high degree of volatility in the stock prices of financial institutions, and
substantial fluctuations in the profitability of these companies. Numerous financial services companies have experienced substantial
decreases in the value of their assets, taken action to raise capital (including the issuance of debt or equity securities), or
even ceased operations. Further, companies in the financial services sector have been subject to unprecedented government actions
and regulation, which may limit the scope of their operations and, in turn, result in a decrease in value of these companies. Any
of these factors may have an adverse impact on the level of the Index. As a result, the level of the Index may be adversely affected
by economic, political, or regulatory events affecting the financial services sector or one of the sub-sectors of the financial
services sector. This in turn could adversely impact the market value of the notes and decrease the Redemption Amount.
Accelerated Return Notes
®
|
TS-7
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
The Index
We ha
ve derived all information
relating to the S&P 500
®
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 and MLPF&S. S&P is under no obligation to continue to publish, and may discontinue or suspend the
publication of the Index at any time.
The Index is a modified market capitalization-based index, intended
to provide an indication of the pattern of common stock price movements of companies that are components of the S&P 500
®
Index and are involved the following industries: diversified financial services, insurance, commercial banks, capital markets,
real estate investment trusts, thrift & mortgage finance, consumer finance, and real estate management & development. As
of June 28, 2013 the Index included 81 component stocks. The stocks included in the Index are selected by Index Compilation Agent
in consultation with S&P from the universe of companies represented by the S&P 500
®
Index. The composition
and weighting of the stocks included in the Index will likely differ from the composition and weighting of stocks included in any
similar S&P 500
®
sector index that is published and disseminated by S&P. S&P acts as the “Index
Calculation Agent” in connection with the calculation and dissemination of the Index.
Construction and Maintenance
Each of the component stocks in the Index (the “component
stocks”) is a constituent company of the S&P 500
®
Index.
Each stock in the S&P 500
®
Index is allocated
to one and only one of the Select Sector Indices. The Index Compilation Agent assigns each constituent stock of the S&P 500
®
Index to a Select Sector Index. The Index Compilation Agent, after consultation with S&P, assigns a financial services company’s
stock to the Index on the basis of such company’s sales and earnings composition and the sensitivity of the company’s
stock price and business results to the common factors that affect other companies in the Index. S&P has sole control over
the removal of stocks from the S&P 500
®
Index and the selection of replacement stocks to be added to the S&P
500
®
Index. However, S&P plays only a consulting role in the Index assignment of the S&P 500
®
Index component stocks, that assignment being the sole responsibility of the Index Compilation Agent.
The Index is calculated by the Index Calculation Agent using
a modified “market capitalization” methodology. This design ensures that each of the component stocks within the Index
is represented in a proportion consistent with its percentage with respect to the total market capitalization of the Index. Under
certain conditions, however, the number of shares of a component stock within the Index may be adjusted to conform to Internal
Revenue Code requirements.
The Index is weighted based on the market capitalization of
each of the component stocks, subject to the following asset diversification requirements: (i) the market capitalization-based
weighted value of any single component stock measured on the last day of a calendar quarter may not exceed 24.99% of the total
value of its Index; and (ii) with respect to 50% of the total value of the Index, the market capitalization-based weighted value
of the component stocks must be diversified so that no single component stock measured on the last day of a calendar quarter represents
more than 4.99% of the total value of its Index.
The Index does not reflect the payment of dividends on the stocks
included in the Index and therefore the payment on the notes will not produce the same return you would receive if you were able
to purchase such underlying stocks and hold them until the maturity date.
The S&P 500
®
Index
With the exception of the weighting constraints described above,
the Index is calculated using the same methodology utilized by S&P in calculating the S&P 500
®
Index. In
particular: The S&P 500
®
Index is intended to provide an indication of the pattern of common stock price movement. The
calculation of the level of the S&P 500
®
Index, discussed below in further detail, is based on the relative
value of the aggregate Market Value (as defined below) of the common stocks of 500 companies as of a particular time compared to
the aggregate average Market Value of the common stocks of 500 similar companies during the base period of the years 1941 through
1943. S&P chooses companies for inclusion in the S&P 500
®
Index with the aim of achieving a distribution
by broad industry groupings that approximates the distribution of these groupings in the common stock population of the Standard
& Poor’s Stock Guide Database, which S&P uses as an assumed model for the composition of the total market. S&P
may from time to time in its sole discretion, add companies to or delete companies from, the S&P 500
®
Index
to achieve these objectives.
Prior to March 2005, the Market Value of a component stock was
calculated as the product of the market price per share and the total number of outstanding shares of the component stock. In
March 2004, S&P announced that it would transition the S&P 500
®
Index to float adjusted market capitalization
weights. The transition began in March 2005 and was completed in September 2005. S&P’s criteria
for selecting stocks for the S&P 500
®
Index was not changed by the shift to float adjustment. However,
the adjustment affects each company’s weight in the S&P 500
®
Index (i.e., its Market Value). Currently,
S&P calculates the S&P 500
®
Index based on the total float-adjusted market capitalization of each component
stock, where each stock’s weight in the S&P 500
®
Index is proportional to its float-adjusted Market Value.
Under float adjustment, the share counts used in calculating
the S&P 500
®
Index reflect only those shares that are available to investors, not all of a company’s outstanding
shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or
government agencies.
Accelerated Return Notes
®
|
TS-8
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
In September 2012, all shareholdings representing more than
5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float for purposes
of calculating the S&P 500
®
Index. Generally, these “control holders” will include officers and
directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control,
strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders
of unlisted share classes of stock, government entities at all levels (other than government retirement/pension funds) and any
individual person who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block
owners, such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension
funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment
plans, will ordinarily be considered part of the float.
Treasury stock, stock options, restricted shares, equity participation
units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares of a U.S. company
traded in Canada as “exchangeable shares,” are normally part of the float unless those shares form a control block.
If a company has multiple classes of stock outstanding, shares in an unlisted or non-traded class are treated as a control block.
For each stock, an investable weight factor (“IWF”)
is calculated by dividing the available float shares by the total shares outstanding. As of September 21, 2012, available float
shares are defined as the total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum
threshold for control blocks. For example, if a company’s officers and directors hold 3% of the company’s shares, and
no other control group holds 5% of the company’s shares, the S&P would assign that company an IWF of 1.00, as no control
group meets the 5% threshold. However, if a company’s officers and directors hold 3% of the company’s shares and another
control group holds 20% of the company’s shares, the S&P would assign an IWF of 0.77, reflecting the fact that 23% of
the company’s outstanding shares are considered to be held for control. For companies with multiple classes of stock, S&P
calculates the weighted average IWF for each stock using the proportion of the total company market capitalization of each share
class as weights.
As of the date of this term sheet, the S&P 500
®
Index is also calculated using a base-weighted aggregate methodology: the level of the S&P 500
®
Index
reflects the total Market Value of all the component stocks relative to the S&P 500
®
Index base period of 1941-43. The
daily calculation of the S&P 500
®
Index is computed by dividing the Market Value of the S&P 500
®
Index component stocks by a Divisor, which is adjusted from time to time as discussed below.
The simplest capitalization weighted S&P 500
®
Index can be thought of as a portfolio consisting of all available shares of the stocks in the S&P 500
®
Index. While
this might track this portfolio’s value in dollar terms, it would probably yield an unwieldy number in the trillions. Therefore,
the actual number used in the S&P 500
®
Index is scaled to a more easily handled number, currently in the thousands,
by dividing the portfolio Market Value by the Divisor.
Ongoing maintenance of the S&P 500
®
Index
includes monitoring and completing the adjustments for additions and deletions of the constituent companies, share changes, stock
splits, stock dividends and stock price adjustments due to company restructurings or spin-offs. Continuity in the level
of the S&P 500
®
Index is maintained by adjusting the Divisor for all changes in the S&P 500
®
Index constituents’ share capital after the base period of 1941-43 with the level of the S&P 500
®
Index
as of the base period set at 10. Some corporate actions, such as stock splits and stock dividends do not require Divisor
adjustments because following a stock split or stock dividend, both the stock price and number of shares outstanding are adjusted
by S&P so that there is no change in the Market Value of the component stock. All stock split and dividend adjustments
are made after the close of trading on the day before the ex-date.
To prevent the level of the S&P 500
®
Index
from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P 500
®
Index also require a Divisor adjustment. By adjusting the Divisor for the change in total Market Value, the level of
the S&P 500
®
Index remains constant. This helps maintain the level of the S&P 500
®
Index as an accurate barometer of stock market performance and ensures that the movement of the S&P 500
®
Index
does not reflect the corporate actions of individual companies in the S&P 500
®
Index. All Divisor
adjustments are made after the close of trading and after the calculation of the closing levels of the S&P 500
®
Index. As noted in the preceding paragraph, some corporate actions, such as stock splits and stock dividends, require
simple changes in the common shares outstanding and the stock prices of the companies in the S&P 500
®
Index
and do not require Divisor adjustments.
The table below summarizes the types of S&P 500
®
Index maintenance adjustments and indicates whether or not a Divisor adjustment is required.
Type of Corporate Action
|
|
Comments
|
|
Divisor Adjustment
|
|
|
|
|
|
Company added/deleted
|
|
Net change in market value determines Divisor adjustment.
|
|
Yes
|
|
|
|
|
|
Change in shares outstanding
|
|
Any combination of secondary issuance, share repurchase or buy back—share counts revised to reflect change.
|
|
Yes
|
|
|
|
|
|
Stock split
|
|
Share count revised to reflect new count. Divisor adjustment is not required since the share count and price changes are offsetting.
|
|
No
|
Accelerated Return Notes
®
|
TS-9
|
Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
|
|
Spin-off
|
|
If spun-off company is not being added to the S&P 500
®
Index, the divisor adjustment reflects the decline in Index Market Value (i.e., the value of the spun-off unit).
|
|
Yes
|
|
|
|
|
|
Spin-off
|
|
Spun-off company added to the S&P 500
®
Index, no company removed from the S&P 500
®
Index.
|
|
No
|
Spin-off
|
|
Spun-off company added to the S&P 500
®
Index,
another company removed to keep number of names fixed. Divisor adjustment reflects deletion.
|
|
Yes
|
|
|
|
|
|
Change in IWF
|
|
Increasing (decreasing) the IWF increases (decreases) the total market value of the S&P 500
®
Index. The Divisor change reflects the change in market value caused by the change to an IWF.
|
|
Yes
|
|
|
|
|
|
Special dividend
|
|
When a company pays a special dividend the share price is assumed to drop by the amount of the dividend; the divisor adjustment reflects this drop in Index Market Value.
|
|
Yes
|
|
|
|
|
|
Rights offering
|
|
Each shareholder receives the right to buy a proportional number of additional shares at a set (often discounted) price. The calculation assumes that the offering is fully subscribed. Divisor adjustment reflects increase in market cap measured as the shares issued multiplied by the price paid.
|
|
Yes
|
Each of the corporate events exemplified in the table requiring
an adjustment to the Divisor has the effect of altering the Market Value of the component stock and consequently of altering the
aggregate Market Value of the Index component stocks (the “Post-Event Aggregate Market Value”). In order
that the level of the S&P 500
®
Index (the “Pre-Event Index Value”) not be affected by the altered
Market Value (whether increase or decrease) of the affected component stock, a new Divisor (“New Divisor”) is derived
as follows:
Post-Event Aggregate Market Value
|
=
|
Pre-Event Index Value
|
New Divisor
|
|
|
|
New Divisor
|
=
|
Post-Event Aggregate Market Value
|
Pre-Event Index Value
|
Another large part of the S&P 500
®
Index
maintenance process involves tracking the changes in the number of shares outstanding of each of the companies whose stocks are
included in the S&P 500
®
Index. Four times a year, on a Friday close to the end of each calendar
quarter, the share totals of companies in the S&P 500
®
Index are updated as required by any changes in the number
of shares outstanding and then the Index Divisor is adjusted accordingly. In addition, changes in a company’s
shares outstanding of 5% or more due to mergers, acquisitions, public offerings, private placements, tender offers, Dutch auctions
or exchange offers are made as soon as reasonably possible. Other changes of 5% or more (due to, for example, company
stock repurchases, redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participations
or other recapitalizations) are made weekly, and are announced on Wednesdays for implementation after the close of trading on the
following Wednesday. If a 5% or more change causes a company’s IWF to change by 5 percentage points or more (for
example from 0.80 to 0.85), the IWF will be updated at the same time as the share change, except IWF changes resulting from partial
tender offers will be considered on a case-by-case basis. Changes to an IWF of less than 5 percentage points are implemented
at the next IWF review, which occurs annually. In the case of certain rights issuances, in which the number of rights
issued and/or terms of their exercise are deemed substantial, a price adjustment and share increase may be implemented immediately.
Accelerated Return Notes
®
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TS-10
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Accelerated
Return Notes
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Linked to the Financials Select Sector Index,
due September 26, 2014
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The following graph shows the monthly historical performance
of the Index in the period from January 2008 through June 2013. We obtained this historical data from Bloomberg L.P. We have not
independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On the pricing date, the closing
level of the Index was 206.36.
Historical Performance of the Index
This historical data on the Index is not necessarily indicative
of the future performance of the Index or what the value of the notes may be. Any historical upward or downward trend in the level
of the Index during any period set forth above is not an indication that the level of the Index is more or less likely to increase
or decrease at any time over the term of the notes.
Before investing in the notes, you should consult publicly available
sources for the levels of the Index.
License Agreement and Trademarks
We have entered into a non-exclusive license agreement with
MLPF&S with respect to the Index. The Index is determined, composed and calculated by MLPF&S without regard to us, the
notes or the holders of the notes. MLPF&S has no obligation to take our needs or the needs of holders of the notes into consideration
in determining, composing or calculating the Index.
MLPF&S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEX OR ANY DATA INCLUDED THEREIN AND MLPF&S SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY, OR
INTERRUPTIONS THEREIN. MLPF&S MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY US, HOLDERS OF THE
NOTES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN. MLPF&S MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MLPF&S, IN ITS
CAPACITY AS LICENSOR, HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL DAMAGES, OR LOST PROFITS,
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Financials Select Sector Index” or “Select
Sector Indices” are trademarks of MLPF&S or its affiliates and will be licensed for use by us.
Standard & Poor’s
®
and S&P
®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”);
Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks
have been licensed for use by S&P Dow Jones Indices LLC
and its affiliate
s. The
S&P 500
®
Index is a product of S&P Dow Jones Indices LLC. The notes are not sponsored, endorsed, sold or
promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P
Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders
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 S&P 500
®
Index to track general market performance. S&P Dow Jones Indices’
only relationship to MLPF&S and to us with respect to the S&P 500
®
Index is the use of the S&P
500
®
Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its third
party licensors. The S&P 500
®
Index is determined, composed and calculated by S&P Dow Jones Indices
without regard to MLPF&S, us, or the notes. S&P Dow Jones Indices have no obligation to take our needs or the needs
of MLPF&S or the holders of the notes into consideration in determining, composing or calculating the S&P 500
®
Index. S&P Dow Jones Indices are not responsible for and have
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 Dow Jones Indices have 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 S&P 500
®
Index will accurately track
index
Accelerated Return Notes
®
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TS-11
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Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
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performance or provide
positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within the S&P
500
®
Index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered
to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor
financial products unrelated to the notes currently being issued by us, but which may be similar to and competitive with the notes.
In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the S&P
500
®
Index. It is possible that this trading activity will affect the value of the S&P 500
®
Index
and the notes.
S&P DOW JONES INDICES
DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500
®
INDEX OR ANY DATA
RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS)
WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR
DELAYS THEREIN. S&P DOW JONES INDICES MAKE 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 MLPF&S, US, HOLDERS OF THE NOTES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500
®
INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE,
OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE
BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.
Accelerated Return Notes
®
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TS-12
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Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
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Supplement to the Plan of Distribution
We will deliver the notes against payment therefor in New York,
New York on a date that is greater than three business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange
Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any
such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than three business days prior to
the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
The notes will not be listed on any securities exchange. In
the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units. If you place an order to
purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
MLPF&S may repurchase and resell the notes, with repurchases
and resales being made at prices related to then-prevailing market prices or at negotiated prices, and these will include MLPF&S’s
trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however it is not
obligated to engage in any such transactions. At MLPF&S’s discretion, for a short, undetermined initial period after
the issuance of the notes, any purchase price paid by MLPF&S in the secondary market may be, in certain circumstances, closer
to the amount that you paid for the notes than to the estimated initial value. However, neither we nor any of our affiliates is
obligated to purchase your notes at any price, or at a price that exceeds the estimated initial value.
The value of the notes shown on your account statement provided
by MLPF&S will be based on their estimate of the value of the notes if MLPF&S or one of its affiliates were to make a market
in the notes, which it is not obligated to do. This estimate will be based upon the price that MLPF&S may pay for the notes
in light of then-prevailing market conditions, the issuer’s creditworthiness and transaction costs. At certain times, this
price may be higher than or lower than the estimated initial value of the notes.
The distribution of the Note Prospectus in connection with these
offers or sales will be solely for the purpose of providing investors with the description of the terms of the notes that was made
available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized
to, rely on the Note Prospectus for information regarding HSBC or for any purpose other than that described in the immediately
preceding sentence.
Role of MLPF&S
MLPF&S will participate as selling agent in the distribution
of the notes. Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the
public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.
At maturity, we are required to pay the Redemption Amount to
holders of the notes, which will be calculated based on the performance of the Index and the $10 per unit principal amount. In
order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements
(which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these
hedging arrangements are determined by MLPF&S seeking bids from market participants, which could include one of our affiliates
and MLPF&S and its affiliates. These hedging arrangements take into account a number of factors, including the issuer’s
creditworthiness, interest rate movements, the volatility of the Index, the tenor of the note and the tenor of the hedging arrangements.
The economic terms of the notes depend in part on the terms of the hedging arrangements.
MLPF&S has advised us that the hedging arrangements will
include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S
from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and
losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.
For further information, see "Risk Factors—General
Risks Relating to ARNs” beginning on page S-10 and “Use of Proceeds” on page S-19 of product supplement ARN-2.
Accelerated Return Notes
®
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TS-13
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Accelerated
Return Notes
®
Linked to the Financials Select Sector Index,
due September 26, 2014
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Summary Tax Consequences
You should consider the
U.S. federal income tax consequences of an investment in the notes, including the following:
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and
treat the notes for all tax purposes as pre-paid executory contracts with respect to the Index.
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Under this characterization and tax treatment of the notes, a U.S. Holder (as defined in product supplement ARN-2) generally
will recognize capital gain or loss upon maturity or upon a sale or exchange of the notes prior to maturity. This capital gain
or loss generally will be long-term capital gain or loss if you held the notes for more than one year.
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No assurance can be given that the IRS or any court will agree with this characterization and tax treatment.
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Withholding and reporting requirements under the legislation enacted on March 18, 2010 (as discussed beginning on page S-48
of the accompanying prospectus supplement), will generally apply to payments made after June 30, 2014. However, this withholding
tax will not be imposed on payments pursuant to obligations outstanding on July 1, 2014. Additionally, withholding due to any payment
being treated as a “dividend equivalent” (as discussed beginning on page S-47 of the accompanying 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 notes.
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You should consult your own tax advisor concerning the U.S.
federal income tax consequences to you of acquiring, owning, and disposing of the notes, as well as any tax consequences arising
under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other
tax laws. You should review carefully the discussion under the section entitled “U.S. Federal Income Tax Summary” beginning
on page S-34 of product supplement ARN-2.