Interest Rate Swaps Frequently Asked Questions

Interest Rate Swaps help You manage interest rate risk by exchanging fixed and floating payments. This FAQ outlines how a Swap may relate to Your exposures, how pricing is set on Trade Date, potential costs (including early termination), options if market conditions or Your expectations change, and considerations for amending a Swap with HSBC.

If I am required to enter into a swap pursuant to a Exposure with HSBC, does the swap also need to be entered into with HSBC?

No, if it is a condition of an underlying liability, such as a facility entered into between You and Us, that You must hedge Your interest rate exposure, You do not need to enter into a swap with Us; however, this needs to be with an appropriate counterparty.

How much does a Swap cost on Trade Date and how is the Fixed Rate or Spread (if applicable) determined?

The price of a Swap on Trade Date is determined by a number of factors, including the Fixed Rate or Spread applicable to the Swap. When We quote the Fixed Rate or Spread to You, We take into account various factors, including the terms of the Swap, how We expect the Swap to perform, market rates prevailing at the time, the volatility of the market, credit charges, funding charges and Our profit. We may make a profit by including the cost of a fair margin payable to Us into the Fixed Rate or Spread As a result, the Fixed Rate or Spread We quote to You will be different from the prevailing market rate.

What happens if the interest rate outlook changes or the interest rate does not perform as You expected?

If this happens, You have the following options:

1. continue with the Swap;
2. terminate the Swap early, but you may have to pay a significant Unwind Cost (or, if an Optional Early Termination is exercised, an amount determined pursuant to the Cash Settlement Method in accordance with the terms of the Confirmation) to do so; or
3. enter into a new, economically opposite interest rate swap with HSBC, subject to Our internal approval and on terms agreed to by HSBC at the time.

What happens if You want to change/amend the terms of a Swap with HSBC before the Termination Date?

Depending on the nature of the amendment(s) and the market conditions at the time of the amendment(s), You may incur substantial costs (including, where appropriate, Unwind Costs) to amend a Swap with HSBC (please see section entitled ‘Early Termination, Restructuring, Amendment and Novation and Unwind Cost’ in the termsheet for details).