Buying and selling

Bonds are generally expressed as a percentage of the principal.  For example, if a bond has a principal of $100,000 and is quoted at 103, investors will have to pay $103,000 to purchase it. 

From the time a bond is issued until it matures, its price can fluctuate due to various factors, causing it to be higher or lower than its face value.  Bond prices are influenced by factors such as current interest rates, changes in the bond's credit rating, market supply and demand for similar bonds, and (if the bond is a "convertible" or "exchangeable" bond) the price of the underlying stock.

Bonds are typically issued in bearer form, and bond issuers do not provide physical bond certificates.  In other words, bond investors generally do not receive a bond certificate.  

Bond issuers often deposit their bonds with a designated clearing system, such as the Central Moneymarkets Unit.  Intermediaries hold bonds on behalf of investors by establishing and maintaining accounts in the relevant clearing system.  The account statements issued by intermediaries will reflect the investors' ownership of the bonds.  Additionally, intermediaries will collect bond interests and principal through the clearing system before depositing the funds into the investors' accounts.  They will also distribute notices received from the bond issuers to the investors via the clearing system.

In addition to transaction levies and trading fees, investors are required to pay commissions to intermediaries when buying and selling bonds listed on HKEX.  Furthermore, intermediaries may impose additional charges for providing settlement and nominee services to investors. 

There is no standardized fee structure for trading unlisted bonds.   Some intermediaries may include transaction costs into the bond price, leading to a wider spread between buying and selling prices; some may charge a custodian fee as a percentage of the bond’s principal value; some may have more complex fee structures that include trading, transfer, custody and interest collection fees.

In general, if investors do not want to sell the bonds through the intermediary that buys and holds bonds for them, they can transfer the bonds to another intermediary (which may require a payment of a transfer fee) and sell them at the intermediary’s quoted price.  Investors may need to open an investment account with the new intermediary.  Before investing in bonds, investors must clearly understand the various fees they will incur. 

For bonds offered to the Hong Kong public, investors can learn about the bond’s structure, pricing, subscription mechanism, terms and conditions, and financial and other relevant information on the issuer and guarantor, if applicable, from the bond’s offering documents, including prospectuses.

Where an issuer has established a "programme" and offers bonds on a continuous basis or through successive tranches, the issuer may provide prospectus information in two or more separate documents. This would usually consist of a "programme" prospectus, which covers financial and other generic information about the issuer, risk factors, subscription, clearing, settlement and custody procedures, any market making arrangement, etc.  For each bond issue, the issuer releases an "issue" prospectus, which covers specific information about that offer, such as the terms and conditions, timetable and application procedure, and may update the information contained in the programme prospectus.

Before making any investment decisions, it is essential for investors to thoroughly review the whole prospectuses and, if necessary, seek advice from professionals. 

In cases where the bond issuer sells bonds through private placement, it may not offer any prospectuses.  In such cases, investors should read the offering document or term sheet to understand the characteristics of the bond.