Risk Disclosure for Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect

1. Effective 1 Jan 2020, the SFC investor compensation regime has been expanded to cover Shanghai and Shenzhen Northbound Trading through the China Connect Service.
   
   Not protected by the China Securities Investor Protection Fund (中國投資者保護基金) (“CSIPF”)

   Investor Compensation Fund

   The Investor Compensation Fund is established to pay compensation to investors of any nationality who suffer pecuniary losses as a result of default of a licensed intermediary or authorised financial institution in relation to exchange-traded products in Hong Kong. Examples of default are insolvency, in bankruptcy or winding up, breach of trust, defalcation, fraud, or misfeasance.

   As for Shanghai and Shenzhen Northbound Trading, according to the Securities and Futures Ordinance, the Investor Compensation Fund will cover products traded in Hong Kong’s recognised securities market (SEHK) and recognised futures market (Hong Kong Futures Exchange Limited, "HKFE").

   Taking into account the growth and development of Hong Kong's securities and futures market, the SFC investor compensation regime has been expanded to cover Shanghai and Shenzhen Northbound Trading through the China Connect Service, effective 1 January, 2020. As transactions under the Shanghai and Shenzhen Stock Connect must be routed through Hong Kong intermediaries, these transactions should be covered under the SFC investor compensation regime.

   For further information on Investor Compensation Fund, please refer to the website of Investor Compensation Company Limited. For information on licensees and registered institutions under the SFC, please consult the Public Register of Licensed Persons & Registered Institutions in the SFC website.

   CSIPF

   Northbound Trading under the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect will not be protected by the China Securities Investor Protection Fund ("CSIPF").

   According to the Measures for the Administration of Securities Investor Protection Fund《證券投資者保護基金管理辦法》, the functions of CSIPF include “indemnifying creditors as required by the relevant policies in the PRC in case a securities company is subjected to compulsory regulatory measures including dissolution, closure, bankruptcy and administrative takeover by CSRC and custodian operation” or “other functions approved by the State Council”. As far as Hong Kong investors participating in Northbound Trading are concerned, since they are carrying out Northbound Trading through securities brokers in Hong Kong and these brokers are not PRC brokers, therefore they are not protected by CSIPF in the PRC.

2. RMB Currency Risk

   RMB is subject to the PRC government's control (for example, exchange restrictions). The Client's ability to remit or repatriate funds into the PRC or out of the PRC will be restricted by Applicable Law. There is no guarantee that the exchange rate of RMB will not depreciate.

   Hong Kong and overseas Clients who hold a local currency other than RMB will be exposed to currency risk if they invest in a RMB product due to the need for the conversion of the local currency into RMB. During the conversion, the Client may also incur currency conversion costs. Even if the price of the RMB asset remains the same when the Client purchased it and when the Client redeems / sells it, the Client may still incur a loss when converting the redemption / sale proceeds into local currency if RMB has depreciated.

3. Quota used up

   Once the Daily Quota is used up, acceptance of the corresponding buy orders will also be immediately suspended and no further buy orders will be accepted for the remainder of the day. Buy orders which have been accepted will not be affected by the using up of the Daily Quota, while sell orders will be continued to be accepted.

4. Foreign Shareholding Restrictions

   The trading, acquisition, disposal and holding of SSE Securities / SZSE Securities under the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are subject at all times to the Applicable Law, including the Foreign Shareholding Restrictions, which impose purchasing and holding limits. These limitations and restrictions may have the effect of restricting the Client's ability to purchase, subscribe for or hold any SSE Securities/ SZSE Securities or take up any entitlements in respect of SSE Securities/ SZSE Securities, or requiring the Client to reduce its holdings in any SSE Securities/ SZSE Securities, whether generally or at a particular point of time, and whether by way of forced sale or otherwise, and notwithstanding that the Client's individual holding does not exceed such limitations or restrictions. As such, the Client may incur loss arising from such limitations, restrictions and/or forced sale, including any losses arising from the disgorgement of profits as a result of the "short swing profit rule" under Applicable Law and Requirement.

5. Trading day

   The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect may only operate on days when the respective markets are open for trading and when banks in the markets are open on the corresponding settlement days as specified under the Stock Connect Rules. So it is possible that there are occasions when it is a normal trading day for the PRC market but Hong Kong investors cannot carry out any SSE Securities/ SZSE Securities trading. The Client should take note of the days the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are open for business and decide according to their own risk tolerance capability whether or not to take on the risk of price fluctuations in SSE Securities/ SZSE Securities during the time when the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect is not trading.

6. Restrictions on selling imposed by front-end monitoring

   For Clients who keep their SSE Securities/ SZSE Securities outside of their brokers, if they want to sell certain SSE Securities/ SZSE Securities they hold, they must transfer those SSE Securities/ SZSE Securities to the respective accounts of their brokers before the cut-off time as specified by the Bank in its sole discretion from time to time. Only settled SSE Securities/ SZSE Securities are allowed to be sold on any Shanghai-Hong Kong Stock Connect Trading Day/ Shenzhen-Hong Kong Stock Connect Trading Day.

7. The recalling of eligible stocks

   The list of SSE Securities/ SZSE Securities are subject to change and certain SSE Securities/ SZSE Securities may be recalled from the scope of eligible securities for trading via the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect (as the case may be). When a stock is recalled from the scope of eligible stocks for trading via the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect for any reason, the stock can only be sold but is restricted from being bought. This may affect the investment portfolio or strategies of the Client. The Client should therefore pay close attention to the list of eligible stocks as provided and renewed from time to time by SSE, SZSE and SEHK.

8. SSE Securities/ SZSE Securities and Stock Connect Rules

   The Stock Connect Rules may be amended or changed from time to time, and such rules may be subject to any amendments or changes to the trading rules of the SSE, SZSE and/or the SEHK, and any Applicable Law. The Applicable Law, Stock Connect Rules and any other relevant Requirements in respect of the SSE Securities, Shanghai-Hong Kong Stock Connect, SZSE Securities and Shenzhen-Hong Kong Stock Connect are still subject to development, and there is uncertainty and risk as to the scope, application, and interpretation of the Applicable Law, Stock Connect Rules, and any other relevant Requirements, including any new taxes, fees or levies and whether the arrangements contemplated under the Shanghai Stock Connect Terms and Conditions or Shenzhen Stock Connect Terms and Conditions are permitted under the Applicable Law, Stock Connect Rules and/or other relevant Requirements. The SSE and SZSE may request the SEHK to require the Bank to issue warning statements (verbally or in writing) to the Client, and not to extend Northbound Trading service to the Client. The SSE/ SZSE may be closed, or trading on the SSE/ SZSE may be suspended, whether temporarily or permanently. The Client may incur loss in the event that the Regulators determine that these arrangements are not permitted or in the event of any change to the Shanghai-Hong Kong Stock Connect/Shenzhen-Hong Kong Stock Connect, Requirements in respect of SSE Securities/ SZSE Securities, the SSE Securities/ SZSE Securities available for trading through the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect, or the suspension or closure (whether temporary or permanent) of the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect. For example, the Client may find it is not able to acquire, dispose of or hold certain SSE Securities/ SZSE Securities or its entitlements in the event of certain changes to the Stock Connect Rules, which may affect the investment portfolio or strategies of the Client or cause the Client to incur loss. The Bank is not liable to the Client in relation to such determination or change or the consequences of such determination or change.

   In addition, the Client may find that it is not able to execute certain type(s) or category(ies) of transactions contemplated under the Shanghai Stock Connect Terms and Conditions and Shenzhen Stock Connect Terms and Conditions, such as margin trading in SSE Securities via the Shanghai-Hong Kong Stock Connect/ SZSE Securities via the Shenzhen-Hong Kong Stock Connect or orders with prices beyond the price limits of SSE Securities/ SZSE Securities or in respect of SSE Securities/ SZSE Securities of which trading has been suspended due to price limits.

   The applicable laws and regulations of the PRC and may be different from the rules and regulations applicable to Securities listed on the SEHK. The Client may find that it is not able to exercise equivalent rights (e.g. right to vote by proxy) as holders of SSE Securities/ SZSE Securities as compared with the PRC holders of the same SSE Securities/ SZSE Securities, or as compared with Securities listed on the SEHK. In addition, there is no assurance that the HKSCC will take action to enforce any rights in respect of any SSE Securities/ SZSE Securities, and the Client may have limited recourse in this regard. Further, all SSE Securities/ SZSE Securities may be subject to the same trading board lot size where buy orders are required to be in board lot and subject to a maximum order size. Odd lot trading may only be available for sell orders and it is common that a board lot buy order maybe matched with different odd lot sell orders, resulting in odd lot trades. Unlike Hong Kong, board lot and odd lot orders for SSE Securities/ SZSE Securities are both matched on the same platform on the SSE/ SZSE, and subject to the same share price. The Client may find that it is unable to acquire or dispose of SSE Securities/ SZSE Securities using the same processes or operational mechanisms as compared with those used in acquiring or disposing of Securities listed on the SEHK. The Client should read, understand and accept all relevant rules and any amendments thereof and seek independent professional advice if needed.

   The HKSCC, Hong Kong Exchanges and Clearing Limited, SEHK, SEHK Subsidiary, SSE, SZSE and their respective directors, employees and agents shall not be responsible or held liable for any loss or damage directly or indirectly suffered by the Bank, the Client, special participants and non-clearing participants of the Central Clearing and Settlement System (if applicable) or any third parties arising from or in connection with Northbound Trading, the China Connect Clearing Services (as defined under the General Rules of the Central Clearing and Settlement System), the China Stock Connect System (as defined under the Rules and Regulations of The Stock Exchange of Hong Kong Limited), the SEHK/SSE/SZSE making, amending or enforcing the Stock Connect Rules/SSE Rules/SZSE Rules, or any action taken by the SEHK/SSE/SZSE in discharge of its supervisory or regulatory obligations or functions including any action taken to deal with abnormal trading conduct or activities.

9. Restrictions on instructions

   In respect of SSE Securities/ SZSE Securities, the Client will be subject to the restrictions under the Stock Connect Rules, SSE Rules/ SZSE Rules in addition to the rules of the SEHK. Instructions of the Client that are not in compliance with the Stock Connect Rules, SSE Rules or SZSE Rules may therefore be rejected or cancelled by the Bank, and part or all of the instruction may not be executed. The SSE/ SZSE may not accept amendments to instructions, and any modifications to an instruction in respect of SSE Securities/ SZSE Securities may therefore require cancellation of the outstanding instruction and input of a new instruction. The Client should read and understand the Stock Connect Rules carefully before placing instructions with the Bank to avoid rejection, cancellation, or non-execution of instructions.

10. Disclosure obligations

    The Client may be subject to Requirements of the PRC in respect of disclosures of interest in SSE Securities/ SZSE Securities, and may be restricted from acquiring or disposing of SSE Securities and SZSE Securities under the Requirements. For example, in the event the Client's interest in SSE Securities/ SZSE Securities crosses a stipulated threshold under the Requirements of the PRC, the Client may be required to disclose its details and interest holding positions to Regulators of the PRC, and may be restricted from further acquiring or disposing of, or from receiving proceeds or other returns from acquiring, holding or disposing of, such SSE Securities/ SZSE Securities within a stipulated time frame or as prescribed by Applicable Law from time to time. There is no guarantee that the Client may be exempt from the disclosure requirements and the relevant trading restrictions in respect of SSE Securities/ SZSE Securities and the Client is solely responsible for compliance with such Requirements. The Bank is not obliged to determine, advise or assist the Client in any way in respect of the disclosure obligations or trading restrictions applicable to the Client under any Requirements.

11. Risk of default by ChinaClear

    Although considered remote, trading under the Shanghai-Hong Kong Stock Connect/ Shenzhen-Hong Kong Stock Connect is subject to the risk of default by ChinaClear as the host central counterparty in the PRC. In an event of default by ChinaClear, the HKSCC will in good faith seek recovery of the outstanding stocks and monies from ChinaClear through available legal channels and through ChinaClear's liquidation process, if applicable. HKSCC will in turn distribute the stocks or monies recovered to Hong Kong clearing participants on a pro-rata basis. The Client may not be able to recover all or any part of its outstanding stocks and/monies in an event of default by ChinaClear.

12. Additional risks relating to ChiNext Shares

    Subject to the Stock Connect Rules, only investors who fulfill the qualification requirements as required by the Stock Connect Rules may trade in ChiNext Shares. The Client should be aware of the risks of dealing in ChiNext Shares. Listed companies in the ChiNext market are usually in their preliminary stage of development with smaller operating scale and shorter operating history and less mature business model and their businesses are usually subject to higher uncertainty and more fluctuations in their performance. Hence, they are subject to higher market volatility and risks and higher turnover ratios than companies listed on the main board of the SZSE. Their stock prices may experience a higher fluctuation as the performance of these companies changes. There are fewer circulating shares on the ChiNext market, hence stock prices may be relatively more easily manipulated and may experience higher fluctuation upon market speculation.

    The rules and regulations regarding securities in the ChiNext market are less stringent in terms of profitability and share capital than those applicable to the main board market and SME board market of the SZSE. The Client should familiarize itself with the rules and regulations regarding the ChiNext market before investing in ChiNext Shares.

    The Client should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of the ChiNext market mean that it is a market more suited to professional or other sophisticated investors.

    The Client should seek independent professional advice if the Client is uncertain of or has not understood any aspect of this risk disclosure statement or the nature and risks involved in trading of ChiNext Shares.