Warning: THIS DOCUMENT CONTAINS A BRIEF SUMMARY OF SOME (AND NOT ALL) OF THE FEATURES AND RISK DISCLOSURES OF INVESTING AND TRADING IN ELIGIBLE SHANGHAI STOCK EXCHANGE-LISTED SECURITIES (“ELIGIBLE SSE SECURITIES”) THROUGH SHANGHAI-HONG KONG STOCK CONNECT AND IS NOT MEANT TO BE AN EXHAUSTIVE SUMMARY. IF YOU ARE IN ANY DOUBT ABOUT THE RISKS INVOLVED IN INVESTING AND TRADING IN ELIGIBLE SSE SECURITIES, YOU ARE ADVISED TO SEEK INDEPENDENT FINANCIAL, TAX, LEGAL OR OTHER PROFESSIONAL ADVICE. THE CONTENTS OF THIS DOCUMENT HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY.
Key Risks for trading Eligible Shanghai Stock Exchange (SSE) securities via Shanghai - Hong Kong Stock Connect Service
It is crucial to understand the specific terms and risks mentioned in this document and other relevant documents (e.g. product leaflet, Frequently Asked Questions published in the Bank’s website)(collectively referred to as “Product Documents”) before trading Eligible SSE securities. Key risks include but are not limited to:
Not Protected By Investor Compensation Fund
Hong Kong Investor Compensation Fund is established to pay compensation to investors who suffer pecuniary losses as a result of default of a licensed intermediary or authorized financial institution in relation to exchange-traded products in Hong Kong. According to the Securities and Futures Ordinance, the Investor Compensation Fund only covers products trading in Hong Kong’s recognized securities market (SEHK), i.e. investors should note that any Northbound trading under Shanghai – Hong Kong Stock Connect will NOT be covered by Hong Kong’s Investor Compensation Fund.
Also, investors carrying out Northbound Trading through securities brokers in Hong Kong are NOT protected by the China Securities Investor Protection Fund neither.
Quotas used up
When the respective aggregate quota balance for Northbound trading is less than the daily quota, the corresponding buy orders will be suspended on the next trading day (sell orders will still be accepted) until the aggregate balance returns to the daily quota level.
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. Depending on the aggregate quota balance situation, buy services will be resumed on the following day.
Shanghai – Hong Kong Stock Connect only operates on days when both markets are open for trading and when banks in both markets are open on the corresponding settlement days. So it is possible that there are occasions when it is a normal trading day for the Mainland market but Hong Kong investors cannot carry out A-share trading. Customers should take note of the days Shanghai – Hong Kong Stock Connect is open for business and decide according to their own risk tolerance capability whether or not to take on the risk of price fluctuations in A-shares during the time when Shanghai – Hong Kong Stock Connect is not operating.
No Day Trading
Customers should be aware that day trading is not allowed for Shanghai – Hong Kong Stock Connect Northbound Trading. Customers buying A Shares on Day T can only sell these acquired shares on or after Day T+1.
Restrictions on selling imposed by front-end monitoring
For investors who keep A-shares in financial institutions other than the Bank, if investors want to sell relevant A-shares through the Bank, they must first transfer the relevant A-shares to the Bank before market opens on the day of selling. Customers should allow at least 3 working days for the Bank to complete transfer request of A-Shares from other financial institution to the Bank.
Recalling of eligible stocks
When a stock is recalled from the scope of eligible stocks for trading via Shanghai – Hong Kong Stock Connect, the stock can only be sold but restricted from being further bought. This may affect your investment portfolio or strategies. Customers should there pay close attention to the list of eligible stocks as provided and renewed from time to time by SSE and SEHK.
Customer who holds a local currency other than RMB will be exposed to currency risk if he/ she invests in a RMB product due to the need for the conversion of the local currency into RMB. During the conversion, currency conversion costs will be incurred. Even if the price of the RMB asset remains the same, you may still incur a loss when you convert the sale proceeds back to the local currency if RMB depreciates.
Additional Tax Indemnity
By trading in a SSE listed security you agree that:
(i) Any taxes, duties, charges, withholdings or declarations which arise or are imposed in respect of investing in or trading SSE Securities (including but not limited to capital gains tax from gain arising from SSE Securities) (“Taxes”) may be deducted or withheld by the Bank from all payments payable to you under SSE Securities or otherwise under your existing accounts. Taxes shall include, but shall not be limited to, taxes arising from time to time under the laws of China including taxes, duties and similar charges, taxes withheld or deducted from gains arising from such SSE Securities and other amounts withheld by any issuer from distributions made by such issuer, its agents or any relevant agent or authority and/ or any clearing or custodian agent authorized by the relevant authority.
(ii) You acknowledge that the Bank may only be able to determine the portion of Taxes attributable to any SSE Securities following the redemption, exercise, resale, unwind or termination of the SSE Securities or following repatriation of the sale proceeds attributable to such SSE Securities, when the relevant authority imposes such Taxes, including if such Taxes are imposed retroactively. You agree to pay to the Bank or its agent upon each and any demand, such portion of the Taxes as the Bank or its agent determines in a commercially reasonable manner are attributable to the SSE Securities.
(iii) You agree to indemnify and hold harmless the Bank and its affiliates and their respective officers, directors, employees, advisors, agents and controlling persons (each an “Indemnified Person”) from and against any and all losses, claims, damages, judgments, liabilities and expenses, including reasonable attorneys’ fees and expenses (including the cost of any investigation and preparation), whether joint or joint and several, when and as incurred by such Indemnified Person, resulting from or arising out of the Taxes or related to breach of any representation, warranty or agreement made by you.
(iv) You agree that Standard Chartered is not responsible for handling tax treaty claim on your half.
Additional Terms and Conditions for Shanghai – Hong Kong Stock Connect Securities Services
These terms and conditions set out the rights and obligations of you in connection with your use of Standard Chartered Shanghai – Hong Kong Stock Connect Securities Services. All these terms and conditions are legally binding, so please read them through carefully before you agree to be bound by them.
1.1 In the event of any conflict or discrepancy between these terms and conditions and (a) the Terms and Conditions for Securities Services or (b) the terms of any other agreement subsisting from time to time between the Bank and the Customer or (c) the terms of any agreement between such Customer and any other Bank Affiliate in respect of dealings in Securities, these terms and conditions shall prevail. For the avoidance of doubt, the Client Terms shall apply in relation to the giving of instructions by telephone or via the Internet.
1.2 In these terms and conditions,
“Authorities” means SEHK, SSE or other exchanges, clearing systems or regulators.
“Shanghai – Hong Kong Stock Connect” is a securities trading and clearing links programme developed by SEHK, SSE and ChinaClear for the establishment of mutual market access between Hong Kong and Shanghai;
“Shanghai – Hong Kong Stock Connect Services” refers to the order-routing service provided by the Bank, such that orders for buying and selling certain securities listed and traded on the Shanghai Stock Exchange can be placed by you and routed to the Shanghai Stock Exchange by the Bank’s appointed execution broker;
“SEHK” means the Stock Exchange of Hong Kong Limited;
“SSE” means the Shanghai Stock Exchange;
“HKSCC” means the Hong Kong Securities and Clearing Company Limited;
“ChinaClear” means China Securities Depository and Clearing Corporation Limited;
“Eligible SSE Securities” means the list of securities listed and traded on the Shanghai Stock Exchange that orders for buying and/ or selling these securities shall be placed via the Shanghai – Hong Kong Stock Connect Services. The list of Eligible SSE Securities and its admission criteria can be revised by SEHK from time to time;
2.Trade Settlement and Settlement Instructions
2.1 With respect to a BUY order:
i. Before placing a BUY order, you are required to ensure you have the sufficient Renminbi to deliver to the Bank upon settlement;
ii. You authorize the Bank to debit the funding required to settle your Buy trades from your settlement account on trade day (“T”);
iii. You acknowledge and agree that if for any reason the Bank does not receive by T all or any part of the SSE Securities bought on your behalf on T, released from HKSCC or the Bank’s execution broker and custodian, the Bank shall only deliver to you on T the quantity of the SSE securities actually received by the Bank on T from HKSCC, the Bank’s execution broker and custodian.
2.2 With respect to a SELL order:
i. Before placing a SELL order, you are required to ensure you have the sufficient SSE Securities to deliver to the Bank upon settlement;
ii. The Bank will credit the sales proceeds to your settlement account on trade day (“T”) upon receipt of the relevant sales proceeds from the Bank’s execution broker.
3. Trading Restrictions
Customer agrees to fully comply with and be bounded with the trading restrictions, including but not limited to the following, imposed by SSE, SEHK, the Bank and its execution broker from time to time:
(a) Customer may only place limit orders to trade Eligible SSE Securities. Limit orders placed before the end of Opening Call Auction session will be submitted to SSE and participate in the Opening Call Auction. Customer should note that SSE limit orders are different from SEHK limit orders and can be matched at the specified price or a better price, whereas SEHK limit orders can only be matched at the specified price.
(b) Orders for Eligible SSE Securities are subject to price limits prescribed by Authorities and the price limits may be changed from time to time without prior notice. All orders in respect of SSE Securities must be within the prescribed price limits or else such orders will be rejected by the Bank, its execution broker or SSE.
(c) Orders for SSE Securities are subject to Aggregate Quota and Daily Quota as announced by the Authorities from time to time. You acknowledge that your SSE Securities orders may be rejected by SEHK, the Bank or its execution broker if such Aggregate Quota or Daily Quota is fully utilized as determined and announced by SEHK.
(d) SSE does not accept amendments of orders. Customer acknowledges that for order amendment, the outstanding order must first be cancelled followed by a new order placement to SSE if Customer modifies an outstanding SSE Securities order. Order priority will be lost and the new order will be subject to the Daily Quota and Aggregate Quota balance restrictions at the time the new order is placed.
(e) Situations exist under which Eligible SSE Securities may be restricted from trading, e.g. SSE Securities under "risk alert". Any change to the risk alert board of SSE may occur without prior notice. If an SSE security which is eligible for Shanghai – Hong Kong Stock Connect Services trading is subsequently moved to the risk alert board, Customers will only be allowed to sell the relevant SSE security under Shanghai – Hong Kong Stock Connect Services and will be restricted from further buying of such SSE security.
(f) No day trading is allowed. For SSE Securities that you have purchased, you may not sell such China Connect Securities before the purchase transaction of such SSE Securities has been settled. Settlement shall be effected when the on hold status has been released in accordance with the Operational Procedures set by SEHK.
(g) Should Customer places an order with order quantity exceeding the maximum limit imposed by SSE, the Bank or its execution broker would split up the order into multiple child-orders in a manner that will comply with the relevant limit and send the child-orders to SSE.
(h) Buy orders involving odd lots through Shanghai – Hong Kong Stock Connect Services are not permitted. Sale of odd lots through Shanghai – Hong Kong Stock Connect Services is allowed provided that such order relates to the sale of all and not part of the odd lots held by the Customer.
(i) Under applicable regulations, the "short swing profit rule" requires an investor to return any profits made from purchases and sales in respect of shares of a PRC company listed on a PRC stock exchange if:
a. the client's shareholding in the PRC listed company exceeds the threshold prescribed by the relevant Authority from time to time; and
b. the corresponding transaction occurs within six months after a purchase transaction or vice versa,
Customer acknowledges that Customer shall, and it is the Customer’s responsibility to, comply with such "short swing profit rule".
4. Foreign Shareholding Restrictions
(i) Under applicable regulations, there is a limit to how many shares a single foreign investor is permitted to hold in a PRC listed company, and also a limit to the maximum combined holdings of all foreign investors in a single PRC listed company. It is your responsibility to comply with such limit. Such foreign ownership limits may be applied on an aggregate basis (i.e. across both domestically and overseas issued shares of the same listed company, whether the relevant holdings are through Shanghai-Hong Kong Stock Connect, the Qualified Foreign Institutional Investors (“QFII”) regime, the RMB Qualified Foreign Institutional Investors (“RQFII”) regime or other investment channels)
(ii) If the aggregate foreign shareholding of an A Share reaches 28%, SEHK will not accept any further purchase orders until the shareholding reduces to 26%.
(iii) If the aggregate foreign shareholding of an A Share reaches 30%, SEHK will identify the relevant exchange participant(s) (on a Last-In-First-Out basis) and require such exchange participant(s) to sell such A Shares within a time specified by SEHK. In such a situation, the Bank, its execution broker and/ or custodian may be required by the Authorities to sell your holdings in the relevant SSE Securities. You acknowledge that the Bank shall not be liable for, and undertake to indemnify the Bank and to hold the Bank harmless from and against, any losses suffered or incurred by you as a result of the Bank, its execution broker and/ or custodian acting upon the instruction by the Authorities.
(iv) It shall be Customer’s responsibility to comply with any disclosure of interest rules from time to time imposed by the relevant Authorities and arrange for any relevant filings.
5. Corporate Actions
(i) Following existing market practice in the PRC, investors engaged in the trading of A Shares will not be able to attend meetings by proxy or in person, unlike the current practice in Hong Kong in respect of SEHK-listed shares.
(ii) Since the distribution proceeds received by the Bank from CCASS in relation to corporate action entitled by Customers are after tax deduction, unless otherwise specified, the distribution rate specified in the correspondence issued by the Bank for corporate action events is after tax deduction.
(iii) The Bank does not and cannot ensure the accuracy, reliability or timeliness of any company announcements of corporate actions and the Bank accepts no liability (whether in tort or contract or otherwise) for any loss or damage arising from any errors, inaccuracies, delays or omissions or any actions taken in reliance thereon. The Bank expressly disclaims all warranties, expressed or implied, as to the accuracy of any company announcement or as to the fitness of the information for any purpose.
(iv) Any corporate action in respect of SSE Securities will be announced by the relevant issuer through SSE website and the channel as officially approved by the Authority. You should note that SSE-listed issuers may publish such corporate action documents in Simplified Chinese only, and documents in Traditional Chinese or English may not be available, and the Bank has no responsibility to produce such translation for its customers.
6. Investor Protection
(i) Trading in A Shares does not enjoy the protection afforded by the Investor Compensation Fund established under the Securities and Futures Ordinance. Accordingly, unlike the trading of SEHK listed securities, clients will not be covered by the Investor Compensation Fund in respect of any loss clients may sustain by reason of a default by persons licensed by or registered with the Securities and Futures Commission of Hong Kong.
(ii) As the A Shares are not listed or traded on the SEHK, clients will not have protection under the Securities and Futures (Client Securities) Rules, unless otherwise specified by an Authority. As a result, clients engaging in Northbound Trading under Shanghai-Hong Kong Stock Connect do not have protection under the SFO and related subsidiary legislation.
(iii) ChinaClear has established a risk management framework and measures that are approved and supervised by the China Securities Regulatory Commission (“CSRC”). If ChinaClear (as the host central counterparty) defaults, HKSCC may (but shall have no obligation) to take any legal action or court proceeding to seek recovery of the outstanding A Shares and monies from ChinaClear through available legal channels and through ChinaClear’s liquidation process, if applicable. As ChinaClear does not contribute to the HKSCC guarantee fund, HKSCC will not use the HKSCC guarantee fund to cover any residual loss as a result of closing out any of ChinaClear's positions. HKSCC will in turn distribute the A Shares and/or monies recovered to clearing participants on a pro-rata basis as prescribed by the relevant Authorities. The Bank, in turn, will only be distributing the A Shares and/or monies to the extent recovered directly or indirectly from HKSCC. Although the likelihood of a default by ChinaClear is considered to be remote, investors should be aware of this arrangement and of this potential exposure before engaging in Northbound Trading.