The Hongkong and Shanghai Banking Corporation Limited 1 Queen's Road Central Hong Kong SAR GLOBAL MARKETS EQUITIES SUPPLEMENT TO THE TERMS OF BUSINESS - SECURITIES APPLICABLE TO TRADING OF SHARES THROUGH CHINA CONNECT This Supplement forms part of the Terms of Business and shall unless otherwise agreed take effect after its receipt by you and such receipt shall, in the absence of evidence to contrary, be deemed to have taken place in accordance with the provisions of Clause 20 of the Terms of Business. In the event of any inconsistency between this Supplement (including its Appendices) and the Terms of Business, this Supplement shall prevail. The Company reserves the right to vary any of the terms of this Supplement by written notice to you in accordance with Clause 21(k) of the Terms of Business. 1. Definitions Capitalised terms used herein will bear the meanings ascribed thereto in the Terms of Business. In addition: "Affiliate" means in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, control of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable China Connect Laws" means the laws, regulations, rules and guidelines of Hong Kong and the PRC from time to time including, without limitation, the China Connect Rules. "A Shares" means any securities issued by companies incorporated in the PRC which are listed and traded on the PRC A Share markets (Shanghai and Shenzhen) and not on the SEHK. "Average Pricing" means the allocation or application of an average price per China Connect Security to each individual fund managed by the same fund manager in respect of trades in such China Connect Security on the same Trading Day. "Cash" means all cash or cash equivalents in Renminbi received and held by the Company subject to the terms of this Supplement. "Cautionary Level" has the meaning given to such term under paragraph 4 of Appendix 1 to this Supplement. - 1 -
"CCASS" means the Central Clearing and Settlement System operated by the Hong Kong Securities Clearing Company Limited for the clearing of securities listed or traded on the Stock Exchange of Hong Kong Limited and/ or any system established for the purpose of China Connect. CCASS China Connect Rules means the general rules of CCASS, as amended for the purposes of implementing China Connect, and as amended, supplement, modified and/or varied from time to time. "CCEP" means a person registered as a China Connect Exchange Participant by the SEHK. "China Connect" means a securities trading and clearing links programme developed by the SEHK, the relevant China Connect Market(s), HKSCC and CSDCC for the establishment of mutual market access between the SEHK and the relevant China Connect Market(s). "China Connect Authorities" means the exchanges, clearing systems and regulators which provide services in relation to and/or regulate China Connect and activities relating to China Connect, including without limitation, CSRC, SFC, PBOC, SAFE, HKMA, SEHK, SEHK Subsidiary, the relevant China Connect Market(s), HKSCC, CSDCC, SAT and any other regulator, agency or authority with jurisdiction or responsibility in respect of China Connect and China Connect Authority means any one of them. "China Connect Market" means a stock market in the PRC acceptable to the SEHK and included in the list of China Connect Markets which are eligible for China Connect trading. "China Connect Market Operator" means an exchange that operates a China Connect Market and has entered into trading links with the SEHK. "China Connect Market System" means the system used for the trading of China Connect Securities on a China Connect Market, as operated by the relevant China Connect Market Operator. "China Connect Rules" means any laws, rules, regulations, policies or guidelines published or applied by any China Connect Authority from time to time in respect of China Connect or any activities arising from China Connect. "China Connect Securities" means any securities listed on a China Connect Market which may be eligible for trading by Hong Kong and international investors on China Connect. "China Connect Service" means the order-routing service through which Northbound orders placed by a CCEP may be transmitted by the SEHK Subsidiary to a China Connect Market for the buying and selling of China Connect Securities and any related supporting services. "Clearing Participant" has the meaning given to such term in the CCASS rules. - 2 -
"Client Securities Rules" means the Securities and Futures (Client Securities) Rules (Cap 571H of the Laws of Hong Kong). "CSC" means the China Stock Connect System for receiving and routing China Connect orders to a China Connect Market System for automatic matching and execution. "CSDCC" means China Securities Depository and Clearing Corporation. "CSRC" means China Securities Regulatory Commission. "Custodian Participant" means a person registered as a participant of HKSCC and admitted to participate in CCASS as a custodian participant pursuant to the CCASS China Connect Rules. "Custody Plus" means the provision by the Company of execution of orders services where the relevant China Connect Securities are held within a separate sub-custodial agreement with the Company and therefore, for sell orders, do not require predelivery to the Company prior to the execution of such sell orders. "Delayed Settlement" means, in relation to buy orders only, the provision by the Company of delivery versus payment (DVP) settlement where the Company shall credit to you China Connect Securities on your delivery of Cash on the Trading Day following the trade date for the relevant buy orders. "DVP" means the provision by the Company of delivery versus payment (DVP) settlement where the Company shall credit to you the proceeds of sell orders on the trade date of such sell order, and shall credit to you China Connect Securities on your delivery of Cash on the trade date for buy orders, either directly or in accordance with Clause 6 of this Supplement or in the form of an agreed credit facility provided to you by the Company. "Enhanced Pre-Trade Checking" means the enhanced pre-trade checking undertaken by the SEHK and the SEHK Subsidiary in respect of an SPSA order. "Forced-sale Notice" has the meaning given in Clause 8.1 of this Supplement. "H Shares" means any securities issued by companies incorporated in the PRC and listed on the SEHK. "HKEx" means the Hong Kong Exchanges and Clearing Limited. "HKMA" has the meaning assigned to it in the Terms of Business. "HKSCC" means the Hong Kong Securities Clearing Company Limited, a whollyowned subsidiary of HKEx. "Market Requirements" has the meaning given in the Company's Terms of Business and, for the avoidance of doubt, shall include, without limitation, the Applicable China Connect Laws. - 3 -
"Non-trade Transfer" means a transfer of China Connect Securities which involves a change in the beneficial ownership of the China Connect Securities and which is not conducted through the China Connect Service and executed on a China Connect Market. "Northbound" denotes the trading of China Connect Securities by Hong Kong and international investors through China Connect. "PBOC" means the People s Bank of China. "Permitted Level" has the meaning given to such term under paragraph 4 of Appendix 1 to this Supplement. "PRC" means, for the purposes of this Supplement, the People's Republic of China (excluding Hong Kong, Macau and Taiwan). "PRC Citizen" means any person holding a resident identification card or other equivalent government issued identification of the PRC. "PRC Listco" has the meaning given to such term in paragraph 6 of Appendix 1 to this Supplement. "Pre-Trade Checking" has the meaning given to such term under paragraph 1 of Appendix 1 to this Supplement. "QFII" means a Qualified Foreign Institutional Investor. "Related Person" means (i) the CCEP; (ii) any Affiliate of the Company or the CCEP; or (iii) any director, officer, employee or agent of the Company, the CCEP or any Affiliate of the Company or the CCEP. "Renminbi" or "RMB" means the lawful currency of the PRC, deliverable in Hong Kong. "RQFII" means a RMB Qualified Foreign Institutional Investor. "SAFE" means the State Administration of Foreign Exchange of the PRC. "SAT" means the State Administration of Taxation of the PRC. "SEHK" has the meaning assigned to it in the Terms of Business. SEHK China Connect Rules means the rules of HKEx, as amended for the purposes of implementing China Connect, and as amended, supplemented, modified and/or varied from time to time. "SEHK Subsidiary" means a wholly-owned subsidiary of the SEHK duly authorised as an automated trading service provider under the SFO and licensed under applicable laws in the PRC to provide the order-routing service under China Connect. "SFC" has the meaning assigned to it in the Terms of Business. - 4 -
"SFO" has the meaning assigned to it in the Terms of Business. "Short Selling" means the sale of Short Selling Securities in respect of which you have a presently exercisable and unconditional right to vest the Short Selling Securities in the purchaser by virtue of having borrowed such securities under a stock borrowing and lending arrangement as set out in the China Connect Rules. "Short Selling Security" means any China Connect Security which is from time to time included in the list published by the SEHK from time to time setting out the China Connect Securities that are eligible for Short Selling and references to "Short Selling Securities" shall be construed accordingly. "Special Segregated Account" or SPSA has the meaning set out in the CCASS China Connect Rules. SPSA Service means the provision by the Company of services for the execution of SPSA orders where the relevant China Connect Securities are held in a Special Segregated Account and therefore do not require pre-delivery to the Company prior to the execution of such sell orders nor do they require Pre Trade Checking to be undertaken by the Company. "SPSA order" means a China Connect sell order for the sale of China Connect Securities held in a Special Segregated Account. "Special China Connect Securities" means any securities listed on the relevant China Connect Market which the SEHK (after consulting with the relevant China Connect Market) from time to time accepts or designates as eligible only for China Connect sell orders and not for China Connect buy orders. "SSE" means the Shanghai Stock Exchange. "SSE China Connect Rules" means the SSE Regulations on the Shanghai-Hong Kong Stock Connect Pilot Programme which have been published by SSE for the purposes of implementing China Connect, as amended, supplemented, modified and/or varied from time to time. "SSE Listing Rules" means the Rules Governing the Listing of Stocks on Shanghai Stock Exchange as amended, supplemented, modified and/or varied from time to time. "SSE Rules" means the SSE China Connect Rules and the business and trading rules and regulations of SSE, as amended, supplemented, modified and/or varied from time to time. "Supplement" means this supplement to the Terms of Business as amended from time to time. "Tax" or "Taxes" means all taxes (including but not limited to income tax, business tax, stamp duty, value added tax or capital gains tax), duties, levies, imposts, charges, assessments, deductions, withholdings and related liabilities, including but not limited to additions to tax, penalties and interest imposed on or in respect of (i) China - 5 -
Connect Securities or Cash, (ii) any transaction effected under this Supplement or (iii) you. "Terms of Business" means the Company s Terms of Business - Securities (as supplemented by this Supplement) from time to time governing the Services and the Transactions. "Trading Day" means a day on which the SEHK is open for Northbound trading where "T day" denotes the day on which a transaction is executed and "T+1 day" denotes the day which is one Trading Day after T day. "Uptick Long Sale" means: (i) (ii) (iii) you place a sell order with the Company for China Connect Securities which is not a Short Selling order; you have borrowed other shares of that China Connect Security pursuant to a stock borrowing and lending arrangement of China Connect Security and such shares are not subject to the sell order referred to in (i); and you have not returned all of the shares that you have borrowed under the stock borrowing and lending arrangement of China Connect Security. "you" means you and, if applicable, the principal(s) on whose behalf you act. 2. Transactions relating to China Connect 2.1 This Supplement shall apply at any time that you or the Company, on your behalf, enter into a Transaction in relation to China Connect Securities via China Connect under the Company's Terms of Business where the Company provides you with Custody Plus and/or SPSA Service. 2.2 This Supplement is supplemental to, and without prejudice to, the Company's Terms of Business and highlights certain key features of China Connect. This Supplement does not purport to cover all the rules, requirements and features, including without limitation all Market Requirements, applicable to China Connect. You shall be fully responsible for understanding and being in compliance with all Market Requirements and for the consequences of Northbound trading of China Connect Securities by you. The Company will not, and does not intend to, advise you on any of the Market Requirements. For further information, please refer to the HKEx website and the SFC website relating to China Connect (as updated from time to time). 3. Trading and Investment Restrictions, Mechanics and Market Requirements 3.1 Without prejudice to Clause 1(b) of the Terms of Business, any trading in China Connect Securities will be subject to any applicable Market Requirements, including, without limitation, any applicable requirements and/or restrictions (as may be amended from time to time) in relation to China Connect. 3.2 As Northbound trading is available only to Hong Kong and overseas investors, you represent and undertake on a continuing basis, including without limitation on the first date that this Supplement is effective and on each date that you place an order or give - 6 -
an instruction in respect of China Connect Securities under the Terms of Business, that you are not (i) a PRC Citizen resident or domiciled in the PRC; or (ii) a legal entity incorporated or registered in the PRC. 3.3 In the event that the SEHK, the SEHK Subsidiary or HKSCC is notified by the relevant China Connect Market, CSDCC or any other relevant exchange, clearing house or governmental or regulatory body or agencies that there is reasonable cause to believe that you have failed to comply with or have breached any Market Requirements, you shall, upon the request of the Company provide such information as the Company may reasonably request to enable it to assist the relevant exchange, clearing house or governmental or regulatory body including, without limitation, the relevant China Connect Market, CSDCC or any other relevant exchange, clearing house or governmental or regulatory authority or agency to assess whether there is any non-compliance or breach of the Market Requirements and/or the extent of any non-compliance or breach and, by providing such information, you are deemed to waive the benefit of any bank secrecy laws and data protection laws which may be applicable. 4. Fund Clients 4.1 In respect of an order other than an SPSA order, to the extent you are acting as a fund manager (on behalf of more than one fund), you may elect whether to allocate China Connect Securities to your funds pre-trade or post-trade or both as agreed with the Company. In all cases, and notwithstanding the fact that the Company has consented to your election, it is your responsibility to comply and/or to procure that each fund complies with all applicable Market Requirements including, without limitation, those requirements and restrictions referred to in Appendix 1 of this Supplement. 4.2 Where you act as (i) a fund manager (on behalf of more than one fund) or (ii) an asset manager (on behalf of more than one client), and you pre-allocate China Connect orders across such funds or clients which you manage, the Company may offer Average Pricing for such orders notwithstanding such orders may be executed at different times during the same Trading Day. Where Average Pricing applies, each fund or client will be allocated China Connect Securities (or their proceeds) at the same averaged price, which may be higher or lower than the price which such fund or client would have paid or received had the orders been processed individually and in the order submitted directly or indirectly to the Company. Neither the Company nor any Related Person will be responsible for any such difference in pricing or any Loss or risk arising from the application of Average Pricing. 4.3 In respect of an order other than an SPSA order, where you have elected to allocate China Connect Securities to your funds post-trade, if your allocation order is not received by the deadline as agreed by the Company, (i) your buy order will be allocated to the first sub-account/fund alphabetically; and (ii) your sale order will be allocated from sub-account/fund alphabetically based on the availability of China Connect Securities in the relevant sub-account/fund. 4.4 In respect of SPSA Service, sell orders are required to be pre-trade allocated specifying the appropriate Special Segregated Account, whereas buy orders can be allocated pre-trade or post- trade. - 7 -
5. Risk Disclosures and Acknowledgement By instructing the Company in respect of any transaction relating to China Connect Securities, you acknowledge: 5.1 that (i) you have read and understood the risk disclosure statement set out in Appendix 1 of this Supplement; (ii) you understand that there is a risk of prohibition from trading China Connect Securities; (iii) your instruction to trade China Connect Securities may not be accepted, and (iv) you understand your obligations when trading China Connect Securities through China Connect including any consequences of a breach of any applicable Market Requirements; 5.2 that the SEHK has the power not to extend the China Connect Service to you and the power to require the Company not to accept instructions from you, if it is found that you, the Company or any of the Company s clients has or may have committed any abnormal trading conduct set out in the SSE Rules or the rules of the relevant China Connect Market or failed to comply with any China Connect Rules; 5.3 that if the SSE Rules or the rules of the relevant China Connect Market are breached, or the disclosure and other obligations referred to in the SSE Listing Rules or SSE Rules or the rules of the relevant China Connect Market are breached, (i) SSE or the relevant China Connect Market has the power to carry out investigations, and may, through the SEHK (or the SEHK Subsidiary or any other governmental or regulatory body), require the Company to (a) provide relevant information and materials relating to you (including, without limitation, in relation to your identity, personal data and trading activity) and any other information requested by any China Connect Authority; and (b) assist in a China Connect Authority's investigation in relation to you and/or your trading activity; and (ii) you may be subject to regulatory investigations and the relevant legal and regulatory consequences if you are in breach of, or fail to comply with, such laws, rules and regulations; 5.4 that the SEHK may (for the purpose of assisting SSE or the relevant China Connect Market in its regulatory surveillance of the China Connect Market and enforcement of the SSE China Connect Rules or the rules of the relevant China Connect Market and as part of the regulatory cooperation arrangement between the SEHK, the SEHK Subsidiary and SSE or the relevant China Connect Market), at the request of SSE or the relevant China Connect Market, require the Company to provide information (including, without limitation, in relation to your identity, personal data and trading activity) in relation to you and any other persons referred to in the SEHK China Connect Rules or the rules of the relevant China Connect Market with respect to any China Connect orders placed or China Connect transactions made or entered into by the Company on their behalf; 5.5 that where a China Connect Authority considers that there is a serious breach of the SSE Rules or the rules of the relevant China Connect Market, the Company may be required by a China Connect Authority to (a) issue warning statements (verbally or in writing) to you; and (b) cease providing you with any service relating to trading China Connect Securities through China Connect; 5.6 and agree that, prior to the Company informing you that a Northbound buy order instructed by you has been settled, you shall not instruct a Northbound sell order in - 8 -
respect of the China Connect Securities which are the subject of such Northbound buy order; 5.7 and consent to the Company providing information relating to your profile, the types and values of Northbound buy and sell orders and transactions made and executed on your behalf to a China Connect Authority at such intervals and in such forms as such China Connect Authority may specify from time to time; 5.8 and accept responsibility for paying all applicable fees, charges, levies and taxes and shall comply with any filing or registration obligations as may be required by you by any China Connect Authority or under any applicable Market Requirements relating to any China Connect Securities; 5.9 and accept that the Company will be required under the China Connect Rules to keep records (including telephone records), for a period of not less than 20 years, of (a) all orders and trades executed on your behalf; (b) any instructions received from you and (c) your account information in relation to Northbound trading; 5.10 the SEHK may upon request of SSE or the relevant China Connect Market require a CCEP to reject any order made on your behalf; and 5.11 that none of the China Connect Authorities or their respective directors, employees and agents shall be responsible or held liable for any loss or damage directly or indirectly suffered by the Company or any Related Person, you or any other third party arising from or in connection with (a) the trading of China Connect Securities or the operation of the CSC in respect of China Connect Securities, or (b) any amendments, making or enforcement of the China Connect Rules; or (c) any action taken by a China Connect Authority in the discharge of its supervisory or regulatory obligations or functions (including any action taken in respect of abnormal trading activities). 6. Renminbi Payments and Settlement 6.1 As all Northbound trading is traded and settled in Renminbi, you will provide to the Company sufficient Renminbi funds to settle any Northbound buy order and/or other payment obligation in connection with China Connect by the agreed deadline, or will have entered into a foreign exchange (FX) transaction in accordance with Clause 6.6 of this Supplement with the Company to procure the same. 6.2 Settlement of all your China Connect Securities trades will be via DVP except (a) where you have requested, and the Company has agreed, that Delayed Settlement will apply, in which case settlement of your China Connect buy orders will be delayed; or (b) for SPSA Service where you use a non-hsbc third party sub-custodian. 6.3 In respect of SPSA Service where you use a non-hsbc third party sub-custodian, notwithstanding the fact that your cash account may be credited with the proceeds of the sale on the day of execution, such amount will not be cleared funds and will be subject to a hold pending confirmation of cash settlement from Hong Kong Interbank Clearing Limited. - 9 -
6.4 Notwithstanding Clause 6.2 of this Supplement, if any China Connect Authority announces that any market wide event has occurred and is continuing which affects the general RMB market in Hong Kong, the Company shall take such action as so directed by the China Connect Authority including, without limitation, delaying payment for DVP sell order, if applicable, until the Company has received such RMB fund from the market. 6.5 Notwithstanding Clause 6.2 of this Supplement, other than where the Company has agreed to extend sufficient credit facilities to you, unless and until you have settled all payment obligations in connection with any and all Northbound buy orders, the Company will not release any China Connect Securities in respect of such buy orders to your account. In the event that you fail to settle such payment obligations, the Company and any Related Person shall be entitled, without further notice or demand, forthwith to take such action as it considers necessary or appropriate to reduce or eliminate any Loss or liability suffered by it in accordance with Clause 12(b) of the Terms of Business. 6.6 Upon your request, and as the Company has agreed, the Company shall effect foreign exchange (FX) transactions for you as banker as it (acting in its sole and absolute discretion) considers necessary in connection with your sale and/or purchase of China Connect Securities. Such foreign exchange (FX) transactions will (subject to the below) be entered into at the FX Rate and may be carried out either (a) on a gross trade by trade basis or (b) on a net basis at the end of each Trading Day as determined by the Company in its sole and absolute discretion. You hereby agree and acknowledge that (i) the Company may effect payment under the foreign exchange (FX) transactions before it receives and matches the confirmations from you and (ii) while the Company shall use commercially reasonable endeavours to effect the relevant foreign exchange (FX) transactions at the FX Rate, if it becomes impossible or impracticable for any reason whatsoever, as determined by the Company in its sole and absolute discretion, to effect such transactions at the FX Rate, such transactions will be entered into at the rate as determined by the Company in good faith and in a commercially reasonable manner. 6.7 For the purposes of Clause 6.6, FX Rate means reference ccy/base ccy exchange rate as expressed as the number of reference ccy per one base ccy, as observed as the mid rate on the Reuters on reference ccy/base ccy FIXMP=WM fixing page (for the purposes of illustration only, in respect of the USD/CNH* exchange rate, the relevant fixing page would be the USDCNHFIXMP=WM fixing page), at approximately 1800 Hong Kong time on the relevant date, plus a pre-determined margin as agreed between you and the Company. If such rate is unavailable for whatever reason, an alternative measure of determining the FX Rate shall be determined by the Company acting in good faith and in a commercially reasonable manner. * Note: "CNH" is the Reuters indicator for offshore Chinese Renminbi that are freely deliverable between Renminbi bank accounts maintained outside of mainland China and traded in the offshore foreign exchange market outside of mainland China. You agree and acknowledge that (a) this provision is subject to any contrary market practice or convention prevailing in respect of the relevant currency pair (including but not limited to market practice or convention in relation to the quotation of the relevant exchange rate or nomenclature in respect of the relevant fixing page) and (b) it may not be possible or practicable for the Company to determine the relevant FX - 10 -
Rate in accordance with this provision in respect of all currency pairs in relation to which foreign exchange (FX) transactions are required to be executed under Clause 6.6 and to such extent, the Company may determine the FX Rate in good faith and in a commercially reasonable manner. 6.8 You agree and acknowledge that the Company or an Affiliate may engage in, in addition to the relevant foreign exchange (FX) transaction, other transactions for its own account or to facilitate transactions of its other customers which may have an impact on the FX Rate at the relevant time, or may be requested to provide quotations for the purpose of compiling the FX Rate. Any such transactions or quotations may affect, materially or otherwise, the FX Rate and thus the exchange rate of a foreign exchange (FX) transaction. 7. Representations 7.1 You represent and undertake to the Company on a continuing basis, including without limitation on the first date that this Supplement is effective and on each date that you place an order, or otherwise give an instruction in respect of China Connect Securities under the Terms of Business: (a) (b) (c) that you are aware of and shall at all times comply with all applicable Market Requirements in respect of any trading of China Connect Securities via China Connect to which you may be subject, including, without limitation, those requirements and restrictions referred to in Appendix 1 of this Supplement; that the execution of any instruction you give to the Company shall not result in any breach of any applicable Market Requirements; and that you understand and have assessed the risks relating to China Connect and you are willing to undertake the risks relating to China Connect. 7.2 You represent and undertake to the Company on a continuing basis, including without limitation on the first date that this Supplement is effective and on each date that you place an SPSA order, or otherwise give an instruction in respect of China Connect Securities held in a Special Segregated Account, that in respect of any SPSA order which you instruct the Company to execute, at all relevant times: (a) (b) (c) you have been designated such Special Segregated Account and CCASS has assigned the investor identification number to such Special Segregated Account that you have provided to the Company in respect of such SPSA order, in each case in accordance with the CCASS Rules and any applicable China Connect Rules; you authorise the Company to execute the sale of the relevant China Connect Securities in the specified Special Segregated Account on your behalf; (A) there are, and will be, sufficient China Connect Securities in the Special Segregated Account for you to settle the delivery obligations in respect of such SPSA order on the settlement day as required under the China Connect Rules and (B) if the SPSA order is executed, the relevant China Connect Securities will be delivered to the Company or to the Company s order for settlement in - 11 -
accordance with any settlement requirements as specified by any China Connect Authority or otherwise by the Company to you or your agent from time to time; (d) (e) the total number of China Connect Securities subject to an SPSA order or SPSA orders, as appropriate, in respect of China Connect Securities in that Special Segregated Account on any relevant Trading Day will not exceed the total stock holding position in respect of the same China Connect Security as shown against the investor identification number for the relevant Special Segregated Account (A) immediately before the commencement of operation of China Connect on that Trading Day or (B) as at such other time as may be specified by the Company, the SEHK, CCASS or any other relevant China Connect Authority from time to time; to the extent that (A) you are a fund manager and (B) you aggregate SPSA orders across more than one Special Segregated Account (whether they are maintained with one or more Custodian Participant): (i) (ii) you have authority from all relevant parties (including the relevant funds or sub-funds) so to aggregate such SPSA orders and allocate China Connect Securities across such Special Segregated Accounts at your discretion; and any such actions taken or to be taken comply with Applicable China Connect Laws including, without limitation, any laws, rules and regulations relating to client assets, the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the SFC Fund Manager Code of Conduct; (f) (g) (h) the relevant number of China Connect Securities recorded in the relevant Special Segregated Account will be used by you for stock settlement of such SPSA order in accordance with the CCASS China Connect Rules and any other relevant China Connect Rules; at the time you instruct the Company to execute an SPSA order, you will provide to the Company a specific instruction that it is an SPSA order and the relevant investor identification number for that SPSA order; and you have authorised the reproduction, replication and transmission of the stock holding records of the Special Segregated Account at any time for the purpose of enabling the SEHK and SEHK Subsidiary to carry out their pre-trade checking procedures. 7.3 In the event there is a breach of any of the terms of Clause 7.2 above which results in a failure by the Company or any Related Person to deliver any China Connect Securities held in the relevant Special Segregated Account to CCASS in respect of any SPSA order as required by the China Connect Rules ( Delivery Failure ), without prejudice to any other terms hereof and any other rights and remedies which may be available to the Company or any Related Person in law, contract or otherwise: - 12 -
(a) (b) (c) (d) you acknowledge that the settlement of the China Connect Securities may fail and the Company or any Related Person is entitled to inform HKSCC that the Delivery Failure was the result of the failure to deliver from a Special Segregated Account and, as a consequence, any overdue short stock position quantities will be deducted from the sellable balances of the relevant Special Segregated Account; you agree to provide any information or any other assistance as may be required and/or requested by the Company or any Related Person to ensure that the HKSCC is satisfied that the overdue short stock position was a result of a failure to deliver the China Connect Securities from a Special Segregated Account; you acknowledge that all settlement instructions on that China Connect Securities of the Company and the Clearing Participant will be placed onhold/locked-up unless HKSCC confirms the release of such hold/locked-up upon its acceptance of an adjustment request by the relevant Clearing Participant in accordance with the adjustment procedure of HKSCC within the prescribed time period; and you acknowledge that the Company s relevant Clearing Participant will endeavour but is not obliged to submit an adjustment request in accordance with the adjustment procedure of HKSCC within the prescribed time period. Any risk or Loss suffered by the Company, its Clearing Participant or any Related Person resulting from the Delivery Failure, to the extent that the Delivery Failure is caused by you, shall be borne by you. Neither the Company, its Clearing Participant nor any Related Person shall have any liability for any risk or Loss which may result directly or indirectly from the Delivery Failure, save for any Loss caused by the negligence, fraud or wilful default of the Company, its Clearing Participant or such Related Person, provided that in no event shall the Company, its Clearing Participant or any Related Person be liable for any consequential, indirect, incidental, special or punitive damages or losses. 7.4 In the event that: (a) (b) you instruct the Company to execute an SPSA order on your behalf and an investor identification number other than your investor identification number is used to execute such order, you acknowledge and confirm that the Company may settle such SPSA order using China Connect Securities from your Special Segregated Account pursuant to your original instructions; or your investor identification number is used by the Company to execute an SPSA order on behalf of another client of the Company, you acknowledge and confirm that the Company may settle such SPSA order using China Connect Securities from the Special Segregated Account of such client pursuant to that client's original instructions. 7.5 You make the following representations to the Company on each date you instruct an order to sell China Connect Securities: - 13 -
(a) (b) that you have full authority to receive, deal with and give instructions, authorisations or declarations in respect of the relevant China Connect Securities; and that you are not aware of any adverse claim to such China Connect Securities. 7.6 The Company will not accept any Short Selling orders in respect of China Connect Securities. Accordingly, you represent and undertake on a continuing basis, including without limitation on the first date that this Supplement is effective and at each time that you place an order or give an instruction in respect of China Connect Securities, without prejudice to any rights and remedies which the Company may have under the terms hereof, under any other contract or in law, that: (a) (b) any order that you place with the Company in relation to China Connect Securities is not, and will not be, a Short Selling order which is subject to the China Connect Rules in relation to Short Selling; and you will notify the Company where you place an Uptick Long Sale order with the Company, and in such case, you will at all times ensure that the Company is in compliance with the China Connect Rules in relation to Short Selling with respect to the price requirement by providing an order to the Company which ensures that any Uptick Long Sale shall not be input into the CSC at a price lower than the most recent execution price for that China Connect Security subject to such Uptick Long Sale or, if there have been no executed trades for that China Connect Security on the relevant CSC Trading Day, the previous closing price for that China Connect Security. For the avoidance of doubt this Clause 7.5(b) applies where shares in any Short Selling Security borrowed by you for the purpose of Short Selling remain outstanding and have not yet been returned and in respect of any instruction for the sale of that Short Selling Security through the China Connect Service, except for those instructions that exceed the number of the outstanding and unreturned shares. 8. Sale, Transfer and Disgorgement 8.1 Where, under the terms of the China Connect Rules, the Company receives notice (a "Forced-sale Notice") from a China Connect Authority requiring the Company to sell and liquidate a specified number of China Connect Securities owned by you, the Company shall issue a corresponding notice to you requesting you to sell and liquidate such China Connect Securities within the period specified by the relevant China Connect Authority. 8.2 In relation to any Forced-sale Notice, you hereby authorise the Company to sell or arrange for the sale of such China Connect Securities on your behalf at such price and on such terms as the Company may determine in a commercially reasonable manner to the extent necessary to comply with all applicable Market Requirements. 8.3 Where China Connect Securities owned by you that are the subject of a Forced-sale Notice have been transferred out of the custody of the Company to another Clearing Participant or custodian (whether it is the Company s Affiliate or a third party unaffiliated with the Company), you hereby authorise the Company to provide instructions to the relevant Clearing Participant or custodian on your behalf to return - 14 -
the relevant China Connect Securities to the Company for sale and liquidation in accordance with all applicable Market Requirements. You also undertake to inform the relevant Clearing Participant or custodian of such authorisation and, where required, you undertake to instruct the relevant Clearing Participant or custodian to act accordingly. 8.4 You hereby authorise the Company to sell or arrange for the sale of any amount of China Connect Securities owned by you if the Company receives notice from any China Connect Authority requiring you to disgorge any profits as a result of the "short swing profit rule", as described in paragraph 5 of Appendix 1. 8.5 In addition to the above, you hereby authorise the Company to sell, transfer or carry out any other action in relation to China Connect Securities owned by you if the Company is instructed to do so by any China Connect Authority or if the Company otherwise determines that it is necessary to do so in order to comply with any applicable Market Requirements. 8.6 Neither the Company nor any Related Person shall have any liability for any Loss or risks which may result directly or indirectly from any actions taken by the Company in respect of this Clause 8, save for any Loss caused by the negligence, fraud or wilful default of the Company or such Related Person, provided that in no event shall the Company or any Related Person be liable for any consequential, indirect, incidental, special or punitive damages or losses. 9. Taxation 9.1 You shall be solely and directly responsible for payment of all Taxes and comply with the registration and filing requirements as may be required under any Market Requirements or imposed by any of the China Connect Authorities in relation to China Connect Securities and any dividends or entitlements in respect of such China Connect Securities. 9.2 You represent, warrant and agree that the Company is neither providing you with any advice in relation to Taxes nor is the Company acting as your agent or representative with respect to Taxes, and that you have fully understood your liabilities and obligations towards Taxes. 9.3 Without prejudice to the foregoing, in the event any withholding or reporting responsibility is imposed by any of the China Connect Authorities upon the Company or its Related Person in respect of your liability and obligations towards any Taxes, the Company shall comply with such responsibility as may be required including, but not limited to, withholding or deducting any amount towards such Taxes. Neither the Company nor any Related Person shall have any liability for any Loss or risks which may result directly or indirectly from any actions taken by the Company or any Related Person in respect of the foregoing, save for any Loss caused by the negligence, fraud or wilful default of the Company or such Related Person, provided that in no event shall the Company or any Related Person be liable for any consequential, indirect, incidental, special or punitive damages or losses. - 15 -
10. Indemnity For the avoidance of doubt the indemnities in the Terms of Business, including without limitation Clause 16(b) thereof, shall apply to any Transaction in relation to China Connect Securities via China Connect pursuant to the terms of this Supplement. You also agree that any reference to tax or taxes in such indemnities shall include, without limitation, Taxes as defined in this Supplement. 11. Contracts (Rights of Third Parties) Ordinance A person who is not a party has no right under the Contracts (Rights of Third Parties) Ordinance (Cap. 623) to enforce or to enjoy the benefit of any term of the Terms of Business. 12. Miscellaneous 12.1 Save for Clauses 3 (Trading and Investment Restrictions, Mechanics and Market Requirements), 5 (Risk Disclosures and Acknowledgement), 8 (Sale, Transfer and Disgorgement), 9 (Taxation), 10 (Indemnity), and paragraph 10 (Taxation) in Appendix 1 hereto, which shall survive termination of this Supplement and the Terms of Business, this Supplement shall automatically terminate upon termination of the Terms of Business. - 16 -
APPENDIX 1: RISK DISCLOSURES WITH RESPECT TO CHINA CONNECT This Appendix describes some of the key risk disclosures and other information concerning China Connect. This Appendix, however, neither provides any advice nor discloses all the risks and other significant aspects of Northbound Trading through China Connect. You should ensure that you understand the nature and risks of China Connect and Northbound trading and you should consider carefully (and consult your own advisers where necessary) whether trading in China Connect Securities is suitable for you in light of your circumstances. The decision to trade in China Connect Securities is yours, but you should not trade in China Connect Securities unless you fully understand and are willing to assume all the risks including but not limited to Tax liabilities and obligations associated with China Connect. You acknowledge the risks, and agree to the terms, set out in this Appendix. The Company does not represent that the information set out in this Appendix is up to date or comprehensive, and does not undertake to update the information set out in this Appendix. 1. Pre-Trade Checking Under PRC law, the relevant China Connect Market may reject a sell order if an investor does not have sufficient available China Connect Securities in its account. In respect of a sell order of China Connect Securities that is not an SPSA order, the SEHK will apply similar checking on all Northbound sell orders at the CCEP level to ensure there is no overselling by any individual CCEP ("Pre-Trade Checking"). Enhanced Pre-Trade Checking applies in respect of an SPSA order. Accordingly, you will comply with any requirements relating to Pre-Trade Checking or Enhanced Pre- Trade Checking, as applicable, as mandated by the China Connect Authorities or as notified to you by the Company, and will ensure that there are sufficient available China Connect Securities in your relevant account to cover any proposed sell order. If the Company considers in respect of any sell order that is not an SPSA order that you have not (by the commencement of trading on the trading day on which you wish to execute a sell order or by any cut-off time specified by the Company from time to time) maintained sufficient available China Connect Securities in the CCEP s designated CCASS stock account(s) (in respect of any sell order that is not an SPSA order) or in the relevant Special Segregated Account to cover a proposed sell order, the Company may, as applicable, (but shall not be obliged to) in its sole and absolute discretion: (a) (b) reject your sell order (in whole or in part); where appropriate arrangements are in place and as permitted by Applicable China Connect Laws, use any China Connect Securities in the CCEP s (or any other exchange participant s) designated CCASS stock account(s) which the Company holds for itself to fulfil the Pre-Trade Checking requirement in respect of your sell order, in which case you shall reimburse the Company for any Loss which the Company incurs as a result of buying in or otherwise sourcing the amount of China Connect Securities which you have failed to deliver in respect of your sell order on such terms and at such price (including any associated fees and expenses) and at such time as the Company shall determine in its sole and absolute discretion; and/or - 17 -
(c) perform any other act which the Company considers necessary or desirable to comply with Pre-Trade Checking and/or relevant Applicable China Connect Laws and to cover your shortfall (including but not limited to applying any other China Connect Securities available to the Company) from any stock borrowing arrangements (to the extent permitted by Applicable China Connect Laws and available to the Company) or other sources. In addition, the Company may in its sole and absolute discretion reject your sell order, whether it be an SPSA order or otherwise, (in whole or in part) if for any other reason the Company considers that there is or may be non-compliance with any Applicable China Connect Laws and/or that the execution of such order may result in the Company or any Related Person failing to comply with its obligations to any party or under the Applicable China Connect Laws. Any risk or Loss resulting from noncompliance or potential non-compliance with Pre-Trade Checking and/or Enhanced Pre-Trade Checking and the related order requirements and/or any relevant Applicable China Connect Laws by you or, to the extent you have caused the Company s or any Related Person's non-compliance, the Company or such Related Person, shall be borne by you. 2. Quota Restrictions Purchases of China Connect Securities via China Connect are subject to specific quota controls. As a result, there is no assurance that a buy order can be successfully placed through China Connect. There is a quota limiting the maximum net value of all Northbound buy trades that can be executed by CCEPs while China Connect is in operation. There is also a daily quota limiting the maximum value of all Northbound buy trades that can be executed by CCEPs on each Trading Day. The aggregate quota and/or the daily quota may change from time to time without prior notice and investors are advised to refer to the HKEx website and other information published by the HKEx for up-to-date information. If Northbound buying is suspended as a result of a breach of the aggregate quota or the daily quota, the Company will be unable to submit any further buy orders and any buy orders received but not yet routed to the market may be rejected or delayed until sufficient quota is available. In addition, it is possible for the China Connect Authorities to subsequently reject your order even after the Company has accepted it for execution in the event that the aggregate or daily quotas have been exceeded. Neither the Company nor the Related Person shall have any liability for any Loss suffered by you as a result of your orders being rejected, whether by the Company, any Related Person or by the China Connect Authorities, due to a breach of the daily or aggregate quota. Under the China Connect Rules, you may sell your China Connect Securities regardless of whether there is a breach of the provisions relating to aggregate quota or daily quota. 3. Restriction on turnaround (day) trading Unless the SEHK otherwise determines, turnaround (day) trading is not permitted on the PRC A Share market. If you buy China Connect Securities on T day, you are only able to sell the China Connect Securities purchased only on or after settlement has - 18 -