1. RISK OF SECURITIES TRADING
The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities.
2. RISK OF TRADING FUTURES AND OPTIONS
The risk of loss in trading futures contracts or options is substantial. In some circumstances, you may sustain losses in excess of your initial margin funds. Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily avoid loss. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, your position may be liquidated. You will remain liable for any resulting deficit in your account. You should therefore study and understand futures contracts and options before you trade and carefully consider whether such trading is suitable in the light of your own financial position and investment objectives. If you trade options, you should inform yourself of exercise and expiration procedures and your rights and obligations upon exercise or expiry.
3. RISK OF NOT ACHIEVING THE INVESTMENT OBJECTIVE
There is no guarantee that in any time period, the Investment Portfolio will achieve stable returns. No guarantee or representation is made that the Discretionary Account, including without limitation, the relevant investment objective or strategy will be successful. Investment results may vary over time substantially. You should be aware that the Net Asset Value of the Investment Portfolio may fall as well as rise.
4. RISK OF TRADING IN LEVERAGED FOREIGN EXCHANGE CONTRACTS
The risk of loss in leveraged foreign exchange trading can be substantial. You may sustain losses in excess of your initial margin funds. Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, your position may be liquidated. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives.
5. RISK OF TRADING GROWTH ENTERPRISE MARKET STOCKS
5.1. Growth Enterprise Market ("GEM") stocks involve a high investment risk. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. GEM stocks may be very volatile and illiquid.
5.2. You should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
5.3. Current information on GEM stocks may only be found on the internet website operated by the Stock Exchange of Hong Kong Limited ( "SEHK" ). GEM companies are usually not required to issue paid announcements in gazetted newspapers.
5.4. You should seek independent professional advice if you are uncertain of or have not understood any aspect of this risk disclosure statement or the nature and risks involved in trading of GEM stocks.
6. RISK OF MARGIN TRADING (only applicable if you open margin account(s) with the Broker)
The risk of loss in financing a transaction by deposit of col lateral is significant. You may sustain losses in excess of your cash and any other assets deposited as collateral with the licensed or registered person. Market conditions may make it impossible to execute contingent orders, such as "stop-loss" or "stop-limit" orders. You may be called upon at short notice to make additional margin deposits or interest payments. If the required margin deposits or interest payments are not made within the prescribed time, your collateral may be liquidated without your consent. Moreover, you will remain liable for any resulting deficit in your account and interest charged on your account. You should therefore carefully consider whether such a financing arrangement is suitable in light of your own financial position and investment objectives.
7. RISK OF PROVIDING AN AUTHORITY TO REPLEDGE YOUR SECURITIES COLLATERAL ETC (only applicable if you open margin account(s) with the Broker)
7.1. There is risk if you provide the licensed or registered person with an authority that allows it to apply your securities or securities collateral pursuant to a securities borrowing and lending agreement, repledge your securities collateral for financial accommodation or deposit your securities collateral as collateral for the discharge and satisfaction of its settlement obligations and liabilities.
7.2. If your securities or securities collateral are received or held by the licensed or registered person in Hong Kong, the above arrangement is allowed only if you consent in writing. Moreover, unless you are a professional investor, your authority must specify the period for which it is current and be limited to not more than 12 months. If you are a professional investor, these restrictions do not apply.
7.3. Additionally, your authority may be deemed to be renewed (i.e. without your written consent) if the licensed or registered person issues you a reminder at least 14 days prior to the expiry of the authority, and you do not object to such deemed renewal before the expiry date of your then existing authority.
7.4. You are not required by any law to sign these authorities. But an authority may be required by licensed or registered persons, for example, to facilitate margin lending to you or to allow your securities or securities collateral to be lent to or deposited as collateral with third parties. The licensed or registered person should explain to you the purposes for which one of these authorities is to be used.
7.5. If you sign one of these authorities and your securities or securities collateral are lent to or deposited with third parties, those third parties will have a lien or charge on your securities or securities collateral. Although the licensed or registered person is responsible to you for securities or securities collateral lent or deposited under your authority, a default by it could result in the loss of your securities or securities collateral.
7.6. A cash account not involving securities borrowing and lending is available from most licensed or registered persons. If you do not require margin facilities or do not wish your securities or securities collateral to be lent or pledged, do not sign the above authorities and ask to open this type of cash account.
8. RISKS OF CLIENT ASSETS RECEIVED OR HELD OUTSIDE HONG KONG
Client assets received or held by the securities broker or its nominee{s) outside Hong Kong are subject to the applicable laws and regulations of the relevant overseas jurisdiction which may be different from the Securities and Futures Ordinance (Cap. 571, the laws of Hong Kong) and the rules made thereunder. Consequently, such client assets may not enjoy the same protection as that conferred on client assets received or held in Hong Kong.
9. RISK OF PROVIDING AN AUTHORITY TO HOLD MAIL OR TO DIRECT MAIL TO THIRD PARTIES
If you provide the financial intermediary with an authority to hold mail or to direct mail to third parties, it is important for you to promptly collect in person all contract notes and statements of the Accounts and review them in detail to ensure that any anomalies or mistakes can be detected timely.
10. RISK OF TRADING NASDAQ-AMEX SECURITIES ON THE SEHK
The securities under the Nasdaq-Amex Pilot Program ("PP") are aimed at sophisticated investors. You should consult the Investment Manager and become familiarised with the PP before trading in the PP securities. You should be aware that the PP securities are not regulated as a primary or secondary listing on the Main Board or GEM of the SEHK.
11. RISK APPLICABLE TO INVESTMENT COMPRISED IN THE INVESTMENT PORTFOLIO
The following list of risk factors does not purport to be a complete explanation of risks involved in respect of investments in the Investment Portfolio. Client should consider the Investment Guidelines in detail and make whatever independent inquiries they or their advisers deem necessary.
11.1. General: Investment involves risk. The Investment Portfolio is subject to market fluctuations and to the risks inherent to all investments, and the value of the Investment Portfolio may go down as well as go up. Client may not get back the amount he has invested. Changes in exchange rates may also cause the net asset value of the Investment Portfolio in the investor's base currency to go up or down. There is no guarantee as to future performance of or future return from the Investment Portfolio.
11.2. Foreign exchange / Currency risk: Although the Investment Portfolio is denominated in Hong Kong Dollars or other relevant foreign currencies (as the case may be), the Investment Manager may invest the Investment Portfolio's assets in investments denominated in other currencies. Accordingly, the Net Asset Value of the Investment Portfolio expressed in its respective currency will fluctuate in accordance with the changes in foreign exchange rate between the base currency of the Investment Portfolio and the currencies in which the Investment Portfolio's investments are denominated.
11.3. Liquidity risk: Certain types of assets or securities may be difficult to buy or sell, particularly during adverse market conditions. This may affect the ability to obtain prices for the components of the underlying asset of the Investment Portfolio and may therefore affect the value of the underlying asset of the Investment Portfolio and the ability of the Client to withdraw his investments.
11.4. Connected party risk: Although the Investment Manager will operate independently in assuming its duties and obligations in relation to the Investment Portfolio of different clients and is subject to the supervision of its relevant regulatory authorities, all transactions and dealings between such entities in relation to the Investment Portfolio will be dealt with on arm's length basis having regard to the Agreement as well as the relevant regulatory codes applicable to it. In the unlikely event that conflicts of interest arise, the Investment Manager will seek to ensure that the Investment Portfolio is managed in the best interests of the Client and that the Client is treated fairly.
11.5. Reliance on the Investment Manager: There is risk of giving discretionary powers to the Investment Manager to manage on the Client's behalf, including the total dependence by the Client on the integrity and skill of the Investment Manager and the inherent risk of conflict of interest in that Investment Manager may take the opposite position to the Client's order while acting for the Client.
12. SPECIFIC RISK OF INVESTING IN STRUCTURED PRODUCT
12.1. Structured products carry a high degree of risk. The risk of loss in trading structured products can be substantial. Prospective investor/client should have prior knowledge of, or experience in trading in structured products. The investor/client should carefully consider whether such trading is suitable in the light of the investor/client's own financial position and investment objectives.
12.2. Issuer default risk
In the event that a structured product issuer becomes insolvent and defaults on their listed securities, the investor/client will be considered as unsecured creditors and will have no preferential claims to any assets held by the issuer. The investor/client should therefore pay close attention to the financial strength and credit worthiness of structured product issuers.
12.3. Uncollateralized product risk
Uncollateralized structured products are not asset backed. In the event of issuer bankruptcy, the investor/client can lose his entire investment. The investor/client should read the listing documents to determine if a product is uncollateralized.
12.4. Gearing risk
Structured products such as derivative warrants and callable bull/bear contracts (CBBCs) are leveraged and can change in value rapidly according to the gearing ratio relative to the underlying assets. The investor/client should be aware that the value of a structured product may fall to zero resulting in a total loss of the initial investment.
12.5. Expiry considerations
Structured products have an expiry date after which the issue may become worthless. The investor/client should be aware of the expiry item horizon and choose a product with an appropriate lifespan for their trading strategy.
12.6. Extraordinary price movements
The price of a structured product may not match its theoretical price due to outside influences such as market supply and demand factors. As a result, actual traded prices can be higher or lower than the theoretical price.
12.7. Foreign exchange risk
The investor/client trading structured products with underlying assets not denominated in Hong Kong dollars are also exposed to exchange rate risk. Currency rate fluctuations can adversely affect the underlying asset value, also affecting the structured product price.
12.8. Liquidity risk
The SEHK requires all listed structured products issuers to appoint a liquidity provider for each individual issue. The role of liquidity providers is to provide two-way quotes to facilitate trading of their products. In the event that a liquidity provider defaults or ceases to fulfil its role, the investor/client may not be able to buy or sell the product until a new liquidity provider has been assigned. Structured products not listed on SEHK may not have such arrangement.
12.9. Suspension of trading
If the underlying securities are suspended from trading on SEHK or any other relevant stock exchange, the structured product may be suspended from trading for a similar period.
12.10. Adjustment related Risk
The occurrence of certain events (including, without limitation, a right issue, bonus issue or cash distribution by the relevant company, a subdivision or consolidation of the underlying shares and a restructuring event of the relevant company) may entitle issuers of the structured product to adjust the conditions. Any adjustment or decision not to make any adjustment may adversely affect the value of the structured product.
Some Additional Risks Involved in Trading Derivative Warrants.
12.11. Time decay risk
All things being equal, the value of a derivative warrant will decay over time as it approaches its expiry date. Derivative warrants should therefore not be viewed as long term investments.
12.12. Volatility risk
Prices of derivative warrants can increase or decrease in line with the volatility of underlying asset price. The investor/client should be aware of the underlying asset volatility.
Some Additional Risks Involved in Trading CBBCs.
12.13. Mandatory call risk
The investor/client trading CBBCs should be aware of their intraday "knockout" or mandatory call feature. A CBBC will cease trading when the underlying asset value equals the mandatory call price/level as stated in the listing documents. The investor/client will only be entitled to the residual value of the terminated CBBC as calculated by the product issuer in accordance with the listing documents. The investor/client should also note that the residual value can be zero.
12.14. Funding costs
The issue price of a CBBC includes funding costs. Funding costs are gradually reduced over time as the CBBC moves towards expiry. The longer the duration of the CBBC, the higher the total funding costs. In the event that a CBBC is called, the investor/client will lose the funding costs for the entire lifespan of the CBBC. The formula for calculating the funding costs are stated in the listing documents.
13. SPECIFIC RISK OF INVESTING IN EXCHANGE TRADED FUNDS (ETFS)
13.1. Market risk
ETFs are typically designed to track the performance of certain indices, market sectors, or groups of assets such as stocks, bonds, or commodities. ETF managers may use different strategies to achieve this goal, but in general they do not have the discretion to take defensive positions in declining markets. The investor/client must be prepared to bear the risk of loss and volatility associated with the underlying index/assets.
13.2. Tracking errors
Tracking errors refer to the disparity in performance between an ETF and its underlying index/assets. Tracking errors can arise due to factors such as the impact of transaction fees and expenses incurred to the ETF, changes in composition of the underlying index/assets, and the ETF manager's replication strategy.
13.3. Trading at discount or premium
An ETF may be traded at a discount or premium to its net asset value. This price discrepancy is caused by supply and demand factors, and may be particularly likely to emerge during periods of high market volatility and uncertainty. This phenomenon may also be observed for ETFs tracking specific markets or sectors that are subject to direct investment restrictions.
13.4. Foreign exchange risk
The investor/client trading ETFs with underlying assets not denominated in Hong Kong dollars are also exposed to exchange rate risk. Currency rate fluctuations can adversely affect the underlying asset value, also affecting the ETF price.
13.5. Liquidity risk
Securities Market Makers (SMMs) are exchange participants that provide liquidity to facilitate trading in ETFs. Although most ETFs are supported by one or more SMMs, there is no assurance that active trading will be maintained. In the event that the SMMs default or cease to fulfill their role, the investor/client may not be able to buy or sell the product.
13.6. Counterparty risk involved in ETFs with different replication strategies
a) Full replication and representative sampling strategies
An ETF using a full replication strategy generally aims to invest in all constituent stocks/assets in the same weightings as its benchmark. ETFs adopting a representative sampling strategy will invest in some, but not all of the relevant constituent stocks/assets. For ETFs that invest directly in the underlying assets rather than through synthetic instruments issued by third parties, counterparty risk tends to be less of concern.
b) Synthetic replication strategies
ETFs utilising a synthetic replication strategy use swaps or other derivative instruments to gain exposure to a benchmark. Currently, synthetic replication.
ETFs can be further categorised into two forms:
Swap-based ETFs
• Total return swaps allow ETF managers to replicate the benchmark performance of ETFs without purchasing the underlying assets
• Swap-based ETFs are exposed to counterparty risk of the swap brokers and may suffer losses if such brokers default or fail to honour their contractual commitments.
Derivative embedded ETFs
• ETF managers may also use other derivative instruments to synthetically replicate the economic benefit of the relevant benchmark. The derivative instruments may be issued by one or multiple issuers
• Derivative embedded ETFs are subject to counterparty risk of the derivative instruments' issuers and may suffer losses if such issuers default or fail to honour their contractual commitments.
13.7. Even where collateral is obtained by an ETF, it is subject to the collateral provider fulfilling its obligations. There is a further risk that when the right against the collateral is exercised, the market value of the collateral could be substantially less than the amount secured resulting in significant loss to the ETF.
14. SPECIFIC RISK OF INVESTING IN OVERSEAS ISSUERS
Risks Relating to Investing in Overseas Issuers
14.1. An overseas issuer is subject to a different set of corporate laws governing its affairs including duration, organisation structure, governing bodies and their powers, shares transfer, shareholders rights, shareholders' dispute resolutions.
14.2. It may be difficult for local shareholders/investor of an overseas issuer to enforce their shareholder rights against the issuer or its directors due to complications arising from cross-border access to evidence, legal services, court assistance or the incremental costs related to those services.
14.3. Hong Kong regulators may not have extra-territorial investigation and enforcement jurisdiction. Instead, reliance has to be placed on the overseas regulatory regimes to enforce against any corporate governance breaches committed by their subject.
14.4. If an overseas issuer's principal operations and assets are outside its place of incorporation or Hong Kong, they may be subject to other laws, standards, restrictions and risks that significantly differ from those in Hong Kong.
Additional Risks Relating to Investing in Secondary Listed Issuers
14.5. Secondary listed issuers are primarily regulated by another stock exchange and financial regulator and are often granted extensive Listing Rules waivers. They do not conform to the Listing Rules in their entirety. Because of the different characteristics of overseas and Hong Kong securities markets, fluctuations in the price of securities are more likely.
Additional Risks Relating to Investing in Hong Kong Depository Receipts (“HDR”) Issuers
14.6. The Hong Kong Depository Receipts ("HDR") framework is an alternative facility for issuers, in particular overseas issuers, to list on the SEHK. There are no changes to the listing regime. An issuer seeking to list in Hong Kong through HDRs will have to comply with generally the same requirements as an issuer of shares, except for the modifications in Chapter 19B of the Main Board Rules. However, HDRs are not shares and therefore do not attract the same legal consequences as those of shares. The HDR Depository's obligations are set out in a deposit agreement.
14.7. HDR holders do not have rights of shareholders and must rely on the HDR Depository to exercise on their behalf the rights of a shareholder.
14.8. HDR holders need to pay for the fees and expenses charged by the HDR Depositary for services rendered.
15. RISKS OF TRADING REN MIN BI SECURITIES OR INVESTMENT IN RENMINBI PRODUCT
15.1. Currency risks
The exchange rate of Renminbi may rise or fall. The investor/client who holds a local currency other than Renminbi will be exposed to currency risk if the investor/client invests in Renminbi products. It is because Renminbi is subject to conversion restrictions and foreign exchange control mechanism. You may not be able to convert Renminbi at your preferred time and/or preferred amount.
15.2. Liquidity risks
Renminbi products may not have an active secondary market. Some Renminbi products are subject to lock-up period or penalty or charges for early surrender or termination of the product. Therefore, the investor/client may not be able to sell the investment in the product on a timely basis, or the investor/client may have to sell the product at a deep discount to its value.