Multiple Counter Model for ETFs

A Multiple Counter ETF is an ETF adopted a "Multiple Counter" arrangement, by which you can trade the ETF in more than one trading counters in Eligible Currency on the Stock Exchange of Hong Kong (SEHK). Eligible Currency as defined in the General Rules of Central Clearing and Settlement System (CCASS) of Hong Kong Securities Clearing Company Limited in effect from time to time, refers to Hong Kong dollar (HKD), Renminbi (RMB) and United States dollar (USD).

Units traded in the HKD counter will be settled in HKD, likewise, units traded in the RMB counter will be settled in RMB and units traded in the USD counter will be settled in USD. Units traded in different counters are of the same class with the same unitholder rights. The different counters will have different stock codes, different stock short names and different ISIN numbers for identification.

If you wish to trade Multiple Counter ETFs, you should check if your intermediary (i.e. brokerage or bank) provides the relevant services. You may then buy and sell units of the same counter or alternatively buy in one counter and sell in the other counter by conducting inter-counter transfer of the relevant units. Inter-counter buy and sell is permissible even if the trades take place within the same trading day.

Not all ETFs adopt a Multiple Counter arrangement, please refer to the prospectus for information. If in doubt, consult the ETF manager or your brokers.

For details about the operation of the Multiple Counter ETFs, please refer to the "Multiple Counter Model for ETFs" section on the website of Hong Kong Exchanges and Clearing Limited (HKEX).

Settlement

RMB bank account

Similar to trading other listed RMB products, you will need a RMB bank account in Hong Kong and sufficient RMB for trading in the RMB counter. You should be aware that you may take time to open a RMB bank account and apply for a RMB cheque book. Banks may not be able to process your request immediately.

You should check with your bank for the account opening procedures as well as terms and conditions of the RMB bank account. Some banks may impose restrictions on your RMB cheque account and fund transfer to third-party account.

Investor Participant Account

If you are going to use your Investor Participant Account (IP Account) opened with Hong Kong Securities Clearing Company Limited to settle trades of RMB counter, you should make sure you have set up an RMB Designated Bank Account with the CCASS.

Trading

Securities trading account

You need a securities trading account with an intermediary (e.g. brokerage or bank) who provides trading and settlement services for Multiple Counter ETFs. Normally, you do not need to set up a separate account specifically for trading in the RMB counter, but it is more prudent to check with your intermediary. It is also advisable to double check with your intermediary whether there are specific terms, such as settlement procedures and risk disclosure related to trading listed RMB securities.

In addition, you should confirm readiness of your intermediary to carry out RMB securities business by asking them directly.

Multiple Counter ETFs, being listed securities, are generally subject to:

• brokerage commission;
• SFC levy;
• SEHK trading fee; and
• other fees and charges.

Brokerage commission is charged at the market rate and in a currency decided by the intermediaries (brokerages or banks) that you are using. Currently, SFC levy and SEHK trading fee on purchases and sales of listed RMB-traded securities are paid through intermediaries to HKEX in Hong Kong dollar, based on an exchange rate determined by the Hong Kong Monetary Authority on the day of the trade. The exchange rates are published on the HKEX website by 11 am on each trading day.

Before investing in any Multiple Counter ETF, you should also check with your intermediary on details of all fees related to the ETF's trading, the payment process including the currency that you should use for settling such fees, and how they set the exchange rate to be used if any currency conversion is required in the transaction.

Dividends of a Multiple Counter ETF are declared and paid in the currency(ies) as disclosed in the offering documents. Depending on the distribution policy of individual multiple counter ETF, you with units traded in one counter (e.g. HKD counter) may receive dividends in another currency such as RMB or USD or the base currency of denomination of the relevant share class. In such circumstances, if you do not have a bank account in the relevant currency, you may have to bear the fees and charges for conversion of the dividends into HKD or any other currency which you have an account.

You should refer to the prospectus in relation to details of dividend payment and if in doubt, consult the ETF manager or your brokers.

Although you may be able to get margin financing in Hong Kong dollar from brokerages or banks for stock trading, under the current agreement between banks and the Clearing Bank for RMB Business in Hong Kong, banks are not permitted to lend RMB to personal customers.

For non-bank financial institutions, such as brokerages, such a restriction is not applicable. However, if you want to purchase units of the RMB Counter using a credit or margin facility, you should check with your brokerages first on the availability of such a facility and the detailed arrangements. Whether a brokerage would provide financing services or finance individual customer is a commercial decision of the brokerage.

Besides, you should carefully study the terms of the credit/margin facility and understand the risks of margin trading. In particular, you should enquire with your brokerage the currency in which the margin loan would be denominated and the currency in which margin call and loan repayment would be settled, and pay special attention to any risks of currency mismatch and exchange rate fluctuations which may arise from such trading. You should note that margin trading is not suitable for everyone.

If no such financing is available from the brokerage, investors need to have sufficient RMB to settle the transactions.

General risks in relation to the Multiple Counter Model

1. Risks relating to different trading prices in different counters

   Although the units traded in different counters are of the same class and the net asset value per unit may be the same, the trading prices of and liquidity of trading in the units of the same ETF in different counters may be different and may not maintain a close relationship depending on factors such as market supply and demand and liquidity in each counter and the exchange rate between the different currencies.

2. New model risks

   The Multiple Counter model in Hong Kong is relatively recent and may bring additional risks.

3. Inter-counter trading risks

   If your intermediary (brokerage or bank) does not provide HKD , RMB and/or USD trading services and handle inter-counter transfer services, you will not be able to buy units traded in one counter and sell them in the other counter. Even if your intermediary is able to provide such services, it may impose an earlier cut-off time, other procedures and fees.

   If there is a suspension of the inter-counter transfer of ETF units between different counters for any reason, you will only be able to trade the ETF units in the relevant counter on the SEHK.

Since Multiple Counter ETFs may be denominated and/or traded in RMB, such ETFs are also subject to the following risks:

1. Risks relating to RMB trading and settlement of units

   Not all intermediaries provide trading and settlement of RMB-traded units. In addition, the liquidity and trading price of the RMB-traded units may be adversely affected by the limited availability of RMB outside mainland China and the restrictions on the conversion between foreign currency and RMB.

2. RMB currency risk

   RMB is currently not freely convertible and is subject to exchange controls and restrictions. For investors holding units of ETFs denominated and/or traded in RMB may be exposed to fluctuations in the RMB exchange rate against their base currencies. Investors should note that the exchange rate of offshore RMB (known as "CNH") and the onshore RMB (known as "CNY") may not necessarily be the same and may not move in the same direction as they are traded in different and separate markets which operate independently. In addition, like any currency, the exchange rate of RMB may rise or fall. Investors who choose to convert the RMB redemption or RMB sales proceeds of or RMB dividends paid by a Multiple Counter ETF into a different currency may incur substantial loss due to foreign exchange risk.

3. Reliance on market maker risk

   Market makers may not be interested in making market in Multiple Counter ETF units which may be denominated and/or traded in RMB. Any disruption to the availability of RMB may adversely affect the capability of market makers in providing liquidity for the units of Multiple Counter ETFs traded in RMB. The liquidity of the units of Multiple Counter ETF traded in RMB may be adversely affected if there is no market maker for the ETF or if the market making activities are not effective.

HKEX provides the RMB Equity Trading Support Facility (TSF) to enable investors who have insufficient RMB to buy RMB-traded securities and equity based ETFs in the secondary market using Hong Kong dollars. Non-equity based ETFs are not supported at this stage however. For details about this arrangement and the list of securities supported by the TSF, please refer to the HKEX's website.

You should read carefully the offering document including the Product Key Facts Statement to fully understand the nature, investment objective and strategy, key features, major risks and dividend policy of a Multiple Counter ETF.

Assess whether the product is suitable for you in light of your investment objectives, the amount of investment required and your risk appetite. Trading of the RMB units of a Multiple Counter ETF may not necessarily give you the benefits of appreciation in RMB (if any).

For further information on Multiple Counter ETFs, please also refer to the HKEX's website.