SHANGHAI-HONG KONG / SHENZHEN-HONG KONG STOCK CONNECT

The Daily Quota limits the maximum net buy value of cross-boundary trades under each of Shanghai and Shenzhen Connect each day. The Northbound Daily Quota is set at RMB 52 billion for each of Shanghai Connect and Shenzhen Connect. SEHK monitors the usage of the Northbound Daily Quota on a real-time basis, and the Northbound Daily Quota Balance for each market is and will be updated on the HKEX website every minute:

Daily Quota Balance = Daily Quota – Buy Orders + Sell Trades + Adjustments (e.g. Buy Order cancelled, Buy Order rejected by market, Buy Order executed at a better price)

The Daily Quota will be reset every day. Unused Daily Quota will NOT be carried over to next day's Daily Quota. If the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during the opening call auction session, new buy orders will be rejected. However, as order cancellation is common during an opening call auction, the Northbound Daily Quota Balance may resume to a positive level before the end of the opening call auction. When that happens, SEHK will again accept Northbound buy orders.

Once the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during a continuous auction session, no further buy orders will be accepted for the remainder of the day. The same arrangement will be applied to the closing call auction of SZSE. It should be noted that buy orders already accepted will not be affected by the Daily Quota being used up and will remain on the order book of SSE and SZSE respectively unless otherwise cancelled by customers.

Under Shanghai Connect, SSE Securities that are eligible for trading by investors include all the constituent stocks of the SSE 180 Index and the SSE 380 Index, and all the SSE-listed A shares that are not included as constituent stocks of the relevant indices but which have corresponding H shares listed on SEHK, except the following:

• SSE-listed shares which are not traded in RMB; and
• SSE-listed shares which are under risk alert.

Under Shenzhen Connect, SZSE Securities that are eligible for trading by Hong Kong and overseas investors include all the constituent stocks of the SZSE Component Index and the SZSE Small/Mid Cap Innovation Index which have a market capitalization of not less than RMB 6 billion, and all the SZSE-listed A shares which have corresponding H shares listed on SEHK, except the following:

• SZSE-listed shares which are not traded in RMB; and
• SZSE-listed shares which are under risk alert or under delisting arrangement.

For the list of eligible stocks, please refer to HKEX's website at http://www.hkex.com.hk.

At the initial stage of Shenzhen Connect, investors eligible to trade shares that are listed on the ChiNext Board of SZSE under Northbound trading will be limited to institutional professional investors. In this connection, the bank will not provide the trading service of such stocks.

Stocks are settled on the trade date ("T") day while money is settled on T +1 day. The settlement currency is RMB.

Northbound Trading will be available only when both markets are opened for trading and banking services are available in both markets on the corresponding money settlement days. The following table illustrates the arrangement for Northbound Trading.

*Since Day 3 is a Hong Kong holiday, no settlement service will be provided. Therefore, Northbound Trading will not be available on Day 2.

If a Northbound Trading day is a half trading day in the Hong Kong market, Northbound Trading will continue until the SSE/SZSE market is closed.

Northbound Trading follows the trading hours of the SSE and SZSE. However, the SEHK will accept Northbound orders from SEHK Participants five minutes before the Mainland market sessions open in the morning and in the afternoon.

• 09:20 – 09:25; 14:57 – 15:00: SSE & SZSE will not accept order cancellation
• 09:10 – 09:15; 09:25 – 09:30; 12:55 – 13:00: Orders and order cancellations can be accepted by SEHK but will not be processed by SSE nor SZSE until their market open
• Any buy or sell orders not executed during the opening call auction session will automatically enter the continuous auction session. Any buy or sell orders not executed during the continuous auction session will automatically enter the closing call auction session.

In respect of SSE regulations, investors must make sure that they have sufficient shares in their accounts before selling. Hence, investors must have sufficient shares in their accounts on T-1 if they want to sell their shares on T.

During an Opening Call Auction, the current bid (or previous closing price in the absence of the current bid) will be used for checking. During a Closing Call Auction on the SZSE, the current bid (or last traded price in the absence of the current bid) will be used for checking. Dynamic price checking will be applied throughout the trading day, from the 5-minute input period before the start of an Opening Call Auction until the end of the afternoon Continuous Auction (until the end of the Closing Call Auction on the SZSE). SEHK has set the dynamic price checking at 3% during the initial phase, and this may be adjusted from time to time, subject to market conditions.

According to the Laws of the PRC on Securities, when an investor holds or controls up to 5% of the issued shares of a Mainland-listed company, the investor is required to report in writing to the CSRC and the relevant exchange, and inform the listed company within three working days. The investor is not allowed to continue purchasing or selling shares in that listed company during those three days.

For such investors, every time a change in his/her shareholding reaches 5%, he is required to make a disclosure (in the same manner as mentioned above) within three working days. From the day the disclosure obligation arises to two working days after the disclosure is made, the investor may not buy or sell shares in the relevant Mainland-listed company.

If a change in shareholding of the investor is less than 5% but results in the shares held or controlled by him falling below 5% of the relevant Mainland listed company, the investor is required to disclose the information within three working days.

Under current PRC rules, a single foreign investor's shareholding in a listed company (regardless of the channels through which shares in such a listed company are held, including through QFII, RQFII, and Shanghai and Shenzhen Connect) cannot exceed 10% of the company's total issued shares, while all foreign investors' shareholding in the A shares of a listed company cannot exceed 30% of its total issued shares.

• When the aggregate foreign shareholding of an individual A share reaches 26%, either the SSE or SZSE, as the case may be, will publish a notice on its website:
  SSE: http://www.sse.com.cn/disclosure/diclosure/qfii
  SZSE: http://www.szse.cn/disclosure/deal/qfii/index.html
• If the aggregate foreign shareholding exceeds the 30% threshold, the foreign investors concerned will be requested to sell the shares on a last-in-first-out basis within five trading days.
• SSE Securities purchased through Shanghai Connect and SZSE Securities purchased through Shenzhen Connect will be considered in totality with those purchased by QFII and RQFII, and subject to the same foreign shareholding restriction.
• Once SSE/SZSE informs SEHK that the aggregate foreign shareholding of an SSE/SZSE Security reaches 28%, further Northbound buy orders of that SSE/SZSE Security will not be allowed, until the aggregate foreign shareholding of that SSE/SZSE Security is sold down to 26%.
• If the 30% threshold is exceeded due to Shanghai Connect or Shenzhen Connect, HKEX will identify the relevant SEHK Participant and require it to follow the forced-sale requirements.
• HKEX will publish a notification on its website to inform the market about suspension of buy orders if the shareholding limit goes beyond 28% and about the resumption of buy orders if the shareholding drops below 26%.

Fees and levies related to Northbound trades under Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect are as follows:

All the above fees and levies will be collected from the CCASS Participants' designated bank accounts at day-end of T day.

Customers should note that certain existing CCASS fees still apply, including stock settlement fee for settlement instructions and money settlement fee. HKSCC also imposes a Portfolio Fee on its CCASS Participants for providing depository and nominee services for their SSE Securities and SZSE Securities held in CCASS. The Portfolio Fee will be collected in HKD on a monthly basis, based on a single portfolio of SSE Securities and SZSE Securities of each CCASS Participant. The relevant fee arrangement may change subject to SFC's approval.

Taxes imposed by the State Administration of Taxation (SAT), including stamp duty and dividend tax, will also be applied to the Northbound trades and SSE Securities acquired through Shanghai Connect as well as SZSE Securities acquired through Shenzhen Connect. Any additional tax imposed by the SAT, if applicable, will be subject to further clarification with the SAT.

Dividend tax will be withheld by issuers of Connect Securities and ChinaClear upon dividend payment.

The following is an overview of some of the major risks related to Shanghai-Hong Kong Stock Connect / Shenzhen-Hong Kong Stock Connect (taken from the website of the Investor Education Centre - "The Chin Family"):

1. Not protected by the Investor Compensation Fund
   Neither Northbound Trading nor Southbound Trading of Stock Connect are covered by the Investor Compensation Fund in Hong Kong. China Securities Investor Protection Fund in the Mainland does not cover any Northbound trades of Shanghai/Shenzhen stocks.
2. Difference in trading day and trading hours
   Stock Connect will open on days when both the Mainland and Hong Kong stock markets are open for trading, and banking services in the Mainland and Hong Kong are available on the corresponding settlement day. Given the differences in public holidays and working days between the Mainland and Hong Kong, it is possible that Stock Connect is closed and investors cannot trade in A-shares during the day when the A-share market is open for trading. Investors should take note of the business days of Stock Connect, and consider if they can take on the risk of price fluctuations in the A-share market during times when Stock Connect is closed.
   
   In addition, there are differences in trading hours between the Mainland and Hong Kong stock markets. Trading hours for A-shares under Shanghai Connect and Shenzhen Connect are different from those for the Stock Exchange of Hong Kong. Investors should be aware of such differences.
3. Restrictions on selling imposed by front-end monitoring
   For investors who keep their A-shares outside of brokerage firms, if they want to sell certain A-shares they hold, they must transfer those A-shares to the respective accounts of brokerage firms before the market opens on the day of selling (T day). If they fail to meet this deadline, they will not be able to sell those A-shares on T day.
4. Situations under which buying is not allowed
   Under the following situations, investors cannot buy shares, but can only sell their holdings through the stock trading link.
   • A-shares removed from the list of eligible stocks under Shanghai Connect/Shenzhen Connect will only be eligible for selling but restricted from further buying. Investors should be aware of changes to the list of eligible A-shares.
   • If the Northbound daily quota of Shanghai Connect/Shenzhen Connect is used up (i.e. the daily quota balance of Shanghai Connect/Shenzhen Connect drops to zero or the daily quota is exceeded during a continuous auction session) or closing call auction for SZSE, no further buy orders will be accepted for the remainder of the day while sell orders will still be accepted. Buying services will resume on the next trading day. Buy orders already accepted will not be affected by the daily quota being used up, and will remain on the order book of SSE/SZSE unless otherwise cancelled by the relevant brokers.
   If the Northbound daily quota is used up during the opening call auction session, new buy orders will be rejected. However, as order cancellation is common during an opening call auction, the Northbound daily quota balance may resume to a positive level before the end of the opening call auction. When that happens, SEHK will again accept Northbound buy orders.
5. Mainland market risks
   • Market volatility risks
     The Mainland stock market is relatively volatile as it is mostly made up of retail investors who tend to be speculative and susceptible to the central government policies and news.
   • Macro-economic risks
     There is a close relationship between the Chinese economy and stock market performance. The Chinese economic growth is still above the global average, but has already shown signs of slowdown. Moreover, there is growing concern over the country's government and corporate debts.
   • Currency risks
     Hong Kong investors will be exposed to the risk of RMB exchange rate movements if they convert HKD into RMB for trading in Shanghai and Shenzhen A-shares. The conversion also incurs costs.
     
     Movements in the RMB exchange rate will affect the profits and debts of the Mainland listed companies. Such effects will be more significant to export-oriented companies and companies having debts denominated in currencies other than RMB.
   • Policy risks
     The central government's economic and financial policies will affect the performance of the investment market. Investors should be aware of the central government policies for stimulating the economy or supporting different industries, as well as their different financial policies in respect of the currency, interest rate, credit and stock markets.