Investment Suitability

Complex and Non-Complex Products

What is it?

The Securities and Futures Commission of Hong Kong (“SFC”) has revised the Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct”) and issued the Guidelines on Online Distribution and Advisory Platforms (the “Guidelines”) to introduce additional requirements for the sale of complex products as defined by the SFC (“Complex Products”). To read more about the new requirements, please refer to the following links:

Why does it matter?

The aim of adding these new requirements is to better protect investors by requiring intermediaries to:

- perform a suitability assessment on the investor for a transaction involving a complex product;

- provide information to the investor on the key nature, features and risks of the complex product; and

- provide a warning statement to the investor 

(collectively, “Precautionary Measures”).

When you now conduct transactions involving complex products through CITIC Securities Brokerage (HK) Limited/CITIC Securities Futures (HK) Limited, we are required to take the Precautionary Measures to protect your interests. However, for complex products which are also derivative products traded on an exchange in Hong Kong or in a specified jurisdiction^, where CITIC Securities Brokerage (HK) Limited/CITIC Securities Futures (HK) Limited does not solicit the trade or recommend the product to you, we are only required to find out if you are familiar with the product and provide you with relevant warning.

Classification of Product Types

As explained by the SFC, a complex product is an investment product whose, terms, features and risks are not reasonably likely to be understood by a retail investor because of its complex structure. Under the new SFC requirements, some products that are traded on an exchange in Hong Kong or in a specified jurisdiction^ may also be categorized as a complex product.

When determining whether a product is a complex product, CITIC Securities Brokerage (HK) Limited/CITIC Securities Futures (HK) Limited shall take into consideration the guidelines given by the SFC from time to time and the following factors:

I. whether the investment product is a derivative product;

II. whether a secondary market is available for the investment product at publicly available prices;

III. whether there is adequate and transparent information about the investment product available to retail investors;

IV. whether there is a risk of losing more than the amount invested;

V. whether any features or terms of the investment product could fundamentally alter the nature or risk of the investment or pay- out profile or include multiple variables or complicated formulas to determine the return; and

VI. whether any features or terms of the investment might render it illiquid or difficult to value.

For a list of examples, please refer to the following table:

*We may revise the list of examples in accordance with SFC guidelines from time to time.

^ For a list of the specified jurisdictions, please refer to SFC’s website:

https://www.sfc.hk/web/EN/rules-and-standards/suitability-requirement/non-complex-and-complex-products/list-of-specified-jurisdictions.html

# The Code on Unit Trusts and Mutual Funds issued by the SFC from time to time.

Risk Profiling Questionnaire

The objective for the Risk Profiling Questionnaire is to help you understand more about your attitude towards risk based on your ability to take risk and your risk tolerance level. We encourage you to take some time to go through the questions and answer them.

Risk Profile Questionnaire

Risk Profiling Questionnaire Annex

Product Risk Assessment Methodology

How does CITIC Securities Brokerage (HK) Limited/CITIC Securities Futures (HK) Limited assess product risk?

At CITIC Securities Brokerage (HK) Limited/CITIC Securities Futures (HK) Limited, we have adopted a specific Product Risk Assessment Methodology to assess the risks of investment products. Product Risk Assessment Methodology is a quantitative product risk classification model based upon the aggregated scores of five risk factors that reflect different risk aspects of an investment product.

Weighting and scores are assigned to each of the five risk factors to achieve an overall risk score on an investment product.

1. Listed Product

2. Unlisted Product

The overall risk score is calculated with more weighting on parts A, B & C while parts D & E will be given relatively less weight.

Afterwards, products will be risk-rated accordingly. A relative risk scale is adopted for denoting the risk rating on an investment product (with “1” representing the lowest risk and “5” representing the highest risk).

Warning Statements

1. All Investments carry the following risks:

Selection Risk - An investor could have chosen a security or product that underperforms the market for reasons that cannot be anticipated.

Timing Risk - An investment may perform poorly after its purchase or better after its sale.

Risk of Paying Too Much - The costs, charges and fees associated with an investment are excessive and detract too much from an investor’s return.

Concentration Risk – This is the risk of putting all your money into one product or type of product.

Taxation

2. Different transactions may have different tax implications. You should seek advice from your professional advisors as to your particular tax position, including but not limited to estate duty and withholding tax that might arise from investing in overseas products. Income or profit from trading in any investments may be subject to withholding tax or capital gains tax or other tax of the country of the issuer or the country in which such investments are traded. In such event, unless the issuer agrees to gross-up the income or profit received by the investors, the investors will only receive the interest payment or proceeds of sale or redemption of the investment less the withholding tax or capital gains tax or other tax. There can be no guarantee with respect to the tax treatment over time. 

Risks of Assets Received/Held outside Hong Kong

3. Client assets received or held 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 of the Laws of Hong Kong (“SFO”) and the rules made under the SFO. Consequently, such client assets may not enjoy the same protection as that conferred on client assets received or held in Hong Kong.

Risk of Securities Trading

4. 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.

Risk of Providing Authority to Repledge

5. There is risk if you provide CITIC Securities Brokerage (HK) Limited 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. 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. 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. 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.

6. If you sign one of these authorization 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. 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 authorization and do not ask to open this type of cash account.

No Liquidity

7. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move” or trading is suspended by the relevant Exchange. In addition, there may not be a ready market for certain investments, and market traders may not be prepared to deal in certain investments. Some investments may have to be held to maturity, for instance, some index options can only be exercised on the expiry date, whilst other index options may be exercised at any time before expiry. Proper information for determining the value of certain investments may not be available.

8. Placing contingent orders, such as “stop loss” or “stop limit” orders will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. Strategies using combinations of positions, such as “spread” and “straddle” positions may be as risky as taking simple “long” or “short” positions.

9. Under certain circumstances, it may be difficult or impossible to assess the value of your position or to determine a fair price or assess your exposure to risk.

Terms and conditions of contracts 

10. You should ascertain and understand the terms and conditions of the specific products which you are trading and associated obligations (e.g. the circumstances under which you may become obliged to make or take delivery of the underlying interest of a structured product, and, in respect of options, expiration dates and restrictions on the time for exercise). Under certain circumstances the specifications of outstanding contracts (including the exercise price of an option) may be modified by the Exchange or Clearing House to reflect changes in the underlying asset.

Suspension of Trading

11. Under certain trading conditions, it may be difficult or impossible to liquidate a position. This may occur, for example, at times of rapid price movement if the price rises or falls in one trading session to such an extent that, under the rules of the relevant Exchange, trading is suspended or restricted. Placing a stop-loss order will not necessarily limit your losses to the intended amounts because market conditions may make it impossible to execute such an order at the stipulated price.

Complex Products

12.1 A complex product is an investment product whose, terms, features and risks are not reasonably likely to be understood by a retail investor because of its complex structure. Under the new requirements issued by the Securities & Futures Commission of Hong Kong (“SFC”), some products that are traded on an exchange in Hong Kong or in a specified jurisdiction may also be categorized as a complex product.

12.2 Many Off-Exchange unauthorized complex products are only intended for “professional investors” within the meaning of the SFOand any rules made thereunder.

12.3 You should review all offering documents, issue documents, term sheets and other disclosure document provided by the Issuer(collectively, “Issue Documents”). You should also note that for some such Off-Exchange unauthorized products, the Issue Documents have not been reviewed by the SFC, and you are advised to exercise caution in relation to these products and the relevant documents. For those complex products described as having been authorized by the SFC, you should note that such authorization does not imply official recommendation, and that SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance.

12.4 You should also note that the complex products are NOT principal protected. Their market value may fluctuate. You could lose ALL of your investment. Complex products are NOT equivalent to time deposits and are NOT protected deposit under the Deposit Protection Scheme in Hong Kong.

12.5 A complex product may not be repaid fully with the original invested amount on maturity; and you are relying on the issuer (and the guarantor, if there is one) to pay you the sums due under it, therefore, you are subject to the credit risk against the issuer and/or the guarantor (if applicable) and other risks associated with investing in it. In case of insolvency of the issuer and/or the guarantor, you may lose your entire investment along with all commissions and charges incurred. In some cases (e.g. when you write an uncovered option), you may lose more than your invested amount and your loss may even be unlimited.

12.6 The value of any investment and any income accruing to such investment may rise as well as fall. The risk of loss from investments can be substantial, and you may sustain a total loss of your investment. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or products mentioned. Any past performance data may not take into commissions and costs incurred into account.

12.7 None of CITIC Securities Brokerage (HK) Limited, CITIC Securities Futures (HK) Limited and its Affiliates makes any representation as to the future performance of complex products. No representation or warranty is made that any indicative performance or return indicated will be achieved in the future. If in doubt, you should seek independent professional advice.

Deposited cash and property

13. You should familiarize yourself with the protections given to money or other property you deposit for domestic and foreign transactions, particularly in the event of a firm insolvency or bankruptcy. The extent to which you may recover your money or property may be governed by specific legislation or local rules. In some jurisdictions, property which had been specifically identifiable as your own will be pro-rated in the same manner as cash for purposes of distribution in the event of a shortfall.

Commissions and Charges 

14. Before you begin to trade, you should make yourself sufficiently aware and understand the commissions and other charges for which you will be liable (some of which might not be expressed in monetary terms). These charges will affect your net profit (if any) or increase your loss.

Transactions in other Jurisdictions

15. Transactions on markets in other jurisdictions, including markets formally linked to a domestic market, may expose you to additional risks. Such markets may be subject to regulation which may offer different or diminished investor protection. Before you trade you should enquire about any rules relevant to your particular transactions. Your local regulatory authority will be unable to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions where your transactions have been effected. You should ask the firm with which you deal for details about the types of redress available in both your home jurisdiction and other relevant jurisdictions before you start to trade.

Emerging Markets

16. Emerging markets are defined as markets in countries with moderate to low per capita national income. While investments in emerging markets can yield large gains, they can also be highly risky as they could be unpredictable and there may additional risks, including accelerated inflation, exchange rate fluctuations, adverse repatriation laws and fiscal measures, inadequate regulations and safeguards available to investors and macroeconomic and political distress. For instance, investments may not be readily saleable and information to determine their current value may not be available in emerging markets. Besides the risks inherent in all Investments, those associated with emerging markets include, but are not limited to, country risk with the government intervening in the markets, perhaps in the form of exchange control laws or restrictions in the repatriation of profits. These factors may affect the value of an investment or your ability to enjoy its benefits. In addition, events (for instance, natural disasters, fluctuations in commodity prices and/or exchange rates and political upheavals) which may have a minor or limited effect in more mature markets could affect emerging markets profoundly. The greater risk profile and other characteristics of such markets mean that they are more suited to experienced and sophisticated investors.

Currency Risks

17. The profit or loss in transactions in foreign currency-denominated contracts (whether they are traded in your own or another jurisdiction) will be affected by fluctuations in currency rates where there is a need to convert from the currency denomination of the contract to another currency. Where trading contracts or other investments are denominated in currencies other than your primary reference currency, or where you convert funds from another currency upon making an investment, there is the risk that if the foreign exchange markets move against you, then upon maturity or any earlier dealing the net proceeds converted into your primary reference currency, or the currency from which the initial funds were converted (as the case may be), may be significantly less than the equivalent figure on the date the contract was entered into or the investment made, and that any income or gains made may be entirely negated. Further, you may suffer loss as a result of depreciation of the value of the currency paid as a result of foreign exchange controls imposed by the country issuing the currency. You should fully consider the implications arising from such conversion before deciding whether or not to engage in such transactions. 

Trading Facilities

18. Electronic trading facilities are supported by computer-based component systems for the order-routing, execution, matching, registration or clearing of trades. As with all facilities and systems, they are vulnerable to temporary disruption, malfunction, and failure or hacking. Your ability to recover certain losses may be subject to limits on liability imposed by the system provider, the market, the Clearing House and/or participant firms. Such limits may vary; you should ask for details in this respect.

Clearing House Protections

19. On many Exchanges, the performance of a transaction by CITIC Securities Brokerage (HK) Limited (or third party with whom it is dealing on your behalf) is “guaranteed” by the Exchange or Clearing House. However, this guarantee is unlikely in most circumstances to cover you, and may not protect you if CITIC Securities Brokerage (HK) Limited or another party defaults on its obligations to you. On request, CITIC Securities Brokerage (HK) Limited will explain any protection provided to you under the clearing guarantee applicable to any on-exchange derivatives in which you are dealing. There is no clearing house for off-exchange instruments which are not traded under the rules of an Exchange, and they will not enjoy such protection.

Off-Exchange Transactions

20. Depending on the product, a transaction may be traded off-exchange or on an over-the-counter basis. Such products are not traded on any exchange and are not regulated by the rules of any exchange. There is no exchange market on which to close out an open position. They may not be readily realizable. Situations may arise where no market traders are prepared to deal in them or no proper information may be available to determine their value. Sometimes, it may not be possible to obtain a price quotation, and even where there is a quotation, it is one established by dealers in these instruments and consequently, it may be difficult to establish what a fair price is. Minimum transaction amounts may be imposed and/or charged by traders from time to time. 

21. Further, exchange traded transactions are generally subject to a very detailed legal framework; with over-the-counter transactions, this is not always the case, and legal opinions are often required which can slow down trading. Exchanges ensure that parties comply with their obligations within strict time limits; but this is not the case with over-the-counter markets where settlements can be delayed, and payment netting may not be recognized under the laws of some countries. 

22. In some jurisdictions, and only then in restricted circumstances, firms are permitted to effect off-exchange transactions. The firm with which you deal may be acting as your counterparty to the transaction. It may be difficult or impossible to liquidate an existing position, to assess the value, to determine a fair price or to assess the exposure to risk. For these reasons, these transactions may involve increased risks. Off-exchange transactions may be less regulated or subject to a separate regulatory regime. Before you undertake such transactions, you should familiarize yourself with applicable rules and attendant risks.

Operational Risk

23. Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. CITIC Securities Brokerage (HK) Limited, the Custodian Agent(s) and any brokers or any other parties involved in your transaction may suffer from such risk and your trading, transactions and positions may be delayed, hindered or otherwise adversely affected as a result.

Insolvency

24. The insolvency or default of CITIC Securities Brokerage (HK) Limited, of the Custodian Agent(s), of any brokers, or that of any other parties involved with your transaction, may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral, and you may have to accept any available payments in cash.

Country Risks

25. If an investment is made in any asset or issued by a party subject to foreign laws or if transactions are made on markets in other jurisdictions, including markets formally linked to a domestic market, recovery of the sums invested and any profits or gains may be reduced, delayed or prevented by exchanged controls, debt moratorium or other actions imposed by the government or other official bodies. Before you trade, you should enquire about any rules relevant to your particular transactions. Your local regulatory authority will be unable to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions where your transactions have been effected. You should obtain details about the different types of redress available in both your home jurisdiction and other relevant jurisdictions before you start to trade. 

Mainland China/Single Country Investment Risk

26. Investing in China-related companies and in Chinese markets involve certain risks and special considerations not typically associated with investment in more developed economies or markets, such as greater political, tax, economic, foreign exchange, liquidity and regulatory risk. The concentration of an investment in China-related companies or assets may result in greater volatility than portfolios which comprise broad-based global investments.

No Market Making Obligation

27. Issuer of products may be reluctant to make a market or provide any secondary price quote for its products. Further, CITIC Securities Brokerage (HK) Limited has no obligation to make a market for or quote a price to you if your favourable price level cannot be obtained or there is no buyer in the market, nor to buy back any securities or other investments from you.

Risk Disclosures

There is no such thing as a risk-free investment. With any investment, the level of return is always associated with the level of risk. While it is impossible to avoid risk entirely when investing, you can take steps to manage your exposure by understanding the product you choose to invest and ensuring that the choice you are making is suitable for your own circumstances.

Before committing to any investment, you should satisfy yourself that the product fits your investment experience, investment objectives, financial position, investment time horizon, risk tolerance level, liquidity needs, (if applicable) your view of the potential performance of the issuer and the creditworthiness of the issuer and (if applicable) the guarantor, tax situation, diversification needs and other relevant circumstances. You should also re-examine the risk and return profile of your investments from time to time to ensure that they continue to suit your circumstances. This is particularly important since markets can be very volatile and your needs may change over time.

For product-specific risk disclosures, you should refer to the following in additional to the issue documents, offering circulars, prospectuses, term sheets and other disclosure documents of specific products: