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.

Risks of Clients Assets Received or Held Outside Hong Kong
Client assets received or held by the licensed or registered person 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) 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. Please also refer to the sub-section “Transactions in other jurisdictions” below regarding the risks associated with effecting transactions on markets in other jurisdictions, which are also applicable to client assets received or held outside Hong Kong.

Additional Risk Disclosures Statements

Risk of Trading Structured Products: The prices of Structured Products may fall in value as rapidly as they may rise and investors should be prepared to sustain a significant or total loss of their investment. In respect of listed Structured Products, the issuer of the Structured Products may sometimes be the only person quoting prices on the relevant stock exchange. Prospective investors should therefore ensure that they understand the nature and risks of the Structured Product.

Risk relating to Rights Issue: For exercising and trading of the right issue, investors have to pay attention to the deadline and other timelines. Rights issues that are not exercised will have no value upon expiry. But if investors decide to let the rights lapse, then investors will not need to take any action unless investors want to sell the rights in the market. In that case, the rights must be sold during the specified trading period within the subscription period, after which they will become worthless. If investors pass up the rights, their shareholding in the expanded capital of the issuing company will be diluted as a result of the completion of the rights issue.

Risk of Trading Exchange Traded Funds (ETFs): 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. You may be exposed to tracking errors (i.e. the disparity in performance between an ETF and its underlying index/assets), due to, for instance, failure of the tracking strategy, currency differences, fees and expenses. You must be prepared to bear the risk of loss and volatility associated with the underlying index/assets.

Where an ETF invests in derivatives (i.e. synthetic ETF) or by using total return swaps to replicate the underlying index/assets performance, customers are exposed to the credit risk of the counterparties who issued the derivatives, in addition to the risks relating to the underlying index/assets. A synthetic ETF may suffer losses equal to the full value of the derivatives issued by the counterparty upon its default or if such counterparty fail to honour their contractual commitments. Further, potential contagion and concentration risks of the derivative issuers should be taken into account (e.g. since derivative issuers are predominantly international financial institutions, the failure of one derivative counterparty of a synthetic ETF may have a “knock-on” effect on other derivative counterparties of the synthetic ETF). Some synthetic ETFs have collateral to reduce the counterparty risk, but there may be a risk that the market value of the collateral has fallen substantially when the synthetic ETF seeks to realize the collateral. You are exposed to the political, economic, currency and other risks related to the synthetic ETF’s underlying index/assets.

Where the index/ assets that the ETF tracks is subject to restricted access, the efficiency in unit creation or redemption to keep the price of the ETF in line with its net asset value (NAV) may be disrupted, causing the ETF to trade at a higher premium or discount to its NAV. If you would buy an ETF at a premium or sells when the market price is at a discount to NAV, you may sustain losses.

ETFs can be illiquid. Although most ETFs are supported by one or more market makers, there is no assurance that active trading will be maintained. In the event that the market makers default or cease to fulfill their role, investor may not be able to buy or sell the product. A higher liquidity risk is involved if a synthetic ETF involves derivatives that do not have an active secondary market. You may suffer a loss with a wider bid-offer spreads in the price of the derivatives. Even where collateral is obtained by an ETF, it is subject to the collagereal 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.

There can be no guarantee that an ETF will fully replicate its underlying index/assets and may hold non-asset investments. The ETF manager’s strategy, the implementation of which is subject to a number of constraints, may not produce to the intended results. In addition, the manager has absolute discretion to exercise unitholders’ rights with respect to the constituents of the ETF.

The creation and redemption of units of an ETF may only be effected through participating dealers. Participating dealers will not be able to create or redeem units during any period when, among other things, dealings on the relevant exchange are restricted or suspended, settlement or clearing of securities through the clearing system is disrupted or the underlying index/assets is not compiled or published. In addition, the number of participating dealers at any given time will be limited, there is a risk that investors may not always be able to create or redeem units freely.

You will not be able to buy, nor will you be able to sell, units on the relevant exchange during any period in which trading of the units is suspended. An exchange may suspend the trading units whenever it determines that it is appropriate in the interests of a fair orderly market to protect investors. The subscription and redemption units may also be suspended if the trading of units is suspended.

The underlying index/assets of an ETF is subject to fluctuations. Composition of and weightings in the underlying index/assets may change. The price of the ETF units may rise or fall as a result of such changes. An investment in units will generally reflect the underlying index/assets as its constituents change from time to time, and not necessarily the way it is comprised at the time of an investment in the units. In addition, there can be no guarantee that a particular ETF will at any given time accurately reflect the composition of the relevant underlying index/assets.

The index providers do not have any obligation to take the needs of the ETF manager or investors into consideration in determining, composing or calculating the relevant underlying index. The process and the basis of computing and compiling each underlying index and any of its related formulae, constituent companies and factors may at any time be changed or altered by the index providers without notice. Consequently, there can be no guarantee that the actions of an index provider will not prejudice the interests of the relevant ETF, manager or investors.

As an ETF manager is normally granted a licence by each of the index providers to use the relevant underlying index, an ETF may be terminated if the relevant license agreement is terminated or if the relevant underlying index ceases to be compiled or published. Further, a regulator reserves the right to withdraw the authorization granted to an ETF or impose such conditions as it considers appropriate and such withdrawal may make it illegal, impractical or inadvisable to continue an ETF.

Where you trade ETFs with underlying assets not denominated in U.S. dollars, you are also exposed to exchange rate risk. Currency rate fluctuations can adversely affect the underlying asset value, also affecting the ETF price.

ETFs are passively managed and open-ended funds. US exchange-listed ETFs are subject to the applicable laws and regulations of the U.S. which may be different from the Securities and Futures Ordinance (Cap. 571) and the rules made thereunder. ETFs are designed to track the performance of their underlying benchmarks (e.g. an index, a commodity such as gold, etc) and offer investor an efficient way to obtain cost-effective exposure to a wide range of underlying market themes. Synthetic ETFs utilizing a synthetic replication strategy use swaps or other derivative instruments to gain exposure to a benchmark.

Risk of Trading Warrants: Prices of warrants may fall in value as rapidly as it may rise and holders may sustain total loss of their investment. The value of a warrant is likely to decrease over time. Therefore, it should not be viewed as products for long-term investments. Events may occur which may affect the value of the index. Certain events (including, without limitation, a right issue, bonus issue or cash distribution by the issuer, a subdivision or consolidation of the underlying shares and a restructuring event of the issuer) may entitle the issuer to adjust the terms and conditions of the warrant. Any adjustment or decision not to make any adjustment may adversely affect the value of the warrants.

Although the cost of a warrant may cost a fraction of the value of the underlying shares, the value of the warrants may not correlate with the movements of the underlying index level and may be affected by the time remaining to expiry. Unlike stocks, warrants have a limited life and will expire at the expiry date. In the worst case, warrants may expire with no value. If trading in the underlying shares is suspended on the relevant stock exchange, trading in the warrants will be suspended for a similar period. Warrants will terminate early in the event of liquidation of the companies. Therefore, warrants are only suitable for experienced investors who have the ability to and are willing to accept the risk that they may lose all their investment.

If you purchase warrants, you rely on the creditworthiness of the issuer and have no rights under the warrants against companies comprising any underlying indices. You should note that rating agencies usually receive a fee from the companies that they rate. When evaluating the creditworthiness of the issuer, you should not solely rely on the issuer’s or companies’ credit ratings because: (i) a credit rating is not a recommendation to buy, sell or hold the warrants; (ii) ratings of companies may involve difficult-to-quantify factors such as market competition, the success or failure of new products and markets and managerial competence; and (iii) a high credit rating is not necessarily indicative of low risk. The effect on the value of the warrants by any combination of risk factors cannot be predicted.

The liquidity provider may be the only market participants for the warrants. There may not be a secondary market or the secondary market is limited and it may be difficult for you to realize the value in the warrants prior to expiry.

Risk relating to Trading in US Exchange-listed or Over-the-counter (OTC) Securities or Derivatives: You should understand the US rules applicable to trades in security or security-like instrument in markets governed by US law before undertaking any such trading. US law could apply to trading in US markets irrespective of the law applicable in your home jurisdiction.

Many (but by no means all) stocks, bonds and options are listed and traded on US stock exchanges. NASDAQ, which used to be an OTC market among dealers, has now also become a US exchange. For US exchange-listed stocks, bonds and options, each exchange promulgates rules that supplement the rules of the US Securities & Exchange Commission (“SEC”) for the protection of individuals and institutions trading in the securities listed on the relevant US exchange.

OTC trading among dealers can continue in US exchange-listed instruments and in instruments that are not exchange-listed at all. For US securities that are not listed on any US exchange, trading can continue through the OTC bulletin board or through the inter-dealer “pink sheets” that carry representative (not actual) dealer quotes. These facilities are outside of NASDAQ.

Whether you are intending to trade in US exchange-listed securities, OTC securities or derivatives, you should understand the particular rules that govern the market in which you are intending to trade in. An investment in any of these instruments tends to increase the risk and the nature of markets in derivatives tends to increase the risk even further.

Market makers of US OTC bulletin board are unable to use electronic means to interact with other dealers to execute trades. They must manually interact with the market, i.e. use standard phone lines to communicate with other dealers to execute trades. This may cause delays in the time it takes to interact with the market place. This, if coupled with the increase in trade volume, may lead to wide price fluctuation in US OTC bulletin board securities as well as lengthy delays in execution time. You should exercise extreme caution when placing market orders and fully understand the risks associated with trading in US OTC bulletin board.

Market data such as quotes, volume and market size may or may not be as up-to-date as expected with NASDAQ or US-listed securities.

As there may be far fewer market makers participating in US OTC securities markets, the liquidity in that security may be significantly less than those in US-listed markets. As such, you may receive a partial execution or the order may not be executed at all. Additionally, the price received on a market order may be significantly different from the price quoted at the time of order entry. When fewer shares of a given security are being traded, larger spreads between bid and ask prices and volatile swings in price may result. In some cases, the liquidation of a position in a US OTC security may not be possible within a reasonable period of time.

Issuers of US OTC securities have no duty to provide any information to investors, maintain registration with the SEC or provide regular reports to investors.

Further, US OTC securities are subject to the applicable laws and regulations of the U.S. which may be different from the Securities and Futures Ordinance (Cap. 571) and the rules made thereunder.

Default Risks & Counterparty Risks: Every investment product contains default risks and/or counterparty risks. Default risk could come from the issuer’s failure to make payments as agreed. At time of market downturn, an issuer may default due to their inability to raise new debt to roll over or repay old one. Credit ratings are common tools used for assessing bond default risk. A rating represents the opinion of the rating agency at a particular point of time and may change over time, due to either changes in the financial status of the bond issuers or changes in market conditions.

Counterparty risk refers to the failure of a trading party in fulfilling their financial contractual obligations. While ratings by credit agencies represent quality assurances, investors should not only make reference to credit ratings of the product issuers, but should also seek full understanding of the product structure and its exposure to the financial derivatives in order to adequately assess the risks involved.

Terms and conditions of contracts: You should ask the firm with which you deal about the terms and conditions of the specific securities which you are trading and associated obligations. Certain securities may impart valuable rights that expire unless you take some action. You are responsible for knowing the rights and terms of your securities and for taking action to realize the value of your securities.

Suspension or restriction of trading and pricing relationships: Market conditions (e.g. illiquidity) and/or the operation of the rules of certain markets (e.g. the suspension of trading) may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions.

Deposited cash and property: You should familiarise yourself with the protections accorded to money or other property that you deposit for domestic and foreign transactions, particularly in the event of an insolvency or bankruptcy of the issuer, custodian or intermediary. Your assets received or held outside Hong Kong, and the extent to which you may recover your money or property, are subject to the rules and regulations of the relevant jurisdiction which may be different from the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and the rules made thereunder, and such client assets may not enjoy the same protection as that conferred on client assets received or held in Hong Kong. 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 intermediary 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. 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.

Commission and other charges: Before you begin to trade, you should obtain a clear explanation of all commission, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your loss.

Transactions in other jurisdictions: Transactions on markets in other jurisdictions, including markets formally linked to a domestic market, may expose you to additional risk. Such markets may be subject to foreign laws and regulations which may offer different or diminished investor protection. In particular, Scottrade US is not regulated by the Securities and Futures Commission of Hong Kong, but by the U.S. Securities and Exchange Commission. Accordingly, protection under the relevant Hong Kong laws and regulations will not apply in respect of your dealings with Scottrade US. Also, trading of U.S. securities will not be covered by the Investor Compensation Fund established pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For transactions made on markets in other jurisdictions, recovery of the monies invested and any profits or gains may be reduced, delayed or prevented by exchanged controls, debt moratorium or other rules and regulations imposed by the relevant government or regulatory bodies. The profits or loss in transactions will also be affected by fluctuations in currency rates.

Before you trade you should enquire about any rules relevant to your particular transactions and carefully consider whether such trading is appropriate for you in light of your circumstances and seek independent advice if necessary. Your local regulatory authority (e.g., the Securities and Futures Commission of Hong Kong) 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.

Currency risks: 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.

Trading facilities: 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 or failure. 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 the firm with which you deal for details in this respect.

Electronic trading: Trading on an electronic trading system may differ from trading on other electronic trading systems. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with the system including the failure of hardware and software. The result of any system failure may be that your order is either not executed according to your instructions or is not executed at all.

Liability of SHKL
Since SHKL uses Scottrade US as Clearing Broker for execution, clearing, settlement and custody of U.S. securities, Scottrade US (not SHKL) will be liable to you for any default in respect of these services. In particular, SHKL is not liable to you for execution, clearing, settlement and custody of U.S. securities or any default by Scottrade US. See the section entitled SIPC Protection for a statement of certain protections available to you by virtue of this arrangement.