BNP PARIBAS DPM RISK DISCLOSURES

EQUITY RISK DISCLOSURES

The risk considerations and disclaimers in relation to the mandate’s investments (as applicable) are set out below and are not intended to be exhaustive and may be supplemented by additional risk disclosures from time to time.

1. RISK OF INVESTING IN EQUITIES AND EQUITY FUNDS

Where the mandate invests in equities and funds investing in equities, the prices of equity securities and funds investing in equities may decline in response to certain events, including but not limited to those directly affecting the companies; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency fluctuations.

Investing in equity securities and funds investing in equities may offer a higher rate of return than other investments. However, the risks associated with investments in equity securities and funds investing in equities may also be higher, because the performance of equity securities and funds investing in equities depends upon factors which are difficult to predict. Such factors include the possibility of sudden or prolonged market declines and risks associated with individual companies. The fundamental risk associated with investments in equities and equity funds is that the value of the investments it holds might decrease in value. Equity value may fluctuate in response to the activities of an individual company or companies or in response to general market and/or economic conditions.

2. RISK OF INVESTING IN EMERGING MARKETS

Where the mandate has investments in emerging markets, such investments are subject to higher risks (for example, liquidity risk, currency risk, political risk, regulatory risk and economic risk) and higher volatility as compared to investments in developed markets. Fluctuations in currency exchange rates may negatively affect the value of an investment or reduce returns - these risks are magnified for investments in emerging markets.

3. CURRENCY RISK

Where the mandate invests in instruments denominated in currencies different to the base currency, the portfolio may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rates between the base currency and other currencies. Changes in currency exchange rates may influence the value of the portfolio, the dividends or interest earned and the gains and losses realised. In general, exchange rates between currencies are determined by supply and demand in the currency exchange markets, the international balance of payments, governmental intervention, speculation and other economic and political conditions. If the currency in which an  investment is denominated appreciates against the base currency, the value of the investment would increase.  Conversely, a decline in the exchange rate of the currency would adversely affect the value of the portfolio.

Where the mandate engages in foreign currency transactions in order to hedge against currency exchange risk,  there is no guarantee that hedging or protection will be achieved.

4. RISKS OF USING FINANCIAL DERIVATIVE INSTRUMENTS FOR HEDGING

Where the mandate is entitled to use financial derivative instruments for hedging and efficient portfolio management purposes, such use may involve additional risks. In adverse situations, the portfolio's use of derivative instruments may become ineffective in hedging or efficient portfolio management and the portfolio may suffer significant losses.

5. COUNTERPARTY RISK

The portfolio may be subject to the risk of the inability of the counterparty, or any other entities, in or with which an investment or transaction is made, to perform in respect of undertaken transactions, whether due to insolvency, bankruptcy or other causes.

6. REINVESTMENT RISK

Reinvestment risk is where the portfolio may be exposed to the risk that the investment proceeds from a product may have to be reinvested at a lower potential interest rate or into a product with less attractive terms due to market changes or when the issuer exercises its right to redeem the product before it matures.

7. ISSUES WITH POTENTIAL TAX COMPLICATIONS

Before entering into any mandate(s), customers should understand the tax implication of the mandate’s investments (including the implications of any applicable income tax, goods and services or value added taxes, withholding tax, stamp duties and other taxes) of engaging in any financial transactions.  Different transactions may have different tax implications.  The tax implications of transactions may be dependent upon the nationality, the nature of the business activities of the customer and the transaction in question. We make no representation and have given no advice concerning the appropriate accounting treatment or possible tax consequences of the transaction.  Customers shall assume and be responsible for any and all taxes of any jurisdiction or governmental or regulatory authority.  Customers should, therefore, consult their tax adviser to understand and evaluate the relevant tax implication and should not rely on BNP Paribas for this.

8. RISKS OF INVESTING IN EXCHANGE-TRADED FUNDS

Where the mandate invests in exchange-traded funds (the “ETFs”) or funds which invest in ETFs, the portfolio is subject to the risk that the value of an interest in the ETF will generally decline in line with the decline of any securities which comprise the benchmark portfolio or the value of any benchmark index linked to the relevant ETF. Investment in the transaction linked to an ETF involves risks similar to those of investing in the securities traded on an exchange that comprise the benchmark portfolio or index to which the ETF is linked, such as market fluctuations caused by, amongst other things, economic and political developments, changes in interest rates and currency rates and market liquidity.

If an ETF adopts a synthetic replication investment strategy to achieve its investment objectives by investing in financial derivative instruments, you should note that (i) by investing in financial derivative instruments, the ETF is exposed to the credit, potential contagion and concentration risks of the counterparties who issued the financial derivative instruments, and the market value of any collateral held by the ETF may have fallen substantially when the ETF seeks to realise such collateral; and (ii) the ETF may be exposed to higher liquidity risk if such financial derivative instruments do not have an active secondary market. In addition, due to market accessibility, the efficiency in unit creation or redemption to keep the price of the synthetic ETF in line with its net asset value (“NAV”) may be disrupted, causing the synthetic ETF to trade at a higher premium or discount to its NAV. Such risks may have a negative impact on the potential return of the product.

The performance of an ETF is unpredictable. It depends on financial, political, economic and other events as well as the share issuer’s or the ETF’s earnings, market position, risk situation, shareholder structure and distribution policy. Although the investment strategy of an ETF is typically designed to replicate the movements in the benchmark index or the underlying asset pool to which the ETF is linked, there may be divergence between the performance of the ETF and the performance of the benchmark index or portfolio that the ETF is designed to track due to certain tracking errors as a result of a number of factors (or combination thereof).

These contributing factors may include, but are not limited to, any failure of the tracking strategy, fees and expenses that are deducted from the ETF’s returns, currency differences in the constituents that comprise the index or the underlying asset pool which the ETF is designed to track. In particular, where the benchmark index or market that the ETF tracks is subject to restricted market access, for instance, an emerging market index, the efficiency in the unit creation or redemption of units/interests in the ETF to keep the price of the ETF in line with its NAV may be impeded or disrupted due to the lack of liquidity in its constituents, causing the ETF to trade at a higher premium or discount to its NAV.

Synthetic ETF products may include different kinds of strategies, including but not limited to index tracking, replication strategy, leverage strategy, or any combination of derivatives with collateral requirements. You should be familiar with particular features and risk of investing in ETFs.

The major risks associated with synthetic ETFs are highlighted below:

(1) Market risk – the portfolio(s) are exposed to the political, economic, currency and other risks related to the synthetic ETF’s underlying index.

(2) Counterparty risk – where a synthetic ETF invests in derivatives to replicate the index performance, the portfolio(s) are exposed to the credit risk of the counterparties who issued the derivatives, in addition to the risks relating to the index. Further, there are potential contagion and concentration risks relating to the derivatives issuers (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.

(3) Liquidity risk – a higher liquidity risk is involved if a synthetic ETF involves derivatives which do not have an active secondary market. Wider bid-offer spreads in the price of the derivatives may result in losses. 

(4) Tracking error – there may be disparity between the performance of the synthetic ETF and the performance of the underlying index due to, for instance, failure of the tracking strategy, currency differences, fees and expenses.

(5) Trading at a discount or premium – where the index/market that the synthetic ETF tracks is subject to restricted access, the efficiency in unit creation or redemption to keep the price of the synthetic ETF in line with its NAV may be disrupted, causing the synthetic ETF to trade at a higher premium or discount to its NAV. Where the mandate invests in a synthetic ETF at a premium, the investor may not be able to recover the premium in the event of termination.

9. CONFLICTS OF INTEREST

Various potential and actual conflicts of interest may arise from the overall investment activities of the mandate(s) between you, BNP Paribas and its affiliates. In particular, BNP Paribas and its affiliates can offer/manage other investment vehicles or other portfolios which interests may be different to your interests.

10. MARKET DISRUPTION RISK

Markets may become disrupted. Local market disruptions can have a global effect.

Market disruption can adversely affect the performance of the portfolio.

11. RISK ASSOCIATED WITH RENMINBI (“RMB”) DEPOSITS, INVESTMENTS AND PRODUCTS

Where the mandate invests in deposits, investment transactions or financial products linked to or denominated in RMB (collectively, the “RMB Investment Products”), your attention is drawn to following risks.

 RMB is not freely convertible at present. The government of the People’s Republic of China (“PRC”) continues to regulate conversion between RMB and foreign currencies, including the Hong Kong dollar and Singapore dollar, despite the significant reduction over the years by the PRC government of its control over routine foreign exchange transactions under current accounts. The People’s Bank of China (“PBOC”) has established a clearing and settlement system pursuant to the Settlement Agreement on the Clearing of RMB Business between PBOC and Bank of China (Hong Kong) Limited. However, the current size of RMB and RMB denominated financial assets in Hong Kong and Singapore is limited, and its growth is subject to many constraints which are corollary of PRC laws and regulations on foreign exchange.

 (1) RMB currency risk – There can be no assurance that access to RMB funds for the purposes of making payments under the RMB Investment Products or generally may remain or will not become restricted.

 (2) Exchange rate risk – The value of the RMB against the Hong Kong dollar, Singapore dollar and other foreign currencies fluctuates and is affected by changes in the PRC and international political and economic conditions and by many other factors. As a result, the value of RMB payments may vary with the prevailing exchange rates in the marketplace. If the value of the RMB depreciates against the Hong Kong dollar, Singapore dollar or other foreign currencies, the value of an investor’s investment in Hong Kong dollar, Singapore dollar or other applicable foreign currency terms will decline.

 In addition, if the RMB Investment Products are not denominated in RMB or if the underlying(s) to which the RMB Investment Products are linked is not denominated in RMB, such RMB Investment Products may be subject to multiple currency conversion costs (including but not limited to multiple currency conversion costs involved in making investments and liquidating investments), as well as the RMB exchange rate fluctuations and bid/offer spreads when assets are sold to meet redemption requests and other capital requirements, where applicable. Such costs (if any) will be borne by the investors.

 (3) Risk related to the underlying(s) – Where the mandate invests in RMB Investment Products linked to  underlying(s), the movements in the price of the underlying(s) may be subject to significant fluctuations that may not correlate with changes in interest rates, currencies or other indices and the timing of changes in the relevant price of the underlying(s) may affect the actual yield to investors, even if the average level is consistent with their expectations.

Where the mandate invests in RMB Investment Products denominated in RMB but the underlying(s) is denominated in another currency, investors may lose all or a substantial portion of their investment if (i) the value of the underlying(s) appreciates but RMB depreciates against the Hong Kong dollar, Singapore dollar or other foreign currencies; (ii) RMB appreciates against the Hong Kong dollar, Singapore dollar or other foreign currencies but the value of the underlying(s) depreciates; or (iii) both the underlying(s) and RMB depreciate.

 If the RMB Investment Products do not have access to invest directly in the Mainland China, their available choice of underlying investments denominated in RMB outside Mainland China may be limited and such limitation may adversely affect the return and performance of such RMB Investment Products.

 For RMB Investment Products with a significant portion of non-RMB denominated underlying investments, please note that there is a possibility of not receiving the full amount in RMB upon redemption. This may be the case if the issuer of such RMB Investment Product is not able to obtain sufficient amount of RMB in a timely manner due to the exchange controls and restrictions applicable to the currency.

 (4) Interest rate risk – The mandate’s investment in RMB Investment Product may include RMB debt instruments and please note that such instruments are susceptible to interest rate fluctuations, which may adversely affect the return and performance of such RMB Investment Product.

 (5) Liquidity risk – No representation is made as to the existence of a market for the RMB Investment Products. The RMB Investments Products may involve a long period of investment. Investors who seek to redeem their investment before the maturity date or during the lock-up period (if applicable) may incur a significant loss of principal where the proceeds may be substantially lower than the invested amount. Investors may incur early surrender/withdrawal fees and charges as well as loss of bonuses (where applicable) as a result of redemption before the maturity date or during the lock-up period. The current size of RMB and RMB denominated financial assets is limited in Hong Kong and Singapore, which may adversely affect the liquidity of the RMB Investment Products.

 There may not be an active or liquid secondary market for unlisted RMB Investment Products. The secondary prices (if any) for RMB Investment Products may be at a substantial discount from the principal amount even in the case where the price of the underlying(s) has appreciated since the issue date. The price of the RMB Investment Products including the price at which the bank, the issuer, its affiliate or any other person may be willing to repurchase may be affected by a number of factors including the changes in the price of the underlying(s) and numerous economic and market factors including the expected volatility of the underlying(s); the outstanding principal amount; the time to maturity of the RMB Investment Products; the dividend rate on the underlying(s); the interest and yield rates in the market; the credit spreads, the exchange rate and the volatility of the exchange rate; the economic, financial, political, regulatory or judicial events that affect the underlying(s) or stock markets generally and which may affect the underlying closing prices on any valuation date; and the creditworthiness of the bank or the issuer.

The issue price of a RMB Investment Product may not accurately reflect its market value at the issue date and the price, if any at which the issuer, its affiliate or any other person is willing to purchase the RMB Investment Products in the secondary market (if any), is likely to be lower than the issue price due to the inclusion of agents’ compensation, compensation of an affiliate of the agents, any fees and charges incurred by the issuer and expected profit from hedging in the original issue price. In addition, any such prices may differ from values determined by pricing models used by the agents, as a result of such compensation or other transaction costs. In addition, different market participants may have different pricing models leading to different results.

 (6) Non-guaranteed returns – The returns of the RMB Investment Products may not be guaranteed.

 (7) Additional risks associated with leveraged trading– If  the mandate uses leveraged trading facilities to purchase or enter into RMB Investment Products, please note that such leveraging heightens the investment risks by magnifying prospective losses. Please ensure you understand the terms and conditions of the borrowing arrangement, including but without limitation to the circumstances under which you will be required to place additional margin deposits (and which may be required at short notice) and that your collateral may be liquidated without your consent.

 Moreover, you are also reminded of your exposure to interest rate risk and for example, your cost of borrowing may increase due to interest rate movements.

(8) Counterparty and insolvency risk – If there are RMB Investment Products in the portfolio, investors are relying upon the creditworthiness of the counterparty or the issuer (as appropriate). Investors are subject to the issuer and the counterparty credit risk and insolvency risk, the total value of investment may be lost even though the underlying of the RMB Investment Product is performing in the direction and/or magnitude you expect.

A RMB Investment Product from the counterparty will not represent a deposit account and will not be insured by any government entity.  Such counterparty will not accept any fiduciary obligations towards you, nor is it willing to undertake such obligations.

To the extent that the RMB Investment Products may invest in RMB debt instruments not supported by any collateral, investors should note that such products are fully exposed to the credit risk of the relevant counterparties. Where a RMB Investment Product may invest in derivative instruments, counterparty risk may also arise as the default by the derivative issuers may adversely affect the performance of the RMB Investment Product and result in substantial loss.

 (9) Credit-ratings– The issuer’s and the counterparty’s long-term credit ratings do not necessarily reflect their creditworthiness and/or their ability of performing their obligations under the RMB Investment Products. Further, there is no assurance that its long-term credit ratings will remain unchanged for any given period of time or that a downgrading, a suspension or withdrawal of any such credit ratings will not occur in the future. 

 (10) Not a deposit – The RMB Investment Products which are investment transactions or financial products are not deposits and are therefore not protected under any legislation applicable to deposits. In particular but without limiting the foregoing, they are neither protected by the Hong Kong Deposit Protection Scheme in Hong Kong nor the Deposit Insurance Scheme in Singapore.

 (11) Limited availability of underlying investments denominated in RMB – For RMB Investment Products that do not have access to  invest directly in Mainland China, their available choice of underlying investments denominated in RMB outside Mainland China may be limited. Such limitation may adversely affect the return and performance of the RMB Investment Products.

  (12) Possibility of not receiving RMB upon redemption– For RMB Investment Products with a significant portion of non-RMB denominated underlying investments, there is a possibility of not receiving the full amount in RMB upon redemption. This may be the case if the issuer is not able to obtain sufficient amount of RMB in a timely manner due to the exchange controls and restrictions applicable to the currency.

 (13) Not an exhaustive list– The risk considerations and disclaimers in relation to the investment of the RMB Investment Products as set out in this document are not intended to be exhaustive and may be supplemented by additional risk disclosures from time to time.

12. OTHER RISKS

THIS DOCUMENT CANNOT DISCLOSE ALL POSSIBLE SPECIFIC RISKS OF THE MANDATE. Before agreeing to any mandate(s), you must satisfy yourself that you fully understand the mandate(s) and the risks of the mandate’s investments. Please also refer to the “General Risks” in this document.

BONDS

The risk considerations and disclaimers in relation to the mandate’s investments (as applicable) are set out below and are not intended to be exhaustive and may be supplemented by additional risk disclosures from time to time.

1.Risk of investing in debt and debt-related securities

Where the mandate invests in debt and debt-related securities, the portfolio is exposed to credit risk and interest rate risk. Credit risk is the risk of default on a debt that a borrower (bond issuer) fails to meet its obligations (pay principal and/or interest on redemption date). The issuer’s credit quality and security values may be adversely affected by factors which include, but are not limited to, changes in economic and political conditions or issuer’s financial conditions. It should also be noted that credit ratings assigned by credit rating agencies do not guarantee the creditworthiness of the issuer.

Changes in interest rates will impact the performance of the investments. As long term interest rates rise, the capital value will likely decrease. In general, securities with longer maturities and higher interest rate sensitivity involve higher degree of risk.

2.Risk of investing in emerging markets

Where the mandate has investments in emerging markets, such investments are subject to higher risks (for example, liquidity risk, currency risk, political risk, regulatory risk and economic risk) and higher volatility as compared to investments in developed markets. Fluctuations in currency exchange rates may negatively affect the value of an investment or reduce returns - these risks are magnified for investments in emerging markets.

3.Risk of investing in bond funds having convertible / high-yielding / sub-investment grade bonds

High yield bonds or sub-investment grade bonds risk– Where the mandate invests in such bond funds, the portfolio may have exposure to higher risk bond categories such as high yield bonds or sub-investment grade bonds, which are subject to the risks associated with high yield bonds or sub-investment grade bonds and also subject to a higher credit risk, greater possibility of default and greater price volatility than the funds investing in investment grade bonds.  The net asset value of a fund that invests in high-yield bonds or sub-investment grade bonds may decline or be negatively affected if there is a default of any of the high yield bonds or sub-investment grade bonds that it invests in or if interest rates change.

Convertible bonds risk – Where the mandate invests in such bond funds, the portfolio may have exposure to convertible bonds that are subject to the risks associated with both debt and equity securities, and to risks specific to convertible securities. Their value may change significantly depending on economic and interest rate conditions, the creditworthiness of the issuer, the performance of the underlying equity and general financial market conditions. In addition, issuers of convertible bonds may fail to meet payment obligations and their credit ratings may be downgraded. Convertible bonds may also be subject to lower liquidity than the underlying equity securities.

Capital growth risk – some high-yield bond funds may have fees and/or dividends paid out of capital. As a result, the capital that the fund has available for investment in the future and capital growth may be reduced.

No dividend distributions – some high-yield bond funds may not distribute dividends, but instead reinvest the dividends into the fund or alternatively, the investment manager may have discretion on whether or not to make any distribution out of income and/ or capital of the fund. Also, a high distribution yield does not imply a positive or high return on the total investment.

Other key risks that may relate to the relevant fund would depend on the concentration of investments in particular types of specialized debt or a specific geographical region or sovereign securities.

4.Sovereign debt risk

Where the mandate invests in sovereign debts, the investors should note that sovereign debt issued by governments of certain developing countries or their agencies and instrumentalities (“government entities”) is a riskier investment than sovereign debt issued by governments of developed countries.

The stability of the issuing government is an important factor to consider as they may not be able or willing to repay the principal and/or interest. Key factors affecting the governmental entity’s possibility or willingness to repay the principal and interest include, but are not limited to, its variance of cash flow, debt service ratio, foreign reserves, the probability of sufficient foreign exchange on payment day and the political risk.

A governmental entity will be requested to conduct sovereign debt restructuring and to extend further loans if it cannot meet its debt obligations.

5.Risk of Inflation-linked bonds

Where the mandate invests in inflation-linked bonds, the portfolio is subject to deflation risk. The capital value of inflation-linked bonds tends to be lower than other bond categories during deflationary periods. In addition, the full principal invested may not be returned at maturity for inflation-linked bonds during times of deflation. Lastly, inflation-linked bonds are generally less liquid than traditional bonds as they are primarily bought by buy-and-hold investors.

6.Risks of using financial derivative instruments for hedging

Where the mandate is entitled to use financial derivative instruments for hedging and efficient portfolio management purposes, such use may involve additional risks. In adverse situations, the portfolio's use of derivative instruments may become ineffective in hedging or efficient portfolio management and the portfolio may suffer significant losses.

7.Currency risk

Where the mandate invests in instruments denominated in currencies different to the base currency, the portfolio may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rates between the base currency and other currencies. Changes in currency exchange rates may influence the value of the portfolio, the dividends or interest earned and the gains and losses realised. In general, exchange rates between currencies are determined by supply and demand in the currency exchange markets, the international balance of payments, governmental intervention, speculation and other economic and political conditions. If the currency in which an  investment is denominated appreciates against the base currency, the value of the investment would increase.  Conversely, a decline in the exchange rate of the currency would adversely affect the value of the portfolio.

Where the mandate engages in foreign currency transactions in order to hedge against currency exchange risk,  there is no guarantee that hedging or protection will be achieved.

8.Liquidity risk

Some investments in the portfolio may not have active secondary markets. Liquidity may become scarce and it would be difficult or impossible to sell these investments before maturity. Unwinding of unlisted investment products before maturity can be expensive and may result in significant loss before maturity. BNP Paribas rely solely on its counterpart(s) (including its affiliates and/or other third party counterparts, as the case may be) to provide secondary unwinding pricing before maturity and such unwinding costs will also be dependent on the counterpart(s)’s cost of funding, the discounted curve, the market condition, among other considerations, at the point of exit.

9.Counterparty risk

The portfolio may be subject to the risk of the inability of the counterparty, or any other entities, in or with which an investment or transaction is made, to perform in respect of undertaken transactions, whether due to insolvency, bankruptcy or other causes.

10. Financial bonds (bonds related to the financial sector)

Where the mandate invests in financial bonds with convertible or exchangeable features the portfolio will be subject to both equity and bond investment risk.  Bonds that have contingent write down or loss absorption features may be written-off fully or partially or converted to common stock on the occurrence of a trigger event.  Some financial bonds (including subordinated or even senior bonds), though are not classified by the market as Contingent Convertibles (Cocos) with explicit capital trigger for loss absorption, may also have loss absorption features, including (1) those with contractual loss absorption at point of non-viability (PONV), (2) those in countries with statutory bail-in, and/or (3) those in countries that are likely to have statutory bail-in before the maturities of these bonds.

Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in the event of the issuer’s liquidation.

11. Callable bonds

Callable bonds are callable and investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures.

12.Contingent convertible or bail-in debenture

Where the mandate invests in (deeply subordinated) contingent convertible debenture / bail-in debentures, such investments have coupon payments that may be deferred or even suspended subject to the terms and conditions of the issue. Contingent convertible and bail-in debentures are hybrid debt-equity instruments that may be written off or converted to common stock on the occurrence of a trigger event.

13.Perpetual bonds

Where the mandate invests in (deeply subordinated) perpetual bonds with no maturity, such investments have coupon payments that may be deferred or even suspended subject to the terms and conditions of each bond issue. Perpetual debentures are often callable (and/or subordinated) and there could be reinvestment risk, and/or a lower priority of claims (e.g. on liquidation of the issuer). 

14.Bonds with extendable maturity dates

Where the mandate invests in bonds that have extendable maturity dates, there will be no definite schedule of principal repayment. Some bonds have variable and/or deferral of interest payment terms, and investors would face uncertainty over the amount and time of the interest payments to be received.

15.Reinvestment risk

Reinvestment risk is where the portfolio may be exposed to the risk that the investment proceeds from a product may have to be reinvested at a lower potential interest rate or into a product with less attractive terms due to market changes or when the issuer exercises its right to redeem the product before it matures.

16. Conflicts of interest

Various potential and actual conflicts of interest may arise from the overall investment activities of the mandate(s) between you, BNP Paribas and its affiliates. In particular, BNP Paribas and its affiliates can offer/manage other investment vehicles or other portfolios which interests may be different to your interests.

17. Market disruption risk

Markets may become disrupted. Local market disruptions can have a global effect.

Market disruption can adversely affect the performance of the portfolio.

18. Issues with potential tax complications

Before entering into any mandate(s), customers should understand the tax implication of the mandate’s investments (including the implications of any applicable income tax, goods and services or value added taxes, withholding tax, stamp duties and other taxes) of engaging in any financial transactions.  Different transactions may have different tax implications.  The tax implications of transactions may be dependent upon the nationality, the nature of the business activities of the customer and the transaction in question. We make no representation and have given no advice concerning the appropriate accounting treatment or possible tax consequences of the transaction.  Customers shall assume and be responsible for any and all taxes of any jurisdiction or governmental or regulatory authority.  Customers should, therefore, consult their tax adviser to understand and evaluate the relevant tax implication and should not rely on BNP Paribas for this.

19.Risks of investing in exchange-traded funds

Where the mandate invests in exchange-traded funds (the “ETFs”) or funds which invest in ETFs, the portfolio is subject to the risk that the value of an interest in the ETF will generally decline in line with the decline of any securities which comprise the benchmark portfolio or the value of any benchmark index linked to the relevant ETF. Investment in the transaction linked to an ETF involves risks similar to those of investing in the securities traded on an exchange that comprise the benchmark portfolio or index to which the ETF is linked, such as market fluctuations caused by, amongst other things, economic and political developments, changes in interest rates and currency rates and market liquidity.

If an ETF adopts a synthetic replication investment strategy to achieve its investment objectives by investing in financial derivative instruments, you should note that (i) by investing in financial derivative instruments, the ETF is exposed to the credit, potential contagion and concentration risks of the counterparties who issued the financial derivative instruments, and the market value of any collateral held by the ETF may have fallen substantially when the ETF seeks to realise such collateral; and (ii) the ETF may be exposed to higher liquidity risk if such financial derivative instruments do not have an active secondary market. In addition, due to market accessibility, the efficiency in unit creation or redemption to keep the price of the synthetic ETF in line with its net asset value (“NAV”) may be disrupted, causing the synthetic ETF to trade at a higher premium or discount to its NAV. Such risks may have a negative impact on the potential return of the product.

The performance of an ETF is unpredictable. It depends on financial, political, economic and other events as well as the share issuer’s or the ETF’s earnings, market position, risk situation, shareholder structure and distribution policy. Although the investment strategy of an ETF is typically designed to replicate the movements in the benchmark index or the underlying asset pool to which the ETF is linked, there may be divergence between the performance of the ETF and the performance of the benchmark index or portfolio that the ETF is designed to track due to certain tracking errors as a result of a number of factors (or combination thereof).

These contributing factors may include, but are not limited to, any failure of the tracking strategy, fees and expenses that are deducted from the ETF’s returns, currency differences in the constituents that comprise the index or the underlying asset pool which the ETF is designed to track. In particular, where the benchmark index or market that the ETF tracks is subject to restricted market access, for instance, an emerging market index, the efficiency in the unit creation or redemption of units/interests in the ETF to keep the price of the ETF in line with its NAV may be impeded or disrupted due to the lack of liquidity in its constituents, causing the ETF to trade at a higher premium or discount to its NAV.

Synthetic ETF products may include different kinds of strategies, including but not limited to index tracking, replication strategy, leverage strategy, or any combination of derivatives with collateral requirements. You should be familiar with particular features and risk of investing in ETFs

The major risks associated with synthetic ETFs are highlighted below:

(1) Market risk – the portfolio(s) are exposed to the political, economic, currency and other risks related to the synthetic ETF’s underlying index.

(2) Counterparty risk – where a synthetic ETF invests in derivatives to replicate the index performance, the portfolio(s) are exposed to the credit risk of the counterparties who issued the derivatives, in addition to the risks relating to the index. Further, there are potential contagion and concentration risks relating to the derivatives issuers (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.

(3) Liquidity risk – a higher liquidity risk is involved if a synthetic ETF involves derivatives which do not have an active secondary market. Wider bid-offer spreads in the price of the derivatives may result in losses.

(4) Tracking error – there may be disparity between the performance of the synthetic ETF and the performance of the underlying index due to, for instance, failure of the tracking strategy, currency differences, fees and expenses.

(5) Trading at a discount or premium – where the index/market that the synthetic ETF tracks is subject to restricted access, the efficiency in unit creation or redemption to keep the price of the synthetic ETF in line with its NAV may be disrupted, causing the synthetic ETF to trade at a higher premium or discount to its NAV. Where the mandate invests in a synthetic ETF at a premium, the investor may not be able to recover the premium in the event of termination.

20.Other risks

THIS DOCUMENT CANNOT DISCLOSE ALL POSSIBLE SPECIFIC RISKS OF THE MANDATE. Before agreeing to any mandate(s), you must satisfy yourself that you fully understand the mandate(s) and the risks of the mandate’s investments. Please also refer to the “General Risks” in this document.