Circular Issued by the Securities and Futures Commission Regarding Review of Readiness for Listed Renminbi Securities Business

Our Ref: B1/15C
G16/1C

21 March 2011
The Chief Executive
All Authorized Institutions
Dear Sir / Madam,
Circular Issued by the Securities and Futures Commission (SFC) Regarding Review of Readiness for Listed Renminbi (RMB) Securities Business Further to my letter of 18 February 2011, I would like to draw your attention to the attached circular issued by the SFC on 17 March 2011 to SEHK Exchange Participants and CCASS Participants, providing a checklist to facilitate their review of readiness to conduct listed RMB securities business. AIs are encouraged to draw reference from the SFC circular and checklist in ensuring their readiness, and the readiness of any SEHK Exchange Participant or CCASS Participant that they plan to engage to be their trading and/or clearing agent, for listed RMB securities activities. Intermediaries conducting trading / clearing activities in RMB securities to be listed on the SEHK without having ensured their readiness for conducting such activities shall be liable to regulatory scrutiny of their conduct. If an AI fails to ensure its own and its trading and/or clearing agent’s readiness to conduct listed RMB securities business, it should refrain from engaging in such activities and should put in place measures to prevent inadvertent trading of, or acceptance of client trading instructions on, listed RMB securities. Please refer to the SFC circular for examples of such measures. Yours faithfully, Meena Datwani Executive Director (Banking Conduct) Encl. c.c. SFC (Attn: Mr Stephen Po, Senior Director of Intermediaries Supervision)

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SECURITIES AND FUTURES COMMISSION
EEEHNEEBEERZE THEE REESS Circular
17 March 2011
Circular to SEHK Exchange Participants and CCASS Participants (collectively “Participants”) Checklist to facilitate Participants’ review of readiness for Listed Renminbi (“RMB”) Securities Business A checklist is attached to this circular to facilitate Participants’ review of readiness to conduct listed RMB securities business. The checklist recaps the key areas that Participants should consider during their readiness review. Participants conducting the RMB Readiness Test are advised to summarize in the checklist the conclusions of their review of readiness in those applicable areas set out in the checklist. Participants should also keep a copy of the completed checklist for record. Important reminder Participants are reminded to prudently assess their readiness and be satisfied that they have already prepared themselves properly before confirming their readiness to the HKEx. Reminder to brokers intendina to convert currency with their clients Brokers providing currency conversion service to their clients should ensure the relevant exchange rate and / or basis of fixing the exchange rate has been clearly disclosed to and agreed with the clients. Brokers should also clearly disclose to the client their role in the transaction (as agent or principal) and ensure compliance with the Code of Conduct’s requirements relating to conflicts of interest and compliance. Reminder to brokers who are not vet readv Those brokers who fail to ensure their readiness should refrain from dealing in RMB securities to be listed on the SEHK or clearing transactions in such securities. They should put in place measures to prevent inadvertent trading of, or acceptance of client trading instructions on, listed RMB securities. For example:
— Notify all staff in writing that no client trading instructions on listed RMB securities should be accepted — Explain to clients clearly that no services in listed RMB securities are offered by your firm currently upon clients’ enquiries — Closely monitor trading activities. If inadvertent transaction in listed RMB securities is identified, contact HKEx immediately to discuss any need for taking remedial action Brokers conducting trading / clearing activities in RMB securities to be listed on the SEHK without having ensured their readiness for conducting such activities shall be liable to regulatory scrutiny of their conduct. 10f2 Tel: (852) 2840 9222 Fax: (852) 2523 4598 Website: www.sfc.hk

Should you have any questions regarding the contents of this circular, please contact Ms Rachel Chung at 2283 6153 or Ms Madonna Yip at 2842 7618. Intermediaries Supervision Department Securities and Futures Commission Enclosure End SFO7IS/005/2011 20f2 Tel: (852) 2840 9222 Fax: (852) 2523 4598 Website; www.sfc.hk

Checklist for SEHK Exchange Participants and CCASS Participants (“Participants”) Prepared for Trading and/or Clearing of SEHK-listed RMB denominated securities The following checklist is provided to Participants to facilitate their review of readiness to conduct listed RMB securities business. It recaps the key areas that Participants should consider during their readiness review. Participants conducting the RMB Readiness Test are advised to summarize in the checklist the conclusions of their review of readiness in those applicable areas set out in the checklist. Participants should also keep a copy of the completed checklist for record. Important reminder:
Participants are reminded to prudently assess their readiness and be satisfied that they have already prepared themselves properly before confirming their readiness to the HKEX. 1of4

Checklist for review of readiness for Trading and/or Clearing of SEHK-listed RMB denominated securities Not applicable items Yes No 1 Are the following systems/ procedures of your firm ready for handling SEHK-listed RMB-denominated securities?
1.1 trading system and procedures
1.2 market quotes and information system and
procedures
1.3 communications channels with clients (e.g.
company websites, IVRS, SMS and mobile phone applications)
1.4 accounting and record keeping systems and
procedures
1.5 clearing and settlement systems and procedures
1.6 system and procedures relating to calculation,
disclosure, reporting and payment of stamp duty and other transaction costs (e.g. SFC levies and other HKEX charges, commission etc.)
1.7 system and procedures for issuing client trading
documents (e.g. contract notes, client account statements) in accordance with the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules
1.8 system and procedures for handling client money
received in RMB (e.g. opening separate RMB trust account and related reconciliation procedures etc.) 20f4

1.9 margin call, collateral management and other risk
management systems and procedures to manage risks related to SEHK-listed RMB denominated securities (e.g. credit risk, liquidity risk, currency mismatch risk, exchange rate risks etc.) other relevant systems and procedures (if any) Have you provided the CCASS data files with currency code “CNY” (http://lwww.hkex.com.hk/eng/market/clr/secclr/cca ss3/updownlist/updownlist.htm) to your vendor or IT departments for testing the readiness of your back office systems in capturing data files containing RMB denominated transactions? Do you have arrangement and / or policy in place to ensure the firm has sufficient RMB for settlement and clearing purpose (e.g. RMB banking lines, RMB working capital, or policy of requiring client to pay RMB upfront etc.)? Do you have procedure in place for disclosing material information about dealing in listed RMB-denominated securities to your clients before providing such service to them? (e.g. disclosure of exchange rate fluctuation risk, basis of fixing exchange rate for conversion, settlement currency for settling transactions with clients, the firm's policy on client settlement default etc.) 3of4

5. Do you have procedure in place to check with
   clients who settle through their custodians (who are CCASS Participants) or Investor Participants Accounts in CCASS whether their custodians/themselves have set up RMB Designated bank accounts at CCASS for CCASS money settlement before providing service in SEHK-listed RMB-denominated securities to them?
6. Do you have procedure in place to ask those
   clients who indicate that they wish to trade in SEHK-listed RMB denominated securities whether they have RMB bank accounts for settlement before providing service in SEHK-listed RMB-denominated securities to them?
7. Do you have plan in place to provide training to
   front office and back office staff in relation to your SEHK-listed RMB-denominated securities business before commencing such business? Remarks:
   40f4