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This Risk Disclosure Statement is established in accordance with the provisions under Article 3, Paragraph 4 of the Taiwan Stock Exchange Corporation Rules Governing Trading of Beneficial Certificates and Point 5, Paragraph 2 of the Guidelines for Creation and Redemption of Beneficial Certificates.
Trading of beneficial certificates of leveraged and inverse exchange-traded securities investment trust funds
Leveraged and inverse exchange-traded securities investment trust funds (hereinafter the "leveraged and inverse ETFs") are intended to track, simulate or replicate the performance of their underlying indexes in the positive direction ("leveraged ETFs" in short) or opposite (inverse) direction ("inverse ETFs" in short). Investors may incur significantly huge profits or losses in a short time when trading in the beneficial certificates of leveraged and inverse ETFs and are advised to carefully review their own financial position and economic condition in deciding whether this type of product is suitable for them prior to opening an account. Before making a decision on transaction, the investor shall understand the potential risks arising from the investment and be informed of the following to make sure their rights and benefits are protected:
- An investor trading in the beneficial certificates of leveraged and inverse ETFs must fully understand the positive or opposite directions and multiples between the net worth of the leveraged and inverse ETF and its underlying index. Also, the purpose of the leveraged and inverse ETF is only to track, simulate or replicate the daily returns on the underlying index as multiples in the positive or opposite direction, rather than the accumulated returns on the index as multiples in either the positive or opposite direction for a period of time.
- Decision-making on trading the beneficial certificates of leveraged and inverse ETFs requires careful review and consideration. Investors should fully understand the fact that leveraged and inverse ETFs may have risks from interest rates, liquidity, inflation, reinvestment, individual events, taxation, credit and market impact of the underlying investment and the securities firms do not provide any guarantee on any investment gains or protection of principal for trading of the beneficiary certificates of the leveraged and inverse ETF.
- If the futures, derivatives or securities the leveraged and inverse ETF invests in are traded in foreign currency, in addition to profits or losses incurred from transactions, there may be exchange rate risks, and the underlying investments may directly cause losses to the investor due to changes in interest rates, exchange rates or other indexes.
- If the products the leveraged and inverse ETF invests in are traded on a foreign exchange, the net worth of the ETF required to be disclosed by the issuer of the leveraged and inverse ETF on the website may be based on the closing price of the most current trading day of that foreign exchange due to the time difference.
- If the products the leveraged and inverse ETF invests in are mainly domestic or foreign futures, derivatives or securities, these products may cause a positive/negative price difference between the trading price and the underlying index (e.g. trading price of the future may be higher or lower than the underlying index) due to liquidity, cash dividends, investors' expectations, interest rates, exchange rates and inflation, which may further affect the net asset worth of the leveraged and inverse ETF.
- If the underlying index of the leveraged and inverse ETF is a foreign index or includes one or more foreign securities, there are no specific restrictions on the price fluctuations of the beneficial certificates of the leveraged and inverse ETF. If, however, the underlying index is a domestic index, the price fluctuation of the beneficial certificates will be a multiple of the price fluctuation of securities in the domestic securities market. In view of the above features, the investor must fully understand that transactions in the beneficial certificates of leveraged and inverse ETFs may involve significantly huge profits or losses in a very short period of time due to fluctuations of the underlying index.
- If trading of the beneficial certificates of leveraged and inverse ETFs is based on market quotations, there may be a lack of information about the buying and selling quotations or a relatively large gap between the buying and selling quotations. As such, investors must be thoroughly informed of the buying and selling quotations of the beneficial certificates of the leveraged and inverse ETF prior to investment and be aware of the potential investment losses caused by liquidity risks.
- As the beneficial certificates of leveraged and inverse ETFs are highly leveraged, if investors engage in margin purchase and short sale with leverage, they may gain higher profits when the price movement conforms to expectations, or may otherwise suffer bigger losses. Investors may also face a margin call by the lender if the collateral maintenance ratio drops.
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Trading of exchange-traded futures trust fund beneficial certificates
Trading in this exchange-traded futures trust fund ("futures ETF") may generate significant profits or sustain significant losses within a short term as the futures ETF takes, as its major investment, foreign futures indices as the underlying indices to be tracked, with wide-ranging futures indices available, which can include commodities, interest rates etc. Before opening an account, therefore, the customer is advised to evaluate carefully whether a particular commodity is suitable in view of its own financial capacity and economic condition. To protect its rights and interests, the customer should specifically understand the potential risks its investments may entail as well as be aware of the following, prior to engaging in trading:
- The investment risks of trading in the futures ETF beneficial certificates vary among the futures indices that the futures ETF invests in. The customer is advised to ascertain the features and risks of each of the foreign futures indices as the underlying indices that this ETF links to, and keep themselves apprised of the price changes of the underlying commodities in the spot market at all times.
- The decision to invest in the futures ETF beneficial certificates is solely made by the customer after careful independent evaluation. Before investing, the customer should understand all possible risks of investing in the futures ETF beneficial certificates, including, without limitation, impacts of the state, interest rate, liquidity, premature rescission of contact, exchange, inflation, re-investment, individual incident, tax, credit, and markets being linked to etc., and that contango or backwardation between the trading price and futures index that results (for instance, the futures trading price is higher or lower than the futures index) may affect the net asset worth of the futures ETF beneficial certificates. The securities firm makes no guarantee of returns on investment or a breakeven as far as the futures ETF beneficial certificates are concerned.
- Where the futures ETF engages in futures trades that are denominated in foreign currency, in addition to the profit and loss from the actual trade, the exchange-rate risk must also be borne; loss of principal on the object of investment is also likely to result directly from changes in the interest rate, exchange rate or other indices.
- Where the futures trades that the futures ETF engages in is not subject to limit up-limit down restrictions, the futures ETF beneficial certificates will not be so subject, either, in which case significant profits or significant losses within a short term are possible due to substantial price fluctuations.
- Where the futures ETF engages in futures trades of a foreign exchange, the net value of the futures ETF as disclosed online by the futures ETF issuer as required may only be calculated based on the closing price of the last business day of the foreign exchange, due to time difference. The customer should understand that there may be more-updated prices in other markets of the world of the object being tracked by the indices traded by the futures ETF, therefore the customer may be exposed to the risk of discounts or premiums (where the strike price of the futures ETF beneficial certificates is lower or higher than its net value) by merely relying on the net value disclosed online by the issuer as the basis for trading in the futures ETF beneficial certificates.
- Trading in the futures ETF beneficial certificates at the market quote may result in a shortage of the quoted quantity or a relatively substantial difference in the bid-ask quote. Before investing, the customer should collect relevant information on the bid-ask quote of the futures ETF beneficial certificates and pay attention to the investment loss that may result from liquidity risk.
- Where the futures ETF is intended to track, simulate or replicate a multiple of the performance of an index or a multiple of the inverse performance of an index ("leveraged or inverse futures ETF"), the customer shall fully understand the relationship of the positive and inverse directions and multiples between the net worth and underlying index, and that the futures ETF is intended to merely track, simulate or replicate a multiple in the positive or inverse direction of the yield of the underlying index each day, not the cumulative yield over an extended period of time of a multiple in the positive or inverse direction of the underlying index. It is, therefore, not advisable to procure cumulative yields by holding the beneficial certificates of the leveraged or inverse futures ETF for a long term.
- The beneficial certificates of the leveraged or inverse futures ETF are leveraged. The customer engaging in margin purchases and short sales with the leverage effect may gain higher returns if the price trend develops as expected, if not, it may incur greater losses and may at the same time be subject to payment demands from the credit institution due to a drop in the collateral maintenance ratio.
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Exchange-traded fund beneficial certificates and additional ETF beneficial certificates traded in foreign currency
Customers dealing in foreign-currency exchange-traded fund beneficial certificates ("foreign-currency ETF") or additional ETF beneficial certificates ("additional ETF") may incur profits or losses and are advised to carefully review their own financial position and economic condition in deciding whether this type of product is suitable for them prior to opening an account. Before making a decision on transaction, the customer should understand the potential risks arising from the investment and be informed of the following to make sure its rights and benefits are protected:
- The customer trading in foreign-currency ETFs should fully understand that it must bear, in addition to the profit and loss from the actual trade, exchange-rate risk as foreign-currency ETFs are traded in foreign currency.
- The customer trading in foreign-currency ETFs or additional ETFs should fully understand in the event of trading in renminbi that the amount of exchange to renminbi allowed a natural person may not exceed $20,000 per day.
- The customer trading in additional ETFs should fully understand that in addition to the profit and loss from the actual trade, spread risk and exchange-rate risk will be incurred in respect of the additional ETFs and their underlying ETFs.
- Additional ETFs and their underlying ETFs may be swapped with each other. The customer should fully understand that it must confirm the application amount is smaller than or equal to the balance in its book-entry custody account before it may apply for a swap.
- Additional ETFs and their underlying ETFs may be swapped with each other. The customer should fully understand that no swap application is allowed in respect of the underlying ETFs if they are used for purchasing and borrowing positions by way of margin purchase.
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Creation / redemption of exchange-traded fund beneficial certificates
To protect its rights and interests, the customer should be informed of the above risks being disclosed that are involved in the trading of beneficial certificates as well as the following matters if it is to create and redeem beneficial certificates of the leveraged and inverse, foreign-currency or futures ETF by cash:
- If the underlying index of the leveraged and inverse ETF, foreign-currency ETF or futures ETF is a foreign security index or futures index, the net value of the ETF portfolio composition file as disclosed online by the issuer as required may only be calculated based on the closing price of the last business day of the foreign exchange, due to time difference. The customer may be required to make up a shortfall in the subscription amount or may obtain a lower redemption amount when creating or redeeming the ETF beneficial certificates.
- The trading hours of the foreign futures indices that the futures ETF links to may differ from those of the R.O.C. market. As a result, there may be a difference between the strike price of a foreign commodity futures index in which the issuer of the futures ETF trades upon receipt of an instruction to create or redeem the ETF and the amount at which the customer creates or redeems the ETF.
- The trading hours of the foreign indices that the leveraged and inverse ETF or foreign-currency ETF links to may differ from those of the R.O.C. market. As a result, there may be a difference between the strike price of a foreign investment object in which the issuer of the ETF trades upon receipt of an instruction to create or redeem the ETF and the amount at which the customer creates or redeems the ETF.
- Where the object that the leveraged and inverse ETF, foreign-currency ETF or futures ETF invests in is traded in foreign currency, the exchange-rate risk must also be borne in addition to the profit and loss from the actual trade, which is therefore likely to result in losses in the creation or redemption amount.
- The creation or redemption price of a leveraged and inverse ETF, foreign-currency ETF or futures ETF may be affected by such risks as interest rates, liquidity, exchange rates, inflation, reinvestment, individual incidents, tax, credit, and markets of linked objects etc.
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This Risk Disclosure Statement is brief and concise without providing a comprehensive list of all investment risks and factors that may affect market performance. Before making an investment, the customer should not only carefully review this Risk Disclosure Statement but also deliberate on other factors that may cause an impact, and make a thorough risk assessment, to avoid insufferable losses from trading.
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I hereby represent that I have received and read this Risk Disclosure Statement and also been provided with explanations by a representative sent by you before engaging in the trading or creation / redemption of the aforementioned ETF beneficial certificates; that I fully understand the above matters and risks of trading in the ETF beneficial certificates and further understand under certain circumstances calculations of net value may not be updated timely and discounts and premiums may occur in respect of the trading price; and that I undertake to be solely responsible for the investment risks.
To
________ Securities Co., Ltd.
Signature of Customer: ______________
Signature Representative: ______________
National I.D. No. or Uniform Business Code of Withholding Agency: ______________
Signature of Securities Firm Representative: ______________
Date:
(This Risk Disclosure Statement is executed in duplicate, with one copy to be retained by the securities firm for filing purpose and the other by the customer for reference.)
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