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HONG KONG SECURITIES MARKET

USER GUIDELINES

TRADING IN CROSSING ENGINE

Version 1.1

July 2013

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TABLE OF CONTENTS

A. General

P. 3

B. Trading and operational matters

P. 3

C. Crossing restriction

P. 6

D. Other dealing practice

P. 6

E. Identity of CLSA staff having access to trading information of the crossing engine

P. 7

F. Risk disclosure relating to the use of crossing engine

P. 7

G. Legal information P. 8

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A. GENERAL 1. Introduction

1.1 CLSA Limited (CLSA) is licensed by the Securities and Futures Commission of Hong Kong

(SFC) to operate CLSAs Crossing Engine, a continuous, anonymous order matching and automated trade reporting system made available to institutional investor clients. The

Crossing Engine will seek to match client buy with sell orders during the continuous trading phase of the Stock Exchange of Hong Kong (SEHK) reporting successful cross trades to the SEHK immediately.

1.2 The purpose of this is to document provides guidance to those clients of CLSA who may

trade using the Crossing Engine. Prior to sending orders to the Crossing Engine, clients are advised to familiarize themselves with the information and restrictions contained in this

document. 1.3 This document is subject to change of rules and regulation as announced by SFC or SEHK

from time to time. 1.4 Prior to enabling a client to access the Crossing Engine, CLSA is required by the SFC to

ensure that these guidelines are brought to the attention of the client.

1.5 Clients should contact CLSA with any queries related to the Crossing Engine or these guidelines.

B. TRADING AND OPERATIONAL MATTERS 1. Supported securities 1.1 Securities listed on the SEHK.

2. Crossing sessions 2.1 The Crossing Engine will operate during the continuous trading phase of the SEHK. The

Crossing Engine will not operate during the pre-open session, during the lunch break, or any period that is not deemed as continuous trading by the SEHK.

2.2 The Crossing Engine will cease matching orders fifteen seconds before the close of the

morning continuous trading session, and fifteen seconds before the close of the afternoon

continuous trading session to allow the Crossing Engine sufficient time to report any crossed trades to the SEHK before the session closes.

2.3 The table below details the operation of the Crossing Engine during the various SEHK

trading sessions:

SEHK session Time Crossing Engine Operation

Before Pre-opening Before 09:00 Will not cross

Pre-opening 09:00 09:30 Will not cross

Morning Continuous Trading Session

09:30 12:00 Crossing permitted from 09:30:00 11:59:45

Lunch Break 12:00 13:00 Will not cross and will not cancel from public market

Afternoon Continuous Trading Session

13:00 16:00 Crossing permitted from 13:00:00 15:59:45

Market close After 16:00 Will not cross

Orders received outside of continuous trading session will be held in the Crossing Engines Internal Order Book (IOB).

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3. Order Routing, Execution Methodology and Transaction Pricing

3.1 The diagram below illustrates the order flow between client, CLSAs various trading

systems, the Crossing Engine and the systems of the SEHK.

3.2 Clients may route orders to the Crossing Engine via the clients own FIX enabled trading

system. The FIX message may include an identifier in a FIX Tag to instruct whether or not the order may be considered for matching in the Crossing Engine.

FIX Tag Crossing

Indicator

Name Description

0 Do Not Cross Bypass the Crossing Engine, sending orders directly to the SEHK. These orders can only be traded on the SEHK.

1 Can Cross Send the order to the Crossing Engine, which will cross the order if there is a match or if the opportunity for a match arises. If there is no immediate match, the Crossing Engine will send the order to the SEHK. If a match is found within the Crossing Engine, a trade cross report will be sent to the SEHK.

2 Cross Only Send the order to the Crossing Engine only. The order will

not be sent to the SEHK under any circumstances for matching. The order will be matched if and when there is a match in the Crossing Engine under which circumstances a trade crossing will be reported to the SEHK. The order may be a limit order or market order as instructed by the client.

3 Cross Mid The order may be matched in the Crossing Engine or be routed to the public market, depending on liquidity of market.

The order matching price will be the mid-point between the best bid and the best ask prices, if that price is within the limit price of the SEHK.

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3.3 If the FIX Tag Crossing Indicator is omitted from the FIX message, the Crossing Engine will

interpret that as an instruction that the order is not to be considered for crossing.

These orders will be sent to the SEHK and will not be stored in the IOB of the Crossing Engine, as described for Fix Tag Crossing Indicator type 0 in the table above.

3.4 Minimum & Maximum cross size

3.4.1 The FIX message may include an identifier in a FIX Tag to specify the minimum

number of shares that may be crossed in the Crossing Engine. If this identifier is not included then the minimum number of shares will be one board lot.

3.4.2 The Crossing Engine will not cross more than 3000 lots in a single trade.

3.5 Tick boundary

3.5.1 The Crossing Engine will accept an order that does not align with the SEHK tick boundaries. The Crossing Engine will store orders in the IOB of the Crossing Engine with the price limited to at most three decimal places.

3.5.2 Where an order contains a price instruction (i.e., not Market orders), should the

price not lie on a SEHK tick boundary and the order cross indicator is set to Can

Cross, the price will be rounded to a tick boundary before being sent to the SEHK. Buy orders will be rounded down to the nearest tick boundary, while sell orders will be rounded up. Orders designated Cross Only will be held in the IOB at the original price limit.

3.6 Order Matching Process

3.6.1 The Crossing Engine is a continuous order matching system. Order matching will occur under the following circumstances:

a. When a new order is received by the Crossing Engine;

b. When the limit price of an existing order is amended; c. Where there is a change in the best bid price or best ask price in the public

market; and d. By the periodic running of a timer.

3.6.2 Orders are continuously executed in strict price and time priority. An order entered into the system at an earlier time must be executed in full before an order at the same price entered at a later time is executed.

3.6.2.1 For buy orders, the Crossing Engine will search for a sell order with a

limit price lower than or equal to the limit price of the buy order. The search is conducted such that the lowest priced sell orders are checked first. If a sell order is found then the two orders may match subject to further restrictions outlined in Section C below. The number of shares that may match will be the lower of either the unfilled quantity of the

buy order, or the quantity of the available sell order. 3.6.2.2 For sell orders, the Crossing Engine will search for a buy order with a

limit price higher than or equal to the limit price of the sell order. The

search is conducted such that the highest priced buy orders are checked first. If a buy order is found then the two orders may match subject to further restrictions outlined in Section C below. The number of shares that may match will be lower of either the unfilled quantity of the sell order, or the quantity of the available buy order.

3.6.3 The Crossing Engine will only match orders at a price between the current best bid

and best offer price on the SEHK. 3.6.4 The Crossing Engine will only match orders at a price between the current day high

and day low prices on the SEHK.

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3.6.5 When the Crossing Engine has determined that two orders may be crossed, the

match is then subject to a series of validations rules, as defined in Section C

below. Should any one of the validation rules fail, then a match will not be performed.

3.6.6 When a match is validated, if the order has been routed to the SEHK, the Crossing

Engine will cancel the matched quantity from the SEHK, either amending the quantity on the SEHK or cancelling the order in full on the SEHK.

3.6.7 After all validation checks are performed, the Crossing Engine will then report the

matched transaction to the SEHK and the client. 3.7 Order cancellation

Clients may cancel orders by sending a FIX cancel message. Orders, which have been forwarded in whole or in part to the SEHK and are cancelled during periods that the SEHK does not support cancellation, will then be cancelled when the SEHK reopens.

C. Crossing Restrictions

1. The Crossing Engine operates the following restrictions reflecting the trading rules of SEHK or other regulatory considerations:

a. The Crossing Engine will not cross short sell orders.

b. The Crossing Engine will not cross any instrument that is suspended from trading

on the SEHK.

c. The Crossing Engine will not cross odd lots.

d. The matching price will not have more than 3 decimal places.

e. The Crossing Engine will not cross buy and sell orders from the same client.

f. Other restrictions as deemed to be appropriate by CLSA from time to time.

D. Other Dealing Practice

1. Order priority Orders are continuously executed in strict price and time priority. An order entered into the system at an earlier time must be executed in full before an order at the same price entered at a later time is executed.

2. Proprietary transaction of CLSA

CLSA will not initiate proprietary or directional trading orders for the CLSA Group in the Crossing Engine. However, in certain circumstances, a CLSA entity acting as principal may become the counterparty in Crossing Engine transactions. In such cases, CLSA have

implemented procedures to ensure fair treatment between clients based on applicable laws, market rules and regulations.

3. Order aggregation

Client orders will not be aggregated with any other order for matching in the Crossing Engine.

4. Fair and orderly operation

CLSA aims to provide a fair and orderly platform for operation of the Crossing Engine:

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4.1 Crossing rules of the Crossing Engine are modeled on the trading rules of the

SEHK;

4.2 The Crossing Engine is an automated order matching system, free of human

intervention under normal operation;

4.3 A strict Price Time Priority methodology is imposed upon all clients trading in the Crossing Engine; and

4.4 The Crossing Engine is subject to CLSA group policies relating to information

technology and regulatory compliance. 5. Potential conflict of interest

CLSA aims to institute appropriate measures addressing potential conflict of interests in the Crossing Engine arising from proprietary transactions including but not limited to the following:

5.1 CLSA conducts periodic sampling reviews to ensure that any proprietary transaction

comply with the principle of fair treatment in the circumstances;

5.2 Proprietary transaction in the Crossing Engine will be reported to the SFC as may be required from time to time; and

5.3 When CLSA acts as principal the contract note will indicate the transaction as

principal transaction. 6. Order confidentiality

The Crossing Engine does not publish indication of interest or any information regarding its order book to any CLSA trading desk or other market participant. In addition the Crossing Engine will provide clients an option to hold an order within its own internal order book

only, and not forward that order to the SEHK.

E. Identity of CLSA staff having access to trading information of the Crossing Engine

The below sets out those CLSA staff having access to real-time trading information of the Crossing Engine (including orders placed thereto and transactions matched therein):

Department Title Number of staff

Reason for having the real-time access

Equity Front Office Technology

5 Application support

Compliance Senior/Assistant/ Compliance Manager

3 Trading surveillance

F. Risk disclosure Relating to the Use of Crossing Engine

1. On occasion there may be a time delay before the best bid and best ask price of the public

market is reflected in the Crossing Engine, due to technology or communication

interruption related to market data or otherwise. In such an event the price matched in

the Crossing Engine may not reflect the market price in the public market.

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2. Where clients specify Cross Only as the crossing identifier, there is no assurance given

with regard to the liquidity of orders in the Crossing Engine. The liquidity of the Crossing

Engine may be less favorable than the same in the public market.

3. CLSA have taken reasonable steps to protect the integrity and confidentiality of orders in

the Crossing Engine to a level we consider appropriate, however leakage of trading

information may occur beyond our reasonable level of system and internal control.

4. Clients should not rely upon this document, as its update may be subject to delay due to

changes in trading rules or other notice as announced by the SEHK or SFC from time to

time. We make no representation about the timeliness and accuracy of this document.

5. The service of Crossing engine is provided on an as is basis and we make no warranty,

representation or other assurance in connection with the system, including as to

availability, accuracy, completeness, results, functionality, reliability, performance,

timeliness, non-infringement, suitability, quality, merchantability, fitness for a particular

purpose or otherwise. We also do not warrant that access and/or use of the system will be

uninterrupted or error-free.

G. Legal Information

1. This document is not intended to have any force of law, be it in contract or tort. This

document also does not seek to introduce, and should not be seen as imposing, any

obligation or liabilities between you and CLSA beyond those defined in our terms of

business or contractual agreement.

2. This document/communication is for information purposes only and does not constitute

any recommendation, representation or warranty in respect of the Crossing Engine. This is

not a solicitation or an offer to buy or sell any financial products or services. This

document/communication is not intended to provide professional, investment, technical or

any other type of advice or recommendation. Before acting on any information in this

document/communication, you should consider whether the Crossing Engine described

herein is suitable for your particular circumstances and, if appropriate, seek professional

advice.

3. The provision of the Crossing Engine shall be subject to the Crossing Engine Service Annex

and any legends, disclaimers, terms and conditions in respect thereof notified to you from

time to time.

4. CLSA shall not be responsible for any duties or responsibilities imposed on or assumed by

you under any applicable laws and regulations, practices and procedures arising out of, or

connected with, the use of the Crossing Engine, including without limitation, any user

system security or maintenance, record keeping or reporting requirements; and you shall

not rely on CLSA in respect of any such duties and responsibilities.