For Managing the

Hang Seng CSI Shanghai-Hong Kong AH Smart Index

Apr 2016 | Version 1.1

Date Description

1.0 October 2014 First Issue

1.1 April 2016 1) Updated treatment to stock suspension in Section 4 -

Index Review and Constituent Changes

2) Updated Section 6 - Share Class Switch & Index

Rebalancing

Amendment History

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Page

1. Overview 2

2. Management Responsibility 3

3. Constituent Eligibility 4

4. Index Review & Constituent Changes 5

5. Index Calculation 6

6. Share Class Switch & Index Rebalancing 7

7.

Dissemination

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8.

9.

Contact Information

Disclaimer

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Table of Contents

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1.1 On 10th April 2014, the China Securities Regulatory Commission and the Securities and Futures Commission have approved the development of a pilot programme (Shanghai-Hong Kong Stock Connect) for establishing mutual stock market access between Shanghai Stock Exchange (“SSE”) and Hong Kong Exchanges and Clearing Limited (“HKEX”).

1.2 Under the pilot programme, shares of all eligible companies listed on both SSE and HKEX can be traded by eligible investors from the other market through local securities firms or brokers.

1.3 In order to reflect an arbitrage profit from share class switches under the programme, i.e. switching between share classes based on the relative prices, the Hang Seng CSI Shanghai-Hong Kong AH Smart Index (“SHHKSI”) is developed to reflect an investment strategy which is comprised of the companies with dual listings of A-shares in SSE and H-shares in HKEX (“AH Companies”).

1.4 The SHHKSI is freefloat-adjusted market-capitalisation weighted index with a cap of 10% on total weighting of individual company. The SHHKSI includes either the A-shares or the H-shares of the company depending on the relative prices.

1.5 The SHHKSI is calculated and disseminated real-time at 2-second intervals during trading hours when either the SSE or HKEX opens.

1 Overview

Table of Content

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2.1 The SHHKSI is jointly developed by Hang Seng Indexes Co Ltd (“HSIL”) and China Securities Index Co Ltd (“CSI”). HSIL is a wholly-owned subsidiary of Hang Seng Bank.

2.2 The SHHKSI is calculated and managed by HSIL in accordance with the Index Methodology.

2.3 Due to exceptional circumstances, special action that is not in line with the Index Methodology might be performed. In such cases, HSIL and CSI will decide the most appropriate action to take and notify users as soon as practicable.

2 Management Responsibility

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Universe

3.1 The universe of Companies (“Universe”) for the SHHKSI includes all companies with both listings of A-shares and H-shares and these shares are primarily listed on SSE and the Main Board of HKEX.

3.2 The index excludes AH companies with A-shares that are classified as ST/*ST shares or S-shares.

3.3 In principle, the universe is composed of all eligible AH companies under Shanghai-Hong Kong Stock Connect.

Constituent Selection

3.4 The eligible AH companies should not have any unlisted share capital.

3.5 No listing history is required and newly-listed companies before the review cut-off day can be included in the review.

3.6 All individual companies are ranked in descending order in terms of the average of month-end company market value of the past 12 months (“Avg Total MV”). For companies with a listing history of less than 12 months, the Avg Total MV will be the average of the past month-end company market values since listing.

3.7 The top 50 companies in terms of the Avg Total MV will be selected as constituent companies of the SHHKSI.

3.8 The number of constituent companies is fixed at 50.

Share Class Selection

3.9 The share class of constituent companies with the relatively lower price will be selected for index calculation. Share class selection is based on the constituent’s AH Price Ratio (“AHPR”). If the constituent’s AHPR is below 1, the A-share class will be selected. Otherwise, the H-share class will be selected.

Note: AHPR refers to A-share price divided by H-share price after adjusting for the foreign exchange rate.

3 Constituent Eligibility

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Regular Half-Yearly Review

4.1 HSIL will undertake regular half-yearly review on the constituents of the SHHKSI with the data cut-off date as of end of June and December.

4.2 The review would normally be completed within six weeks after the end of each calendar half-year and based on the past 12-month data by June and December of each year.

4.3 The effective dates of constituent changes will be the next trading days after market close of the first Fridays of March and September. If that Friday falls onto a non-trading day of either SSE or HKEX, it will be postponed to the next Friday, subject to the final decision made by HSIL and CSI. The announcement dates of such changes should be five trading days (days when both SSE and HKEX are open) before the effective dates.

Buffer Zone

4.4 Existing constituent companies ranked below 60th will be removed from the SHHKSI while non-constituent companies ranked 40th or above will be included. In case the number of incoming constituents is greater than the number of outgoing constituents, constituents with the lowest MV rank will be removed from the index in order to maintain the number of constituents at 50.

4.5 If the number of incoming constituents is smaller than the number of outgoing constituents, constituent companies with the highest MV rank will be added to the index in order to maintain the number of constituents at 50.

ST/*ST Treatment

4.6 If the A-shares of a constituent company has been classified as ST/*ST stocks, the subject company will be removed from the index effective on the next trading day after the first Friday of the following month. If that Friday falls onto a non-trading day of either SSE or HKEX, it will be postponed to the next Friday, subject to the final decision made by HSIL and CSI.

Stock Suspension

4.7 A constituent company may be removed from the SHHKSI if one class of its shares is suspended from trading for one month, subject to the final decision made by HSIL and CSI.

4 Index Review & Constituent Changes

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Price Index

5.1 The SHHKSI is company freefloat-adjusted MV weighted. At each quarterly rebalancing, the weighting for individual companies is capped at 10%.

5.2 The formula of the SHHKSI is set out below:

tP : Current Price at Day t (in CNY)

1tP : Closing Price at Day (t-1) (in CNY)

IS : Issued Shares

FAF : Freefloat-Adjusted Factor, which is between 0 and 1

AF : Adjustment Factor

5.3 The SHHKSI is a price index without adjustment for cash dividends or warrant bonuses.

5 Index Calculation

Index Closing sYesterday' )(

)(Index Current

1

AFFAFISP

AFFAFISP

t

t

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Share Class Switch

6.1 The A-share class of a constituent in the SHHKSI will be switched to the H-share class when its AHPR is above 1.03; the H-share class of a constituent will be switched to the A-share class when its AHPR is below 0.97. The share classes remain unchanged if the AHPR is within the range of 0.97-1.03.

6.2 The share class switches are based on AHPRs calculated at the closes of SSE and HKEX, two days before the rebalancing dates.

6.3 Share class switches are conducted on a monthly basis. Rebalancing of share class switches will normally be conducted after market close on the first Friday of each month. If that Friday or AHPR calculation date falls on a non-trading day of either SSE or HKEX, it will be postponed subject to the final decision made by HSIL and CSI. The effective date for a switch will be the next trading day that either SSE or HKEX opens immediately after the rebalancing dates.

Index Rebalancing

6.4 A quarterly rebalancing will be performed for the SHHKSI at the rebalancing dates in March, June, September and December.

6.5 Additional rebalancing will be performed for ad hoc constituent deletion between regular reviews.

6.6 If a constituent is deleted between regular index reviews, there will be no replacement. The weighting of the deleted stock will be distributed to the remaining constituents in proportion to their respective weightings.

Issued Shares

6.7 In general, the issued shares used for index calculation are updated quarterly after market

close on the first Fridays of March, June, September and December. If that Friday falls onto a

non-trading day of either SSE or HKEX, it will be postponed to the next Friday, subject to the final decision made by HSIL and CSI, and effective on the next trading day that either SSE or HKEX opens. Any exceptions to the above will be pre-announced before the effective date.

6.8 For corporate actions (such as bonus, rights issue, splits, stock consolidation, etc.), the issued shares will be updated simultaneously with the corporate action adjustment.

6.9 If there is substantial change in the ownership structure of a constituent such that its issued shares and freefloat-adjusted shares of the related share class change by more than 10% due to other corporate actions (e.g. placing), the issued shares and/ or FAF will be updated as soon as practicable. A minimum of 2 trading days (days when both SSE and HKEX are open) notice will be given to the index users.

6 Share Class Switch & Index Rebalancing

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Freefloat Adjustment

6.10 The FAFs are updated quarterly, coinciding with the issued shares changes in March, June, September and December.

Capping Adjustment

6.11 The regular capping exercise for the SHHKSI will be conducted quarterly, coinciding with the quarterly update for issued shares changes.

6.12 If issued shares and FAF are updated due to other corporate events (e.g. placing, issue of new shares, etc.), the index will be recapped if the event would result in:

i. the weighting of the capped constituent fell below 5% from the capping level; or

ii. any constituent with weighting 5% above the capping level.

Ad Hoc Change

6.13 A key principle for treatment of capital changes in the SHHKSI is to keep the constituent’s weight unchanged before and after the index adjustment. Thus, the SHHKSI applies the same treatment to bonus issues and stock splits / consolidation as traditional market-cap indexes such as the Hang Seng Index, but not to rights issues or open offers.

6.14 In the event of a rights issue or open offer, the constituent adjustment factor will be altered so as to offset the potential weight change.

6.15 The constituent adjustment factor will also be altered to keep the constituent weight unchanged for any ad-hoc index rebalancing that results from issued shares / FAFs updates, placings, etc.

6.16 A minimum notice period of two trading days (days when both SSE and HKEX are open) will be given to subscribers of data products issued by HSIL and CSI in the event of any ad hoc rebalancing. (This will not apply in the case of a share class switching as the finalised share class to be included in the index will only be announced on the day immediately before the rebalancing date.)

6 Share Class Switch & Index Rebalancing

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7.1 The SHHKSI is calculated and disseminated real-time every 2 seconds during trading hours on each trading day that either SSE or HKEX opens.

7.2 Please refer to the index dissemination time (http://www.hsi.com.hk/HSI-Net/static/revamp/contents/en/products/timetable_e.pdf) provided on HSIL’s website for further details.

7.3 The SHHKSI is calculated and published in Renminbi. 7.4 Vendor Codes for the SHHKSI

Vendor Code for Price Index Code for Total Return Index

Bloomberg SHHKSI -

Thomson Reuters .SHHKSI .SHHKSIDV

Mainland China Vendors SHHKSI -

7 Dissemination

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Hang Seng Indexes Company Limited

Address :

83 Des Voeux Road Central Hong Kong

Website:

www.hsi.com.hk

E-mail:

info@hsi.com.hk

China Securities Index Company Limited

Address :

5F Building B No. 555 Ying Chun Road Pudong Shanghai 200135 PRC

Website:

www.csindex.com.cn

E-mail:

csindex@sse.com.cn

8 Contact Information

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The information contained herein is for reference only. Hang Seng Indexes Company Limited (“HSIL”) and China Securities Index Company Limited ("CSI") make no warranty or representation as to the accuracy, completeness or reliability of any of the information contained herein and accept no liability (whether in tort or contract or otherwise) whatsoever to any person for any damage or loss of any nature arising from or as a result of reliance on any of the contents of this document, or any errors or omissions in its contents and such contents may change from time to time without notice. The information contained herein does not constitute any express or implied advice or recommendation by HSIL and CSI for any investments. Investment involves risks. Prospective investors should seek independent investment advice to ensure that any of their decisions is made with regard to their own investment objectives, financial circumstances and other particular needs. Investors shall be fully responsible for any loss or profits resulting from their investment decision. The Intellectual Property rights in this document remain the exclusive property of HSIL and CSI. Without prior written permission of HSIL and CSI, no part of the document may be reprinted, reproduced, published, redistributed or used in any way which may directly or indirectly infringe the Intellectual Property rights held by HSIL and CSI.

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9 Disclaimer