Complex Product and Concentration Risk

A complex product is an investment product whose, terms, features and risks are not reasonably likely to be understood by a retail investor because of its complex structure. Please see below main factors to determine whether an investment product is complex or not:

1. Whether the investment product is a derivative product;
2. Whether a secondary market is available for the investment product at publicly available prices;
3. Whether there is adequate and transparent information about the investment product available to retail investors;
4. Whether there is a risk of losing more than the amount invested;
5. Whether any features or terms of the investment product could fundamentally alter the nature or risk of the investment or pay-out profile or include multiple variables or complicated formulas to determine the return; and
6. Whether any features or terms of the investment product might render the investment illiquid and/or difficult to value.

Examples of Non-complex products:

• Shares traded on the SEHK;
• Non-complex bonds (including callable bonds without other special features);
• Non-derivative funds authorized by the SFC under the UT Code;
• SFC-authorized non-derivative ETFs traded on the SEHK; and
• SFC-authorized REITs traded on the SEHK.

Examples of complex products:

• Futures contracts traded on the HKFE;
• Equity derivatives traded on the SEHK (eg, DWs, CBBCs and listed share options);
• Synthetic ETFs and futures-based ETFs authorized by the SFC and traded on the SEHK;
• L&I products authorized by the SFC and traded on the SEHK;
• Complex bonds. Complex bonds are bonds with special features (including, but not limited to, perpetual or subordinated bonds, or those with variable or deferred interest payment terms, extendable maturity dates, or those which are convertible or exchangeable or have contingent write down or loss absorption features, or those with multiple credit support providers and structures) and/or bonds comprising one or more special features;
• Funds authorized by the SFC under the UT Code which are derivative funds;
• Funds authorized by the SFC under 8.7 of the UT Code (ie, SFC-authorized hedge funds);
• SFC-authorized unlisted structured investment products (including SFC-authorized equity-linked deposits, equity-linked instruments/investments, etc.);
• Other non-exchange-traded structured investment products; and
• Security tokens.

For more information, please refer to the publication from the SFC.

Concentration Risk

Concentration risk is a term describing the level of risk in an investment portfolio arising from concentration to a single counterparty, sector or country. The risk arises from the observation that more concentrated portfolios are less diverse and therefore the returns on the underlying assets are more correlated.

In Saxo, in order to assist our client to manage concentration risk in their investment portfolio and also to fulfil the relevant regulatory requirement in Hong Kong, we applied concentration threshold limit.
Mapping guideline is shown as follows:

When a client intents to trade an instrument in Saxo which is categorized by Saxo as a complex product, before they can proceed, the client would have to confirm that the percentage value of complex product in their investment portfolio (including those holdings inside and outside of Saxo) does not exceed the threshold limit of the client’s total net worth (excluding property). i.e. Concentration % = Total value of complex product in portfolio (including the instrument intend to trade and any current holdings inside and outside of Saxo)/ Total net worth of the client (excluding property)