Ishares Faq

8/2/2019 Ishares Faq

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iShares China A-Share ETFsFrequently Asked Questions





iShares China A-Share ETFs [ 3 ]

Unless otherwise speci ed, all information and opinion contained in this document are current as at 31 August 2011 and subject to change. They are included in this document for reference only. Before investment, investors should refer to the prospectus for further details including the product features and risk factors.

iShares China A-Share ETFs Listed on the Stock Exchange of Hong Kong (“SEHK”)

China A-Share ETF Ticker Listing Date Benchmark Index

Country

iShares FTSE A50 China Index ETF* 2823.HK 18/11/2004 FTSE China A50 Index

iShares CSI 300 A-Share Index ETF* 2846.HK 18/11/2009 CSI 300 Index

Sector

iShares CSI A-Share Consumer Discretionary Index ETF* 3001.HK 20/07/2010 CSI 300 Consumer Discretionary Index

iShares CSI A-Share Consumer Staples Index ETF* 2841.HK 20/07/2010 CSI 300 Consumer Staples Index

iShares CSI A-Share Energy Index ETF* 3050.HK 18/11/2009 CSI 300 Energy Index

iShares CSI A-Share Financials Index ETF* 2829.HK 18/11/2009 CSI 300 Financials Index

iShares CSI A-Share Infrastructure Index ETF* 3006.HK 18/11/2009 CSI 300 Infrastructure Index

iShares CSI A-Share Materials Index ETF* 3039.HK 18/11/2009 CSI 300 Materials Index

* This is a synthetic ETF

Q1 : What are the different types of securities for companiesincorporated in Mainland China?

A : A-Shares represent the largest class of Chinese sharesand trade on either the Shanghai or Shenzhen StockExchanges. These shares trade in Renminbi and areavailable only to Chinese residents and Quali ed ForeignInstitutional Investors (“QFIIs”). QFIIs are typically largeinvestment houses that must conform to strict QFIIrequirements.

B-Shares trade on either the Shanghai or Shenzhen StockExchanges. They are quoted in US Dollars on the ShanghaiStock Exchange and HK Dollars on the Shenzhen StockExchange. They can be traded by non-residents withappropriate foreign currency dealing accounts.

H-Shares trade on the SEHK. They are quoted in HKDollars. There are no resident restrictions on who cantrade H-Shares.

A-, B- and H-Shares all represent the securities ofcompanies that are incorporated in Mainland China.

P-Chip Shares are securities of companies that areincorporated outside of Mainland China and trade on theSEHK. They are quoted in HK dollars. P-Chip companiessatisfy 2 out of 3 of the following conditions:

• substantially owned by Mainland Chinese individuals• derive more than 90% of their revenue from Mainland

China• allocate more than 60% of their assets to Mainland

China^

Red Chip Shares are securities of companies that areincorporated outside of Mainland China and trade on theSEHK. They are quoted in HK dollars. Red Chip companiesare substantially owned directly or indirectly by the

Chinese government and have the majority of theirbusiness interest in mainland China.

Like H-Shares, there are no resident restrictions on whocan trade P-Chip or Red Chip Shares.

^ Source: MSCI

Q2 : What are iShares China A-Share ETFs?A : iShares China A-Share ETFs seek to provide investment

results that correspond generally to the performance,before fees and expenses, of the benchmark indices.iShares China A-Share ETFs are listed on the SEHK andare denominated in HK Dollars. Please refer to theprospectus for details.

Q3 : How do iShares China A-Share ETFs gain exposure to theA-Share market?

A : Direct investment in the A-Share market is restricted toChinese domestic investors and QFIIs only. As such,iShares China A-Shares ETFs do not invest in or holdA-Shares directly, but instead invest in derivativeinstruments referred to as China A-Share Access Products(“CAAPs”), which are linked to A-Shares or the Indices andare intended to provide the economic equivalent of holdingeither. CAAPs are issued by one or more QFIIs or theiraf liates (“CAAP Issuers”).

Q4 : What do iShares China A-Share ETFs hold?A : iShares China A-Share ETFs hold CAAPs, securities (such

as a warrant, note or participation certi cate) linked toA-Shares, which synthetically replicate the economicbene t of the relevant A-Shares that are traded on theShanghai and Shenzhen stock exchanges. Please refer tothe prospectus for risks related to CAAPs.

Q5 : Who is the Manager of iShares China A-Shares ETFs?A : The Manager of iShares China A-Share ETFs is BlackRock

Asset Management North Asia Limited (the “Manager’), theglobal leader in ETFs through its iShares® brand.



[ 4 ] iShares China A-Share ETFs

Q6 : Describe the benchmark indices for iShares ChinaA-Share ETFs.

A : FTSE China A50 Index is a free- oat weighted index that isdesigned to represent the performance of the largestcompanies in the China equity markets and consists of 50 ofthe largest liquid Chinese companies. Securities in the Indexare weighted based on the total market value of their shares,so that securities with higher total market values generallyhave a higher representation in the Index. The Index iscalculated in Renminbi and was based at 21 July 2003.

The CSI 300 Index is a free- oat adjusted, category-weightedindex that consists of the top 300 Chinese companies bytotal market capitalization. The Index is calculated inRenminbi and was based at 31 December 2004.

BenchmarkIndex

Base Date Constituents

FTSE ChinaA50 Index

21/07/2003 50 of the largest liquidChinese companies

CSI 300Index

31/12/2004 300 stocks with the largestmarket capitalization andliquidity from the universe oflisted A-Share companies

The constituents of the CSI 300 Index are classi ed intodifferent subsectors according to the following principles:

1. If the revenue generated from one business is greaterthan 50% of total company revenue, then the companybelongs to the corresponding sub-industry;

2. If the revenue of none of a company’s major businesslines is greater than 50% but revenue and pro t from

one business are the highest and above 30% of totalrevenue and pro t, the company belongs to thecorresponding industry;

3. If no business within the company generates revenueand pro t of over 30%, experts from the CSI team willresearch and decide which industry the company shouldbelong to.

SectorBenchmarkIndex

Base Date Constituent Categories

CSI 300Energy Index

31December

2004

Energy Equipment &Services, Oil, and Gas &Consumable Fuels

CSI 300MaterialsIndex

31December

2004

Chemicals, ConstructionMaterials, Containers& Packaging, Metals& Mining, and Paper &Forest Products

CSI 300InfrastructureIndex

28October

2009

Oil & Gas Storage &Transportation (ex non-pipeline transportation),Oil & Gas Drilling, Oil & GasEquipment & Services (exequipment), Highways &Railtracks, Marine Ports &Services, Airport Services,Electric Utilities, GasUtilities, Multi-Utilities,Water Utilities, AlternativeCarriers, and IntegratedTelecommunication

CSI 300ConsumerDiscretionaryIndex

31December

2004

Auto Components &Automobiles, HouseholdDurables, LeisureEquipment & Products,Textiles, Apparel & LuxuryGoods, Hotels, Restaurants& Leisure, Diversi edConsumer Services, Media,Distributors, and MultilineRetail & Specialty Retail

CSI 300ConsumerStaples Index

31December

2004

Food & Staples Retailing,Beverages, Food Products,Household Products, andPersonal Products

CSI 300FinancialsIndex

31December

2004

Banks, Insurance, CapitalMarkets, and RealEstate Management &Development

For additional information on FTSE China A50 Index,please refer to the FTSE website at www.ftse.com.

For additional information on CSI 300 indices, please referto the CSI website at www.csindex.com.cn.

Q7 : What is CSI? What is FTSE?A : China Securities Index Co., Ltd (CSI) is a joint venture

between the Shanghai Stock Exchange and the ShenzhenStock Exchange, specialising in the creation andmanagement of indices and index-related services.

FTSE International Ltd. (FTSE) is an independent company jointly owned by The Financial Times and the London StockExchange. It is engaged in the creation and management ofequity, bond and alternative asset class indices.



iShares China A-Share ETFs [ 5 ]

Q8 : What is a free- oat adjusted index?A : Free- oat adjustments are applied to an index constituent’s

total shares outstanding to determine its index weight. Suchadjustments are made according to speci c rules set forthby the index providers, which can be found at www.ftse.comand www.csindex.com.cn. The resulting shares outstanding,after adjustments are applied, represent the true number ofshares available for institutional and retail investors totrade in the marketplace.

Q9 : What is category-weighting?A : A category-weighting method determines the percentage

of an index constituent’s total market share that will beused for index calculation, adjusting its actual inclusionratio based on the relevant range in which theconstituent’s available market capitalization falls.

Q10 : How often are the benchmark indices rebalanced?A :

Benchmark Index Rebalance Frequency

FTSE China A50 Index Quarterly

CSI 300 Index Semiannually

CSI 300 ConsumerDiscretionary Index

Semiannually

CSI 300 Consumer Staples Index Semiannually

CSI 300 Energy Index Semiannually

CSI 300 Financials Index Semiannually

CSI 300 Infrastructure Index Semiannually

CSI 300 Materials Index Semiannually

Q11 : How does currency movement affect the performance ofiShares China A-Share ETFs?

A : ETFs that hold underlying assets which are notdenominated in the same currency as the ETFs are nothedged for currency risk (i.e. unhedged). An investor hasexposure to both the foreign exchange rate as well as tothe price level of the relevant underlying portfolio.

Currency movement between the Renminbi and the HongKong Dollar will induce tracking error (which could either bepositive or negative) between the performance of the fundand the benchmark index as the fund is denominated in HongKong Dollar and the benchmark index in Renminbi.

Q12 : How does BlackRock manage the counterparty risk ofiShares China A-Share ETFs?

A : Managing risk is one of BlackRock’s core duciary duties.BlackRock provides risk management services forapproximately US$10 trillion* in global assets.

Each iShares China A-Share ETF holds CAAPs issued bymultiple, quali ed counterparties. In addition, no later than31 October 2011, iShares China A-Share ETFs are fullycollateralized and, equity securities taken as collateralshall represent 120% of the related gross counterparty riskexposure.^ Collateral is ring fenced in an independentcustodial account for each iShares Fund. There will be nouncollateralized counterparty risk exposure arising from

the use of CAAPs to replicate index exposure.The CAAP counterparty exposure is managed through adynamic collateral management process and is monitored byBlackRock’s Risk & Quantitative Analysis Group (“RQA Group”).

* Data as at 30 June 2011T̂he changes to the iShares funds align with changes to all Hong Kong authorizedand domiciled synthetic ETFs, as required by the Hong Kong Securities and FuturesCommission (SFC).

Q13 : What type of collateral will BlackRock accept within eachiShares China A-Share ETF?

A : Consistent with BlackRock’s commitment to transparency,its collateral policy will be disclosed on the iShareswebsite. Acceptable collateral will include cash, liquidcommon stock only listed in major markets with a 20%haircut, and bonds issued by highly rated governments,with appropriate haircuts determined by the Manager.Where collateral taken is in the form of equity securities, itshall represent 120% of the related gross counterpartyrisk exposure.

Q14 : How does BlackRock select and monitor the credit risk ofcounterparties?

A : BlackRock’s RQA Group takes a globally integratedapproach to the analysis and management of risk whilealso maintaining a strong regional orientation, with aphysical presence in our largest investment centres.

The RQA Group is an independent function withinBlackRock, responsible for managing and monitoring the

rm’s global counterparty relationships. The focus is on aconservative, preemptive approach with management andmonitoring functions conducted by separate teams withinthe RQA Group.

BlackRock works through the RQA Group to actively monitorthe ratings and credit risk of all CAAP Issuers and has astringent procedure for selecting CAAP Issuers. In the rstinstance, the CAAP Issuer or its guarantor must be aninstitution

› with a minimum paid up capital of the equivalent ofHK$150,000,000, and

› with a credit rating in respect of senior debt of at leastA- by Standard & Poor’s (or equivalent rating given byMoody’s or by Fitch), and

› which is a member company of a group including a bankprudentially supervised by a regulator in a jurisdictionreasonably acceptable to the Trustee and BlackRock.

Q15 : What happens if a CAAP Issuer no longer ful lls the CAAPIssuer requirements disclosed in the prospectus?

A : If the RQA Group is concerned about the exposure of aCAAP Issuer, BlackRock may reduce or eliminate exposureto that Issuer. If BlackRock believes it is in the bestinterests of Unit holder, BlackRock may also request (inconsultation with the Trustee) the provision of creditsupport, such as securities collateral. By using a multiplecounterparty model, BlackRock has the exibility to movecounterparty exposure to other CAAP Issuers whenappropriate. In addition, our CAAP Issuers are obliged totell BlackRock as soon as possible if, for whatever reason,they fail to ful ll any of the above conditions.

As the Manager, in the event that the credit rating of aCAAP Issuer falls below our requirements, BlackRock willnotify Unit holders (and the Securities and FuturesCommission) and will no longer accept CAAPs from thatCAAP Issuer, unless additional credit support is providedas BlackRock considers appropriate, until such time as thecredit rating returns to the minimum acceptable creditrating.

In the event of a credit event affecting the CAAP Issuer orits guarantor, BlackRock may take any other actionreasonably and practicably available, potentially includingbut not limited to, suspending dealing in the primary and/or secondary markets, managing down the exposure to aCAAP Issuer through redemptions and creations,liquidating CAAPs for cash, and revaluing the CAAPs.



[ 6 ] iShares China A-Share ETFs

Q16 : Where can I nd additional information about iSharesChina A-Share ETFs?

A : Please refer to the respective fund’s prospectus for details.In addition, investors may nd additional updatedinformation on performance, holdings, and counterpartyexposures at our website, which is updated daily: www.iShares.com.hk.

Q17 : Do iShares China A-Share ETFs pay dividends?A : iShares China A-Share ETFs reinvest cash dividends (if

any) on an ongoing basis, and may make an annual incomedistribution to all shareholders, at the discretion ofBlackRock.

Q18 : Why do iShares China A-Share ETFs trade at a premiumor discount to the Net Asset Value (“NAV”) per Unit?

A : Of cial NAVs are calculated at the end of each businessday and capture the value of the investments for iSharesChina A-Share ETFs at that particular time. ETFs tradecontinuously throughout the day in the secondary market.Factors in uencing ETF pricing include, but are not limitedto: market forces of supply and demand, limited QFII quota,short selling, and arbitrage opportunities. Although ETFsare expected track NAV over time, they may trade at apremium or discount to NAV in the near term.

Q19 : What is the minimum investment for iShares ChinaA-Share ETFs?

A : In the secondary market, iShares China A-Share ETFstrade in minimum size of 100 shares per board lot.

Q20 : Can Units of iShares China A-Share ETFs be sold short?A : Yes, subject to short-selling rules and requirements of

SEHK.

Q21 : Is stamp duty tax payable on transactions in Units ofiShares China A-Share ETFs by investors?

A : Pursuant to a remission order issued by the Secretary forFinancial Services and the Treasury Bureau, any stampduty on the transfer of Hong Kong stock as considerationfor an in-specie allotment or redemption to or by eachiShares China A-Share ETF by or to an investor will beremitted or refunded.

The transfer of Units in iShares China A-Share ETFs on theSEHK by investors in the secondary market is not subjectto HK stamp duty tax.

Q22 : Are iShares China A-Share ETFs liable for Capital GainsTax in the PRC?

A : iShares China A-Share ETFs invest in derivativeinstruments, i.e. CAAPs. These CAAPs are linked toA-Shares or the indices and are intended to provide theeconomic equivalent of holding either. iShares ChinaA-Share ETFs do not invest in or hold A-Shares directly. TheCAAPs are issued by one or more QFIIs or their af liates.Any PRC tax payable in respect of the A shares is thereforedirectly attributable to the QFIIs rather than iShares ChinaA-Share ETFs.

Since November 2008, certain CAAP Issuers have indicatedtheir intention to withhold an amount representing thePRC capital gains tax that would be payable on an actualsale of the underlying A-Share of each CAAP Issued on orafter 28th November 2008. The amounts withheld will beretained for a period of up to 5 years, pending furtherclari cation of the tax rules and tax collection measuresadopted by the PRC authorities. In the event that, at theend of the 5 year period, the tax is not enforced against the

CAAP Issuer (or its af liate), or the amount withheld isgreater than the actual capital gains tax liability, theamount withheld (or the excess withholding) will bereturned to iShare China A-Share ETFs, although theseETFs will remain liable for any attributable tax under theterms of the CAAPs. Accrued interest is payable on theamounts withheld and is payable to each iShares ChinaA-Share ETF on a periodic basis.

BlackRock does not presently propose for iShares ChinaA-Share ETFs to accrue for the 10% withholding referredto above but is keeping the matter under review. Inpractice, any amount to be withheld by CAAP Issuers willbe taken at the quarterly portfolio rebalancing, on ad-hocCAAP sales, or on redemption of Units, and will be re ectedin the NAV at the time of the withholding.



Disclaimer

This material is prepared by BlackRock Asset Management North Asia Limited forinformational or educational purposes only and has not been reviewed by the Securitiesand Futures Commission for informational or educational purposes only. This does notconstitute an offer or solicitation to purchase or sell in any securities or iShares Funds, norshall any securities be offered or sold to any person in any jurisdiction in which an offer,solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

There are risks associated with investing, including loss of principal. The value of the unitsor shares in the iShares Funds and the income accruing to the units or shares may fall orrise. The value of investments involving exposure to foreign currencies can be affected byexchange rate movements. Investment in emerging market countries may involveheightened risks such as increased volatility and lower trading volume, and may be subjectto a greater risk of loss than investments in a developed country. Any use of syntheticinstruments such as derivatives may create exposure to market counterparty risk. Thelisting of units of the fund on a stock exchange does not guarantee a liquid market for theunits. Transactions in units of the fund will result in brokerage commissions. Investors

should note that iShares Funds differ from a typical unit trust as i) units or shares of theFunds are bought and sold at market price (not NAV); and ii) units or shares are notindividually redeemed from the Fund and may only be redeemed by participating dealers inlarge redemption unit sizes. Before making an investment decision, you are reminded torefer to the relevant prospectus for speci c risk considerations which are available fromBlackRock or the iShares websites.

Past performance is not indicative of future performance and is no guide to future returns.BlackRock does not guarantee the performance of the shares or units of the iShares Funds.Index returns are for illustrative purposes only and do not represent actual iShares Fundperformance. Index performance returns do not re ect any management fees, transactioncosts or expenses. Indexes are unmanaged and one cannot invest directly in an index. Thismaterial contains general information only and is not intended to represent general orspeci c investment advice. The information does not take into account your nancialcircumstances. An assessment should be made as to whether the information isappropriate for you having regard to your objectives, nancial situation and needs.

This material may contain “forward-looking” information that is not purely historical innature. Such information may include, among other things, projections, forecasts, estimatesof yields or returns, and proposed or expected portfolio composition. No representation ismade that the performance presented will be achieved by any iShares Funds, or that everyassumption made in achieving, calculating or presenting either the forward-lookinginformation or the historical performance information herein has been considered or statedin preparing this material. Any changes to assumptions that may have been made in

preparing this material could have a material impact on the investment returns that arepresented herein by way of example.

This material is not intended to be relied upon as a forecast, research or investment advice,and is not a recommendation, offer or solicitation to buy or sell any securities or to adoptany investment strategy. Any opinions contained herein re ect our judgment as of 6September 2011 and may change as subsequent conditions vary. The information andopinions contained in this material are derived from proprietary and nonproprietary sourcesdeemed by BlackRock to be reliable, are not necessarily all-inclusive and are notguaranteed as to accuracy. There is no guarantee that any forecasts made will come topass. Any investments named within this material may not necessarily be held in anyaccounts managed by BlackRock. Reliance upon information in this material is at the solediscretion of the reader. They do not necessarily re ect the views of any company in theBlackRock Group or any part thereof and no assurances are made as to their accuracy. Nopart of this material may be reproduced, stored in retrieval system or transmitted in anyform or by any means, electronic, mechanical, recording or distributed without the priorwritten consent of BlackRock.

CSI Indices are compiled and calculated by China Securities Index Co. Ltd (“CSI”). CSI willapply all necessary means to ensure the accuracy of the CSI300 Indices. However, neitherCSI nor the Shanghai Stock Exchange nor the Shenzhen Stock Exchange shall be liable(whether in negligence or otherwise) to any person for any error in the CSI Indices andneither CSI nor the Shanghai Stock Exchange nor the Shenzhen Stock Exchange shall beunder any obligation to advise any person of any error therein. All copyright in the indexvalues and constituent list vests in CSI.

“FTSE®”, “FT-SE®”, are trade marks jointly owned by the London Stock Exchange Plc andThe Financial Times Limited and are used by FTSE International Limited (“FTSE”) underlicence. The FTSE China A50 Index is calculated by FTSE. FTSE does not sponsor, endorseor promote the iShares FTSE A50 China Index ETF* (*This is a synthetic ETF) and is not iany way connected to it and does not accept any liability in relation to its issue, operationand trading. All copyright and database rights in the index values and constituent list vest inFTSE. Blackrock has obtained full licence from FTSE to use such copyrights and database

rights in the creation of this product.

iShares® is a registered mark of BlackRock Institutional Trust Company, N.A. All othertrademarks, servicemarks or registered trademarks are the property of their respectiveowners.

© 2012 BlackRock Inc. All rights reserved.



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Ishares Faq