9908 | 14 June 2024

IB-HK Bond Risk Disclosure
Interactive Brokers ("IBKR") is furnishing this disclosure to clients to provide
additional information regarding the characteristics and risks associated with
fixed income securities ("bonds"). This disclosure should not be construed as aninvitation or solicitation to undertake any transaction in, or a recommendation of,any bond.
Before trading bonds, client is advised to consider consulting a financial advisor,
who can provide advice on whether particular investments suit their financial
situations and goals.
IBKR provides execution and clearing services and does not provide specifictrading or investment advice or recommendations.
Before trading any particular bond, you should understand the terms andconditions of the bond, including its credit rating, its maturity, its rate and yield,
whether it is callable, and other relevant information.
1. Characteristics of Bonds
What is a bond?
A bond is a loan an investor makes to a corporation, government, federal agency
or other organization in exchange for interest payments over a specified term
plus repayment of principal at the bond's maturity date.
What are the types of bonds?
Examples of bonds include:a. U.S. Government Bonds
Bonds issued by the U.S. government are called Treasuries. These aregrouped into three categories: (1) Treasury bills; (2) Treasury notes; and(3) Treasury bonds. They each have a different length of time until
maturity. Income earned on Treasuries is exempt from state and local
taxes, but taxable by the federal government. Treasuries are considered
the safest bond investments since the U.S. government backs them and itis highly unlikely that a situation of default will occur. However, Treasuries
with longer maturities generally have higher interest rate and credit risk.
b. Municipal Bonds
Municipal bonds are debt obligations of state or local governments. The
funds may be used to support general governmental needs or special
projects. Municipal bonds are considered riskier investments thanTreasuries. They generally are exempt from federal taxation, and state or
local government issuers often exempt their own citizens from taxes.
However, municipal bonds often pay a lower interest rate because of theirfavorable tax treatment. When considering an investment in municipalbonds, bear in mind that no two municipal bonds issues are exactly alike,so it is important to carefully evaluate up-to-date information about boththe bond and its issuer.
c. Corporate Bonds
Companies issue corporate bonds (or corporates) to raise money forcapital expenditures, operations and acquisitions. Corporates are issued
by all types of businesses. Corporate bonds are debt instruments issued
by private corporations. There are many types of corporate bonds, andinvestors have a wide range of choices with respect to bond structures,
coupon rates, maturity dates and credit quality, among othercharacteristics.
Corporate bonds tend to be categorized as either investment grade ornon-investment grade. Non-investment grade bonds are also referred toas "high yield" bonds because they tend to pay higher yields thanTreasuries and investment-grade corporate bonds. However, with thishigher yield comes a higher level of risk. High yield bonds also go byanother name: junk bonds.
Par value, or face amount, is usually $1,000, but bond prices are quoted in$100. For example, a quote of 80 is a bond selling for $800. Amounts lessthan $10 are quoted in eighths ($1.25). Therefore, a quote of 80 1/8 isequal to $801.25.
Most corporate bonds trade in the over-the-counter (OTC) market. The
OTC market for corporates is decentralized, with bond dealers andbrokers trading with each other around the country over the phone orelectronically.
Convertible Bonds are bonds that may be converted into another form ofcorporate security, usually shares of common stock. Conversion only

occurs at specific times at specific prices under specific conditions andthis will all be detailed at the time the bond is issued.
d. Zero-Coupon Bonds
These are bonds that do not pay interest periodically, but instead pay alump sum of the principal and interest at maturity. Investors, however,must pay taxes on the interest as it accrues, not when they receive it.
e. Sovereign Bonds
A sovereign bond is a specific debt instrument issued by a government
outside of the United States. They can be denominated in both foreign anddomestic currency. Similar to other bonds, these generally pay the buyer acertain amount of interest for a stipulated number of years and repay theface value on maturity.
How are Bonds Rated?
Bonds are rated by rating agencies (such as Standard & Poor's or Moody's
Investors Service) who assign credit ratings to governments and corporations
which help determine the amount of interest paid. The below table sets theratings codes used by Standard & Poor's and Moody's and represent greater
default risk as you read down the chart (see Section 2 and 3 for credit and otherrisks associated with bonds).
Quality

Moody's

Standard & Poor'sBest Quality

AaaAAAHigh Quality

AaAA

Upper-medium gradeAA

Medium GradeBaa

BBB

Junk Bonds/Speculative/High Yield Ba, B, Caa, Ca BB, B, CCC, CC
Default-D

Bond ratings are subject to change by factors that affect the bonds issuers credit.
The ratings that appear for the bonds IBKR makes available are from sources it
believes to be reliable; however, IBKR cannot guarantee their accuracy.
2. Risks of trading Bonds
Most Bonds remain 100% principal protected upon maturity subject to the credit
risk of the Issuer and/or the Guarantor (if applicable).

Bonds are not an alternative to ordinary savings or time deposits.
The price of bonds may fluctuate during its tenor and may even becomevalueless.
Trading bonds may not be suitable for all investors. Although bonds are often
thought to be conservative investments, there are numerous risks involved inbond trading. If you are uncomfortable with any of the risks involved, you should
not trade bonds.
a. Key Product Risks
It is crucial to understand the specific risks mentioned in the relevant
offering documents (if applicable) before investing. Key risks include, but
are not limited to, the following:
Credit Risk: The investor assumes the risk that the issuer/ guarantor's
promise to repay principal and pay interest on the agreed upon dates andterms will be upheld. Any changes to the credit rating of the issuer will
likely affect the price and value of the bonds. Bonds are subject to the riskof the Issuer defaulting on its obligations, i.e. an Issuer fails to makeprincipal and interest payments when due. In the event that the Issuer/Guarantor declares bankruptcy, the investor could risk losing their entire
investment. Credit ratings assigned by credit rating agencies do notguarantee the creditworthiness of the issuer.
Prepayment risk: Prepayment or "call" risk involves the scenario where
an issuer "calls" a bond. If this happens, the client's investment will bepaid back early and may not be able to locate an alternative bond withsimilar terms. Certain bonds are callable and others are not, and thisinformation is detailed in the prospectus. If a bond is callable, theprospectus will detail a "yield-to-call" figure. Corporations may call theirbonds when interest rates fall below current bond rates.
A "put" provision allows a bondholder to redeem a bond at par value
before it matures. Investors may do this when interest rates are rising andthey can get higher rates elsewhere. The issuer will assign specific dates
to take advantage of a put provision. Prepayment risk is figured into thepricing of bonds.
Inflation Risk: Inflation risk is the risk that the rate of the yield to call or
maturity of the bond will not provide a positive return over the rate ofinflation for the period of the investment. In other words, if the rate of
inflation for the period of an investment is six percent and the yield tomaturity of a bond is four percent, the client will receive more money ininterest and principal than originally invested, but the value of that moneyreturned is actually less than what was originally invested in the bond. As
the inflation rate rises, so do interest rates. Although the yield on the bondincreases, the price of the actual bond decreases.
Liquidity Risk: The bond may have limited liquidity and may not be
actively traded and/or quoted by brokers in the market. As such:
i.
ii.
iii.

The value of bond and/or indicative bid/offer price will depend on
market liquidity and conditions which may not be available at alltimes;
It may take a longer time or it may be impossible to sell the bond at
prevailing market conditions; andThe executable sale price may differ unfavourably by large
amounts from the indicative bid price quoted.

Interest Rate Risk: The price of bonds are more susceptible tofluctuations in interest rates and generally prices of bonds will fall wheninterest rates rise. Accordingly, the longer the tenor of the bond, thegreater the interest rate risk that the investor is exposed to.
Market Risk: The value of investments may fluctuate due to changing
political, legal and, economic conditions and changes in interest rates.
This is common to all markets and asset classes. An investor's return may
be substantially less than the initial investment due to one or more ofthese factors.
Currency Risk: For bonds denominated in a foreign currency, there maybe an exchange loss when converting the redemption amount back to thelocal or base currency.
For Products denominated in Renminbi (RMB) or with underlying assetsthat are denominated in RMB only: Conversion between RMB and foreign
currencies, including Hong Kong dollar, is subject to PRC regulatory
restrictions - RMB is currently not freely convertible and conversion ofRMB through banks in Hong Kong is subject to certain restrictions. ThePRC government regulates conversion between RMB and foreign
currency both in Hong Kong SAR and mainland China, which as a result
may affect the liquidity.
b. Additional risks of high yield bonds and complex bonds
In addition to the risks listed above, high-yield bonds and complex bonds
are subject to additional risks such as:i.

High-yield bonds

Higher Credit Risk: Since high-yield bonds are typically rated below
investment grade or are unrated, they are often subject to a higher risk ofissuer default.
Vulnerability to Economic Cycles: During economic downturns highyield bonds typically fall more in value than investment grade bonds as (i)investors become more risk averse and (ii) default risk rises.
3. Risks of Trading Bonds Electronically
IBKR is an online, direct access brokerage firm that executes virtually all tradeson electronic market centers. IBKR will post bids and offers for bonds fromvarious information sources and markets and will allow clients to execute trades
against those electronically-displayed bond quotes.
Unlike the practice of many other brokers, IBKR typically does not maketelephone calls to various bond dealers in seeking to execute client's bondorders. Rather, IBKR will provide client with direct access to electronic bondtrading platforms.
Electronic trading has a number of inherent advantages (such as speed, lowcost, and a clear audit trail) but it also has certain inherent disadvantages. Client
should be aware that electronic bond trading platforms may have less liquidity or
less advantageous prices than could be offered telephonically by a bond dealer.
In addition, electronic trading platforms are inherently vulnerable to technicalerrors and outages.
Please note that many bond dealers place quotes to buy or sell the same bondposition on multiple bond trading venues (e.g., 10 bonds on Market A and 10bonds on Market B). If an IBKR client order executes against both of the quotes(e.g., an order to buy 20 is filled 10 at Market A and 10 at Market B), the dealer
may request that one of the trades be busted (reversed). IBKR reserves the rightto grant such requests without consent of client if IBKR, in its discretion, believes
that the dealer is acting in good faith.
4. Risks Specific to Distressed Bonds
Distressed bonds are generally bonds of a company which has either defaulted,
is under bankruptcy protection, or is in financial distress and moving towardbankruptcy or default in the near future. Distressed bonds frequently trade "flat,"meaning that the buyer of the bond is not responsible for paying the interest thathas accrued since the last payment. In effect, a flat bond is a bond that is trading
without the accrued interest. The price of a flat bond is referred to as the "flatprice" or "clean price." Typically, flat prices are quoted so as not to misrepresent
the daily increase in the dirty price (bond price plus accrued interest) sinceaccrued interest does not change the yield to maturity (YTM) of the bond.

On the Settlement Date, the buyer must pay to seller only the agreed upon price,
without any payment in respect of interest. The person holding the bond on theRecord Date receives any and all interest payments whenever made. If a Record
Date occurs before the Settlement Date, seller will get any interest paid on abond that is trading Flat. If there is a change in the Record Date, the party that
was a bondholder with respect to the prior Record Date loses any rights they
may have had to receive any related payment of principal or interest.
If a bond that was sold with accrued interest begins trading Flat after the tradedate, but before Settlement date, the buyer remains responsible for paying theaccrued interest to the seller, even though the buyer may not receive interest
from the bond issuer. If the accrued interest payment is not made on the actual
Payment Date, but is made during the Grace Period, any interest payments willaccrue to the seller. If accrued interest is paid after the Grace Period, it will
belong to the buyer when paid.
Bankruptcy courts can issue broad orders at the request of a bankruptcy debtor
that halt or seriously restrict trading in all of the debt and equity of the debtor
corporation for the protection of the bankruptcy debtor's net operating loss("NOL") carryovers and other tax attributes of the debtor.
"Minimum denomination transfer requirements" are generally found in theIndenture and the offering documents and provide that a transfer of a bondwhether in physical or book- entry form be made in certain minimum
denominations.
Please be aware that bonds may begin trading flat before a legal default occurs.
In this scenario, brokers anticipate the default occurring and the market anddealers will trade bonds without Accrued Interest even though the issuer has notmissed an interest payment.
5. Risks of Utilizing the IBKR Bond Desk
If you utilize the IBKR bond desk, you should be aware of the risks inherent withtrading bonds in the traditional (non-electronic) manner. The bond desk provides
clients with assisted bond trading where a designated bond trader works withclients to find liquidity that is not available on IBKR's electronic bond trading
platforms. To identify the liquidity, the trader will communicate with other bonddealers to find bonds and/or pricing that align with the client's request.
When the bond desk agrees to work a client's order, we are only indicating awillingness to attempt to identify a counterparty to the trade requested by theclient and are not obliged to enter into any transaction or guaranteeing the full or
partial execution of such order.

IBKR's experienced bond traders will exercise their discretion in deciding whether
to work the order, which orders we are willing to execute and when and how to
execute all or any part of an order. When IBKR agrees to work an order over a
period of time or otherwise to accept an order involving the exercise of discretion,
IBKR will attempt to exercise this discretion reasonably and fairly, but, unlessotherwise agreed, IBKR is not committed to executing all or any part of the orderin any particular way. Clients requesting that IBKR work orders in foreign markets
should be aware that bond traders may work orders outside of U.S. trading
hours.
6. Margin
When a broker-dealer lends a client part of the funds needed to purchase asecurity, such as a bond, the term "margin" refers to the amount of cash, or down
payment, the client is required to deposit. Bonds, like equity securities, may be
traded on margin. Trading on margin is inherently more risky than trading in fullypaid-for securities. For risks associated with margin trading, please see
Interactive Brokers Hong Kong Limited Disclosure of Risks of Margin Trading.
7. Commissions and Mark-Ups
Clients will be charged a commission for bond trades executed through IBKR.
IBKR may execute clients' bond trade through or against an affiliate of IBKR,
which may charge a markup on trades such affiliate executes as principal against
the client's bond order.