Macquarie Prime Loan Facility

Transcription

1 Macquarie Prime Loan Facility Product Disclosure Statement Contents Section 1 - About Macquarie Bank Limited and the Macquarie Prime Loan Facility 1 Section 2 - Benefits of a Macquarie Prime Loan Facility 1 Section 3 - How a Macquarie Prime Loan Facility works 1 Section 4 - What is a margin call? 2 Section 5 - The risk of losing money 3 Section 6 - The costs 4 Section 7 - How to apply 4 The Macquarie Prime Loan Facility forms an optional part of the Macquarie Prime Facility, an all-in-one online investment platform that allows you to combine online trading in shares and other financial instruments, investment borrowing, and managing cash funds through one integrated account. The Product Disclosure Statement ( PDS ) is a summary of significant features of the Macquarie Prime Loan Facility. To fully understand the Macquarie Prime Loan Facility, you must also read and understand the Prime Account PDS and the Prime Client Agreement. This PDS contains a number of references to important information contained in other documents. If a reference to another document is in italics, it forms part of this PDS. It also directs you to other useful tools and information which do not form part of the PDS. You should consider this information before making a decision to use a Macquarie Prime Loan Facility. For more information about the other products available through the Prime Facility, you should consult the relevant product disclosure statement, available at macquarie.com.au/primeofferdocs. The PDS contains general information only and does not take into account your personal financial situation or needs. You should carefully consider this PDS, the Prime Account PDS and the Macquarie Prime Client Agreement before deciding whether or not to make an application, and seek financial advice that is tailored to your personal circumstances before deciding to use the Macquarie Prime Loan Facility. For more information or to obtain a copy of this PDS, the Prime Account PDS or other information referred to in this document, speak to your financial adviser or contact Macquarie Prime on the details below. Call: prime@macquarie.com.au Visit: macquarie.com.au/prime The Macquarie Prime Facility and Loan Facility is provided by Macquarie Bank Limited (ABN , AFSL ) ( Macquarie ). This PDS has been prepared by Macquarie and is dated 11 February

2 1. About Macquarie Bank and the Macquarie Prime Loan Facility The Macquarie Prime Loan Facility ( Loan Facility ) is provided by Macquarie Bank Limited ( Macquarie ). Macquarie is an authorised deposit-taking institution under the Banking Act 1959 (Cth). Macquarie is a subsidiary of Macquarie Group Limited ( MQG ). MQG is listed on the ASX and is regulated by APRA as a non-operating holding company of an authorised deposittaking institution. Generically, margin lending allows you to borrow money which is used, in addition to your own funds, to invest in shares and other financial products. Margin lenders take security over the financial products you buy, and may require you to make payments if the value of these financial products fall, and the margin lender may in certain circumstances sell your financial products to meet your obligations under the loan. Borrowing funds using the Loan Facility will allow you to invest greater amounts than you would otherwise be able to. This has the effect of magnifying the gains on your portfolio if prices move favourably for you, but will also magnify your losses if they move adversely. Losses may be magnified to an extent that you may lose more than the amount you contributed to access and maintain the Loan Facility. You should regularly monitor your portfolio so that you are aware of changes (if any) to the terms of the Loan Facility, and so that you can take timely action to prevent, or limit potential losses on your portfolio. Certain circumstances, including adverse movements in the value of your investments, may mean that you need, at very short notice, to pay more money into your Prime Account, or sell some of the investments you have made through the Loan Facility. Also, under the terms and conditions of the Loan Facility, Macquarie has the right, in certain circumstances to sell all, or part, of your portfolio and may not be required under the terms of the Loan Facility to provide prior notice to you of Macquarie s intention to sell. If the value of your portfolio under the Loan Facility does not cover the amount you have to pay under the Loan Facility, you may need to access other funds to repay the shortfall. If you are unable to do so, and if you have provided other assets as security to Macquarie, Macquarie may sell these assets to meet this shortfall. Further, if you have loans from other lenders, any losses under the Loan Facility may make it more difficult to repay those other loans. Before opening a Loan Facility Macquarie is required by law to assess whether the Loan Facility is not unsuitable for you. If the Loan Facility is issued, we will provide you with a copy of this assessment if you request it. 2. Benefits of a Macquarie Prime Loan Facility Increased investment capacity By using the Loan Facility, you can potentially gain greater exposure to the stock market. This is because you are able to borrow more than the amount you contribute to fund the loan. This will allow you to invest more than you normally would using only your own funds. Use gearing to diversify With more funds available to invest, you can purchase a greater variety of investments for your portfolio than if using your own funds only. In a diversified portfolio, losses in one security may be offset by gains from another. This can reduce the overall risk of your portfolio from volatilities in single stocks. Gearing can magnify returns By borrowing using your Loan Facility, you can potentially increase your capital return as a result of increased investment capacity. Also, by having more investments in your portfolio with gearing, you may be able to receive increased dividends. Some dividends may carry additional value in the form of imputation credits. 3. How a Macquarie Prime Loan Facility works Margin lending through the Loan Facility allows you to borrow money from Macquarie to fund investments in certain financial products, known as Loan Approved Financial Instruments, which include shares, exchange traded funds, company options, listed property trusts, and other financial products. The Loan Facility is an optional part of the Macquarie Prime Facility ( Prime Facility ), an integrated online investment platform that allows you to combine online trading, investment borrowing, and cash management, and is not offered as a standalone product. In order to fully understand how the Loan Facility operates both within the Macquarie Prime Facility and in conjunction with the other financial products available within the Prime Facility, you should read the Macquarie Prime Account PDS, and the Macquarie Prime Client Agreement. You should read this important information about the Macquarie Prime Facility before making a decision. Go to macquarie.com.au/primeofferdocs. The material relating to the Macquarie Prime Facility may change between the time when you read this statement and the day when you sign the application form. The Loan Facility operates slightly differently to more traditional margin loan products. This is because it is offered as part of the broader Prime Facility and through the Prime Account. In addition to the Loan Facility (which is comprised in a Loan Sub Account), the Prime Account also includes a bank account known as the Deposit Sub Account. You can also purchase other products through your Prime Facility in addition to the products you can purchase through the Loan Facility. As such, you need to be careful when comparing it to other more traditional margin loans. If you acquire Loan Approved Financial Instruments with money borrowed under your Loan Facility, we lend you the purchase price of those Loan Approved Financial Instruments. You will own those Loan Approved Financial Instruments, subject to a mortgage held by Macquarie over your Loan Approved Financial Instruments. As further security for your obligations under the Loan Facility, Macquarie will block an amount of funds (in your Deposit Sub Account) in relation to each Loan Approved Financial Instrument you purchase through the Loan Facility. This amount is known as known as Margin, and is generally calculated as a percentage (the Margin Rate ) of the market value of each Loan Approved Financial Instrument. Margin Rates are set by Macquarie and Macquarie may vary the Margin Rate at any time. The total amount of Margin held in your Deposit Sub Account in relation to the Loan Approved Financial Instruments you purchase through the Loan Facility will be designated as Blocked Equity and you are not able to withdraw or access these funds. In substance, the effect of these arrangements is that the maximum net liability you have in relation to each individual Loan Approved Financial Instrument, provided that you are not in breach of your Margin Obligation, is the market value of the Loan Approved Financial Instrument less the Blocked Equity required for that instrument. 1

3 The Loan Approved Financial Instruments and the Margin Rate for each Loan Approved Financial Instrument are available in the list of Loan Approved Financial Instruments and Margin Rates. You should read the important information about the Loan Approved Financial Instruments and Margin Rates before making a decision. Go to macquarie.com.au/prime. The material relating to the Loan Approved Financial Instruments and Margin Rates may change between the time when you read this statement and the day when you sign the application form. You may also be required to provide Margin in relation to any other financial products available through the Prime Facility. Your total Margin obligations ( Margin Obligation ) under all financial products held through the Prime Account including through the Loan Facility is therefore dependant on any other financial products you hold through your Prime Facility in addition to those purchased under your Loan Facility, and will change constantly because of movements in the market value of your financial products, but may also change because of other factors including changes in the Margin Rates set by Macquarie. Further, where there is a margin call, in addition to being able to sell your Loan Approved Financial Instruments in the circumstances described in this PDS, Macquarie may also sell or close out other financial products you have obtained through the Macquarie Prime Facility. If at any time there are insufficient available funds in your Deposit Sub Account to meet the required Blocked Equity, your loan will be in breach of your Margin Obligations. See section 4 of this PDS for information about the consequences of breaching your Margin Obligation. Macquarie will not allow you to purchase Loan Approved Financial Instruments using your Loan Facility if you do not have sufficient funds in your Deposit Sub Account to meet the requisite Blocked Equity. As a result, the amount you may borrow at any time is limited to the extent to which you have sufficient funds to meet the relevant Blocked Equity requirement. When you apply for a Macquarie Prime Facility, we assess your circumstances and set a Risk Limit which is the maximum exposure allowed across the entire Macquarie Prime Facility, including all Loan Approved Financial Instruments purchased using the Loan Facility, and any other financial products you hold through your Macquarie Prime Facility. You may not access funds from the Loan Facility if it will result in you breaching your Risk Limit. Details of your rights and obligations under the Loan Facility are set out in the terms of the Loan Agreement (contained in the Macquarie Prime Account PDS). You should read the Loan Agreement prior to applying for a Loan Facility. You can obtain a copy of the Macquarie Prime Account PDS (containing the Loan Agreement) at macquarie.com.au/primeofferdocs. The ASIC website moneysmart.gov.au provides an online calculator which you can access in order to demonstrate the positive and negative effects of using gearing to invest. We note that as the Loan Facility under the Prime Account works differently to more traditional margin loans, care should be taken when using the online calculator. The ASIC website refers to a loan-to-value ratio also known as LVR. The Prime Loan Facility does not use these terms and so they are not readily comparable to the Prime Loan Facility terms. The loan-to-value ratio that you need to maintain for your Loan Facility portfolio is reflected in the total Loan Margin required to be held as Blocked Equity. Worked example Margin rate for XYZ shares is: 50% Risk Limit set at $50, The investor deposits $10,000 into their Deposit Sub Account. 2. The investor borrows $20,000 to buy 1000 XYZ shares at $20 per Share. This means that $10,000 (50% of the $20,000 value) will be designated as Blocked Equity. The net exposure of the investor under the Loan Facility in this example is $10,000 (a loan amount of $20,000 less the $10,000 deposited in the account). This gives a gearing ratio of 50% (ie. $10,000 exposure/$20,0000 value of the shares). The maximum loan amount Macquarie will provide is subject to two limits - the Risk Limit assigned to the investor and the extent to which there are sufficient funds available to meet the Blocked Equity requirements. Under this example, there is $10,000 in the Prime Account prior to the purchase. The $20,000 loan with $10,000 funds in the Deposit Fund Account does not exhaust the $50,000 Risk Limit, but it does fully utilise the funds available to meet the Blocked Equity requirement (margin rate of 50% times the $20,000 value). Accordingly, after the purchase there are no longer available funds left to fund Blocked Equity for any additional purchases. Hence the maximum loan drawdown for a purchase of XYZ shares in this case was the $20,000 that was implemented in the example (which, taking into account the $10,000 in the Deposit Sub Account, gives a maximum exposure of $10,000). 4. What is a margin call? Under the Loan Facility, a margin call occurs if at any time you are in breach of your Margin Obligation. This will occur if there are insufficient Available Funds in your Prime Account to meet the required level of Blocked Equity for all Loan Approved Financial Instruments under the Loan Facility, at any time. The impact of this failure will be that your loan to value ratio has exceeded the level to which Macquarie is willing to lend. As the Loan Facility is provided as part of the wider Prime Facility, a breach of your Margin Obligation can also occur due to the operation of the other facilities available in the Prime Account (for example, if you have entered short positions or Contracts for Difference). Movements in the market value of the Loan Approved Financial Instruments you purchase under the Loan Facility can lead to you having insufficient Blocked Equity to meet your Margin Obligation. In particular, where the value of your Loan Approved Financial Instruments goes down, under the terms of the Loan Facility: Macquarie takes a cash amount out of your Deposit Sub Account in repayment of part of your loan (and reduces your loan balance accordingly); Your Blocked Equity obligation with respect to the relevant Loan Approved Financial Instruments goes down (as it is calculated as a percentage of the value of the product); However (except where the Margin Rate is 100%), the reduction in your total Blocked Equity requirement will be less than the amount taken out of your Deposit Sub Account. 2

4 Consequently, if you did not have excess funds in your account to cover the difference, you will no longer have sufficient funds in your Deposit Sub Account to meet your Margin obligations, and will therefore be in breach of your Margin Obligations. You may also have insufficient funds as a result of Macquarie exercising discretions under the Loan Facility terms, such as increasing the Margin Rates applicable to your Loan Approved Financial Instruments or determining a new value for Loan Approved Financial Instruments that you hold in respect of which certain market events (known as Market Disruption Events) have occurred (for example, suspension of trading in or delisting of shares). If there is a margin call (that is, you are in breach of your Margin Obligation), you will be required to contribute additional equity to your Prime Account to satisfy your Margin Obligation, and/ or Macquarie may sell some or all of your Loan Approved Financial Instruments and/or cancel your orders (the actions which Macquarie may take in these circumstances are called a Closeout in the Prime Account PDS). If you are in breach of your Margin Obligation, Macquarie will notify you that the margin call has occurred, however in certain circumstances Macquarie may act before, you have received the notice and therefore before you are able to respond to the notice of a breach of Margin Obligation. If the shortfall in your Margin Obligation is below 50% of the aggregate of all your Margin Obligation, or if you exceed your Risk Limit by less than 5%, you should act immediately to satisfy your Margin Obligation, as Macquarie may sell your Loan Approved Financial Instruments, and/or cancel your orders, if you have not rectified the breach by 2pm on the Business Day after the day on which Macquarie gave notice. Macquarie will still have the right to sell your Loan Approved Financial Instruments and/or cancel your orders, before that time, for example, where there is a further fall in the value of your Loan Approved Financial Instruments. If there is a shortfall in your Margin Obligation that is equal to or greater than 50% of the aggregate of your Margin Obligation, Macquarie may immediately sell some or all of your Loan Approved Financial Instruments, and/or cancel your orders to rectify the breach. This can also occur where you exceed your Risk Limit by more than 5%. In these circumstances while Macquarie will send you a notice of the breach, Macquarie may sell your Loan Approved Financial Instruments and/or cancel your orders before you have received the notice of breach of Margin Obligation. If you are in breach of your Margin Obligation and Macquarie exercises its discretion to sell your Loan Approved Financial Instruments and/or cancel your orders, you may suffer financial loss, and in the event that Macquarie sells your Loan Approved Financial Instruments and there is still a shortfall, you may still owe Macquarie more money. As such, in order to manage your Margin Obligations it is your responsibility to: Monitor at all times the level of funds in your Prime Account, as well as your total Margin Obligation and Risk Limit; Make sure that you are always contactable so that Macquarie can notify you that you are in breach of your Margin Obligation; and Make additional deposits to your Prime Account when necessary to meet your Margin Obligation and any payment obligations you may have under your Prime Facility and to avoid exceeding your Risk Limit. Worked example The XYZ Share Price decreases from $20 to $19, hence the value of the investor s shares decreases to $19,000. A loan repayment of $1,000 is made from the Deposit Sub Account to the Loan Sub Account. The funds in the Deposit Sub Account therefore reduce to $9,000. However, the Blocked Equity has only reduced to $9,500 for the XYZ position. This means that there is now a shortfall of $500 and the investor is in breach of their Margin Obligation, by failing to have sufficient funds to meet the Blocked Equity required. The effect of this is that the investor s actual LVR has exceeded the required LVR for their portfolio. To rectify the breach the investor must adjust their Prime Account so that there are sufficient funds in the Deposit Sub Account to meet the required Blocked Equity. This can be done either by depositing additional funds into the Deposit Sub Account to meet the required Blocked Equity (ie. an additional $500) or by selling XYZ shares until the funds deposited into the Deposit Sub Account as a result of the sale equals the required Blocked Equity for the adjusted position in XYZ shares. In this case, if $1,000 of shares are sold, the Value of the Shares is reduced to $18,000, leading to a required Blocked Equity amount of $9,000 which is equal to the amount available in the Deposit Sub Account. 5. The risk of losing money A fall in the value of your Loan Approved Financial Instruments The value of your investments may go up and down by a material amount, even over a very short period of time. If there is a shortfall in your Margin Obligation as a result of movements in the value of your Loan Approved Financial Instruments, you may be in breach of your Margin Obligation and in some cases Macquarie may sell your Loan Approved Financial Instruments and/or cancel your orders. This may result in losses of some or all of your investments. Gearing magnifies losses By using a Loan Facility your investment portfolio may be highly geared. Gearing magnifies losses, and because of this, geared investments carry a significantly higher level of risk than non-geared investments (eg trading shares using your own funds). If you borrow funds to use as Blocked Equity, this will further increase your level of gearing to potentially very high levels. Capitalising your interest may also increase your gearing level. You should not request a Loan Facility unless you understand and are comfortable with the risks of trading using gearing. Breach of Margin Obligation Providing Margin is an ongoing and constant obligation. You must ensure at all times that you maintain sufficient Available Funds in your Prime Account to meet any Margin Obligation and outgoings under all of the transaction documents (eg fees and charges). Failure to maintain sufficient Available Funds can result in a breach of your Margin Obligation, which may, in certain circumstances, give Macquarie the right to sell your Loan Approved Financial Instruments in order to rectify the breach. 3

5 You may lose more money than the amount in your Prime Account Your potential losses on a Loan Approved Financial Instruments can be substantial and may exceed how much Loan Margin is required to support your holding of that Loan Approved Financial Instrument and even the total funds in your Prime Account. Where your liability to us exceeds the funds in your Prime Account, we have recourse to you for any outstanding amount as a debt. Change of Margin Rate, Interest Rate and Loan Approved Financial Instruments Macquarie may, from time to time change: the Margin Rates applicable to the Loan Approved Financial Instruments (including increasing the Margin Rate to 100%); the interest rate on your Loan Facility; and the list of Loan Approved Financial Instruments. If you do not have sufficient funds in your Prime Account to fund these changes, you will breach your Margin Obligation and Macquarie may sell your Loan Approved Financial Instruments and/or cancel your orders. Interest payments owed by you may exceed the returns from your portfolio, this impact may be magnified in the case of an increase in the interest rate applicable to your Loan Facility. Change in tax laws Taxation laws, and the interpretation of taxation laws, may change at any time. This may have a negative effect on the taxation treatment of the Loan Facility. Macquarie does not give taxation advice and you should seek independent professional taxation advice. Events of default and powers of Macquarie If a default event occurs under the terms of your Loan Facility you may be required to repay all or part of your Loan Facility or we may sell your Loan Approved Financial Instruments or otherwise deal with any Loan Approved Financial Instruments or other assets mortgaged to us. Macquarie has broad powers to deal with any property which is the subject of the mortgage. These powers can be exercised even in the absence of any default on your part. For example, at any time the mortgage is in effect, you agree to deal with property subject to that mortgage as Macquarie reasonably requires. Macquarie s operating performance and its systems Your ability to use the Prime Facility as described in this PDS and how the facility will operate in practice, will depend on Macquarie s policies, procedures and operating systems. Macquarie has certain rights which enable it to take action to protect its interests which may not reflect what you would do or would want Macquarie to do in the circumstances. As such and for example, if Macquarie is unable to issue a notice of breach of Margin Obligations due to a failure of its operating systems (or for any other reason), it may still be entitled, in its discretion in certain circumstances, to sell your Loan Approved Financial Instruments if you remain in breach of your Margin Obligations. ASIC provides general information in relation to margin lending facilities accessible at fido.gov.au. 6. The costs Interest payable under the Loan Facility You may be required to pay interest on your Loan Facility, depending on the overall position of your Prime Account. Interest is payable on the Prime Account as a whole where there is negative Funds Balance. Your Funds Balance is an amount equal to all amounts deposited in your Prime Account, less any withdrawals out of that account (including loan drawdowns), and less any other Margin Obligation held as blocked funds in relation to other facilities available in the Prime Account (for example, if you have entered short positions or Contracts for Difference). Interest is calculated daily as a percentage of your negative Funds Balance. Macquarie will debit the applicable loan interest from the available funds in your Prime Account, monthly in arrears. In certain circumstances, you may also elect to pre-pay interest in advance. You should read the important information about the Interest applying to your Loan Facility before making a decision. Go to macquarie.com.au/prime. Information relating to interest may change between the time when you read this statement and the day when you sign the application form. If you fail to pay an amount, including any interest amount, when due under the terms and conditions of your Macquarie Prime Facility, you must pay default interest on the amount until it is paid. All such interest due shall be calculated at a default interest rate, and be paid in arrears on each business day by Macquarie debiting the amount from the available funds in your Prime Account. If your available funds are insufficient to cover your interest, including default interest, you remain personally liable for any amount outstanding. Other fees and costs There are currently no other fees or charges payable in relation to your Loan Facility. Macquarie may however introduce fees that apply to any new or existing services relating to your Loan Facility. If fees are introduced, we will notify you of the change at least 30 days beforehand. Adviser payments If you have an adviser, you may direct us to make payments to them for the services they provide to you, which may be calculated as a proportion of, and debited from your Prime Account together with some of the fees that you may pay in relation to your Macquarie Prime Facility. You can obtain more detailed information about payments you can direct us to make to your adviser on your behalf in the Macquarie Prime Account PDS and other Transaction Documents available at macquarie. com.au/primeofferdocs. 7. How to apply You can apply online at macquarie.com.au/prime You must ensure that you have read and fully understood, at least, this PDS, the Macquarie Prime Account PDS, and the Prime Client Agreement, before deciding to apply for a Macquarie Prime Facility and a Loan Facility. Complaints We have procedures for dispute resolution, and they are available to you free of charge. You may make a complaint relating to your Prime Account directly to us in writing. We will always acknowledge any complaint promptly and provide a response within no more than 45 days. If the outcome is unsatisfactory, you may be entitled to refer your complaint to the Financial Ombudsman Service at: Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Telephone: Fax: (03) info@fos.org.au Web: fos.org.au 4