FUTURES CONTRACTS AND FUTURES OPTION CONTRACTS

Transcription

1 CLIENT SERVICE AGREEMENT Halifax New Zealand Limited Client Service Agreement Product Disclosure Statement for FUTURES CONTRACTS AND FUTURES OPTION CONTRACTS Halifax New Zealand Limited Financial Services Provider No Date 26th May 2015 HALIFAX Client Service Agreement 1

2 This document provides important information about Futures Contracts and Futures Option Contracts to help you decide whether you want to enter into any of these derivatives. There is other useful information about this offer on Many derivatives are complex and high-risk financial products that are not suitable for most retail investors. If you do not fully understand a derivative described in this document and the risks associated with it, you should not enter into it. You can also seek advice from a financial adviser to help you make your decision. You should ask if that adviser has experience with these types of derivatives. Halifax New Zealand Limited has prepared this document in accordance with the Financial Markets Conduct Act i HALIFAX NZ

3 1 Key Information Summary 1.1 What is this? This is a product disclosure statement (PDS) for provided by Halifax New Zealand Limited (Halifax, we, our, us). are derivatives, which are contracts between you (client) and Halifax that may require you or Halifax to make payment or deliver on the underlying currency, index, equity, commodity, financial product, or other asset (as the case may be). The value of the contract will depend on the price of the underlying currency, index, equity, commodity, financial product, or other asset. The contract specifies the terms on which those payments or deliveries are to be made. 1.2 Warning Risk that you may owe money under the derivative If the price, value, or level (as the case may be) of the underlying currency, index, equity, commodity, financial product, or other asset changes, you may suffer losses. In particular, unlike most other kinds of financial products, you may end up owing significant amounts of money. You should carefully read section 2.7 of this on how payments are calculated Your liability to make margin payments Halifax may require you to make additional margin payments to contribute towards your future obligations under. These payments may be required at short notice and can be substantial. You should carefully read section 2.7 about your obligations Risks arising from issuer s creditworthiness When you enter into derivatives with Halifax, you are exposed to a risk that Halifax cannot make payments or deliver a currency, index, equity, commodity, financial product, or other asset (as the case may be) as required. You should carefully read section 3 of this PDS (risks of these derivatives) and consider the creditworthiness of Halifax and the third parties which it transfers. If Halifax or these third parties runs into financial difficulty, the margins you provide may be lost. For more information about risks and liability, see section 3 of this PDS. 1.3 About Halifax New Zealand Limited Halifax issues derivatives on contracts for difference, exchange traded options, margin foreign exchange and foreign exchange options. It also offers broking services in Futures Contracts and Options Contracts. For more information about Halifax see section 6 of this PDS. 1.4 Which derivatives are covered by this PDS? The derivatives covered by this PDS are traded on the Futures Exchanges set out in Schedule 1, Annexure A of the Other Material Information document on the Disclose Register. This PDS does not cover derivatives traded as over the counter products, also known as off-market products. HALIFAX NZ ii

4 1.4.1 What is a Futures Contract? A Futures Contract is an agreement traded on a Futures Exchange by which you either buy or sell a specific quantity of a specific product (Underlying Instrument) for settlement on a specified date. Settlement will be via cash settlement only. The Underlying Instrument may be, but is not limited to, a security (such as a share), index, commodity, currency or other financial product What is a Futures Option Contract? A Futures Option Contract gives the buyer the right, but not the obligation, to acquire an Underlying Instrument at the prescribed Exercise Price in return for payment of a Premium (being the price of the Futures Option Contract). The seller has no right other than the right to the Premium. The Underlying Instrument may be a Futures Contract, where the seller will be under an obligation to enter into a Futures Contract at the Exercise Price if the Futures Option Contract is validly exercised by the buyer. If the Futures Option Contract is exercised, it results in the establishment of a Futures Contract What are the key benefits and uses of? are generally used for one of two purposes hedging or speculating: a. Hedging: They can provide investors or traders with a facility for managing risks associated with changing prices in the Underlying Instrument. b. Speculation: They can be traded by speculators, who trade in them hoping to profit from the changing prices in the Underlying Instrument. allow you to utilise margins to leverage your positions to take a much greater exposure to the price of an Underlying Instrument than if you were to buy and sell the Underlying Instrument directly. This has the capacity to significantly increase the potential losses or returns. See section 2.7 of this PDS for further information regarding the use of margins when trading Futures Contracts and Futures Option Contracts. iii HALIFAX NZ

5 Contents 1 Key Information Summary ii 2 Key features of the derivatives 1 3 Risks of these derivatives 12 4 Fees 14 5 How Halifax treats funds and property received from you 16 6 About Halifax New Zealand Limited 16 7 How to complain 17 8 Where you can find more information 18 9 How to enter into Client Services Agreement 18 Glossary 19 HALIFAX NZ iv

6 2 Key features of the derivatives 2.1 What is a Futures Contract? A Futures Contract is a standardised agreement, traded on a Futures Exchange by which you either buy or sell an Underlying Instrument for settlement on a specified date. The Futures Contracts that Halifax offers can only be settled via cash settlement. The Underlying Instrument may be, but is not limited to a security (such as a share), index, commodity, currency or other financial product. Cash settled Futures Contracts are where two parties make a cash adjustment between themselves at the time the Futures Contract expires according to whether the price of the Underlying Instrument (such as a commodity, financial instrument or index) has risen or fallen since the time the arrangement was made. The terms of Futures Contracts are generally set out in the operating rules of the relevant Futures Exchange on which the contract was made. This might be in New Zealand or overseas. Accordingly, there may be differences in the procedures and regulations of markets from one country to another and one Futures Exchange to another. See section 2.4 of this PDS for further information on the key features of Futures Contracts. 2.2 What is a Futures Option Contract? Options traded over Futures Contracts are commonly known as Futures Option Contracts. A Futures Option Contract that is a Call Option gives the buyer the right, but not the obligation, to buy a Futures Contract at the prescribed Exercise Price in return for payment of a Premium. A Futures Option Contract that is a Put Option gives the buyer the right, but not the obligation, to sell a Futures Contract at the prescribed Exercise Price in return for payment of a Premium. The seller will be under an obligation to sell a Futures Contract (in the case of a Call Option) or to buy a Futures Contract (in the case of a Put Option) at the Exercise Price of the Futures Option Contract if the Futures Option Contract is validly exercised by the buyer. If a Futures Option Contract is exercised, it results in the establishment of a Futures Contract. See section 2.5 of this PDS for further information on the key features of Futures Option Contracts. 2.3 Trading When you enter into a Futures Contract or Futures Option Contract with us, you do so through an online interface (referred to as a Trading Platform). The Trading Platforms that can be used to trade Futures Contracts or Futures Option Contracts are Halifaxonline and Trader Work Station. Set out below is a summary of the types of orders that you can place with Halifax and on the Trading Platforms (refer to section 2.9 of this PDS for further information about entering into on the Trading Platform). 1 HALIFAX NZ

7 Order type Market Stop Loss Description An order filled immediately at the best price available. An order that becomes a market order only when the price offered by Halifax on the relevant Trading Platform trades at a specified price. Stop Entry Market If Touched Limit One Cancels The Other If Done Good Til Cancelled Orders Standing Order An order placed to open a new position or increase an existing open position at a price which is inferior to the current price offered by Halifax. A price order that becomes a market order when the price offered by Halifax on the relevant Trading Platform trades at a specified price at least once. An order that can be filled only at a specified price or better. An order that includes two orders, one of which cancels the other when filled. Also referred to as one-cancels-other. An order that includes two orders, where the second of the two orders only becoming active should the first order be executed. An order which remains in the relevant Trading Platform until it is either executed according to the terms of that order or cancelled by you. A standing order means an instruction to execute an order for a specified volume on a recurring basis if triggered, unless otherwise cancelled. 2.4 Key Features of Futures Contracts The duration and standardised nature of Futures Contracts The terms of Futures Contracts are largely standardised, and determined by the Futures Exchanges. The terms which are not standardised and which will need to be set by a client are as follows: a. Price: Futures Contracts are quoted and traded on a Futures Exchange which are accessible via a Trading Platforms thereby providing a system of continuous price discovery. This means that the price at which trades take place may continually change throughout a trading session. Price is determined by supply and demand throughout the trading session. b. Volume: When placing a trade to buy or sell a Futures Contract you select the number of contracts you would like to trade when entering the trade into the Trading Platform. The number of contracts you would like to trade is typically determined by the level of risk that you are willing to accept and the Net Free Equity available in your Trading Account. c. Expiry Date: Futures Contracts may be made for periods of up to several years in the future. The Expiry Dates for Futures Contracts follow a predetermined cycle and are set by the Futures Exchange. A client will need to select its preferred Expiry Date from the options available. For example, the SPI 200 Futures Contract traded on the ASX 24, can be made for settlement only in March, June, September or December, and only up to 18 months from the time of the trade The role of the Clearing House Futures Exchanges generally have a Clearing House. Clearing Houses clear and settle Futures Contracts executed on the Futures Exchange. The primary role of the Clearing House is to guarantee the settlement of obligations arising under the Futures Contracts registered with it. This means that when Halifax (your broker) buys or sells a Futures Contract on your behalf, neither you nor Halifax needs to be concerned with the credit worthiness of the broker taking the other side of the contract. The Clearing House will never deal directly with you, rather the Clearing House will only ever deal with its Clearing Participants that is your broker (where your broker is a Clearing Participant), or where your broker is not a Clearing Participant, as is the case with Halifax, your broker s Clearing Participant. HALIFAX NZ 2

8 When a Futures Contract is registered with the Clearing House, it is novated. This means that the Futures Contract between the two brokers who made the trade is replaced by one contract between the buying broker (or its Clearing Participant) and the Clearing House as seller and one contract between the selling broker (or its Clearing Participant) and the Clearing House as buyer. In simple terms, the Clearing House becomes the buyer to the selling broker, and the seller to the buying broker. You, as the client, are not party to either of those Futures Contracts. Although Halifax (as your broker) may act on your instructions or for your benefit, the rules of the Clearing House provides that any contract arising from an order submitted to the market is regarded as having been entered into by the executing broker as principal. Upon registration of the contract with the Clearing House in the relevant Clearing Participant s name, that Clearing Participant will incur obligations to the Clearing House as principal, even though the trade was entered into on your instructions. The Clearing House ensures that it is able to meet its obligation to Clearing Participants by calling a margin to cover any unrealised losses in the market (for more information on Margin Requirements see section 2.7 of this PDS) You can take both long and short positions You can take both long and short positions. If you take a long position (i.e. you purchase a Futures Contract), you may profit from a rise in the price of the Underlying Instrument, and you will make a loss if the price of the Underlying Instrument falls. Conversely, if you take a short position (i.e. you sell a Futures Contract), you may profit from a fall in the price of the Underlying Instrument, and you will make a loss if the Underlying Instrument s price rises Calculating profits and/or losses If you Close Out a Futures Transaction before the Expiry Date or the First Notice Day (as will usually be the case), the amount of any gross profit or loss made on a Futures Transaction (i.e. before fees, commissions and other costs) will be equal to the difference between the price the Futures Contract was opened and the price the Futures Contract was Closed Out, multiplied by the number of the Futures Contracts held. The indicative price for a Futures Contract at which you can enter into or Close Out is available on your Trading Platform. Example 1: Assume you purchase 1 SPI200 Futures Contract (i.e. you enter into a long Futures Contract) where the Underlying Instrument is the ASX200 Index and the level at which you enter into the Futures Contract is Your later Closed Out the Futures Contract by selling (or exiting the long Futures Contract) at a higher level of The resulting gross profit on the transaction would be $625 being sale level (5475) less buy level (5450) x 1 x 25 (the dollar amount per point of the Futures Contract). The net profit is determined after deducting Halifax commissions (charged on both opening and Closing Out the transaction) and any other charges as set out in section 4 of this PDS. Example 2: Assume you purchase 1 SPI200 Futures Contract (i.e. you enter into a long Futures Contract) where the Underlying Instrument is the ASX200 Index and the level at which you enter into the Futures Contract is You later Closed Out the Futures Contract by selling (or exiting the long Futures Contract) at a lower level of The resulting gross loss would be $250 being sale level (5440) less buy level (5450) x 1 x 25 (the dollar amount per point of Futures Contract). The net loss is determined after adding commissions and any other charges. The above examples are included for illustrative purposes only. They provide an example of two situations only and do not reflect the specific circumstances or the obligations that may arise under a derivative you enter in to. For additional trade examples please refer to Halifax NZ s Futures Contracts and Options Contracts Trading Examples Booklet found on Halifax NZ s website at 3 HALIFAX NZ

9 2.4.5 Closing Out Due to the system of registration and novation referred to above in sections and of this PDS, Closing Out can be achieved without going back to the original party with whom the Futures Contract was traded. This is a significant benefit of exchange traded products compared to OTC products. When an existing buyer sells to Close Out their open position, the sale transaction is registered with the Clearing House in the manner described above in section of this PDS. For example: If Trader A was to sell to Trader B at $100 per unit, the Clearing House would become the buyer to A and the seller to Trader B. If Trader B sells to Trader C for $120 per unit, the Clearing House is now novated as the buyer to Trader B and the seller to Trader C. Trader A would therefore have an open sold position and Trader C would have an open bought position. Trader B no longer has a position and has therefore realised a profit of $20 per unit (ignoring for the purposes of this example any transaction fees that may apply). The Futures Contracts which Trader B held (one to buy and one to sell) have been settled in cash between B and the Clearing House. Trader B simply receives the net profit. Any profit due to Trader B is paid out by the Clearing House in cash, even though the original seller (Trader A) remains in the market. We, the Futures Exchange, or the Clearing House also has the ability to amend or cancel a trade as stated in our Client Services Agreement. This could cause a loss or increased loss to be suffered. Any unilateral Close Out directive from or by a Clearing House, Futures Exchange or the regulator in accordance with the rules, regulations, customs and usages of the market will be accepted by you and settled based on that Close Out and you will accept any costs involved in the re-establishment of a position if you re-open the position. The above example is included for illustrative purposes only. It provides one example of a specific situation only and does not reflect the specific circumstances or the obligations that may arise under a derivative you enter in to. For additional trade examples please refer to Halifax NZ s Futures Contracts and Options Contracts Trading Examples Booklet found on Halifax NZ s website at Valuation of Futures Contracts The calculation for determining the value of a Futures Contract is set out in the operating rules of the Futures Exchange. The operating rules of a Futures Exchange can be found on the website of the Futures Exchange or by contacting Halifax Settlement It is your responsibility to monitor your open positions and to Close Out any open position before the Settlement Date or the First Expiry Date (whichever comes first). Halifax reserves the right, in its absolute discretion, to Close Out any open position you hold in a Deliverable Futures Contract if you have not Closed Out that Futures Contract prior to the earlier of the Settlement Date and the First Notice Day. If you have a cash-settled Futures Contract open at the close of trading on the Settlement Date or First Notice Day (whichever comes first), you will be under an obligation to pay (for a bought position) or have a right to receive (for a sold position) an amount of money depending on the price movement. 2.5 Key features of Futures Option Contracts Styles of Futures Option Contracts There are two types of option styles; American style options (American Options) and European style options (European Options). European Options can only be exercised on the Expiry Date and not before. American Options can be exercised at any time up until, and including, the Expiry Date. Futures Option Contracts traded on most Futures Exchanges are American Options. The seller of an Futures Option Contract that is an American Option must be prepared for that Futures Option Contract to be exercised at any time before the Expiry Date. HALIFAX NZ 4

10 You should clarify whether the Futures Option Contract you intend to trade is an American Option or a European Option prior to entering into the Transaction, as the operating rules of the Futures Exchange may vary depending on the type of Futures Option Contract you are dealing with Exercising Call Options and Put Options The diagram below sets out the results from the buyer s and seller s viewpoint when the buyer exercises a Call Option or Put Option: Buyer Bought Call Option Bought Put Option Bought Underlying Contract (at the Exercise Price of the Futures Option Contract) Sold Underlying Contract (at the Exercise Price of the Futures Option Contract) Seller Sold Call Option Sold Put Option In the money, at the money and out of the money A Futures Option Contract is always either in the money, out of the money or at the money. In the money Sold Underlying Contract (at the Exercise Price of the Futures Option Contract) Bought Underlying Contract (at the Exercise Price of the Futures Option Contract) An in the money Futures Option Contract is, in relation to a bought Call Option, if the Exercise Price is lower than the current market price of the Underlying Instrument and, in relation to a bought Put Option, if the Exercise Price is above the market price of the Underlying Instrument. An in the money option is, in relation to a sold Call Option, if the Exercise Price is higher than the current market price of the Underlying Instrument and, in relation to a sold Put Option, if the Exercise Price is below the market price of the Underlying Instrument. At the money An at the money option is, in relation to both Put Options and Call Options, if the Exercise Price is equal to the current market price of the Underlying Instrument. For the most part, at expiry all in the money or at the money options are automatically exercised by the Clearing House, however not all Future Exchanges automatically exercise in the money or at the money options at expiry. Accordingly, you should contact your Halifax representative before the Expiry Date or the option may lapse worthless. Out of the money An out of the money option is, in relation to a bought Call Option is, if the Exercise Price is higher than the current market price of the Underlying Instrument and, in relation to a bought Put Option, if the Exercise Price is below the market price of the Underlying Instrument. An out of the money option is, in relation to a sold Call Option, if the Exercise Price is lower than the current market price of the Underlying Instrument and, in relation to a sold Put Option, if the Exercise Price is above the market price of the Underlying Instrument. If a Futures Option Contract is out of the money at a particular point in time, it does not mean it does not have value. That is, it may still have time value i.e. time until the Expiry Date in which the price of the Underlying Instrument may move in your favour How is the Premium determined? The price to be paid or received in relation to a Futures Option Contract is the Premium. It is negotiated between the buyer and seller of the Futures Option Contract via the market, and is payable by the buyer to the seller (through the Clearing House) at the time the Futures Option Contract is entered into. The Premium is the compensation for the seller accepting the risk involved in selling the Futures Option Contract. The full value of the Premium is payable immediately upon executing the Futures Option Contract. This means that there must be sufficient Net Free Equity in your Trading Account before you can commence trading. 5 HALIFAX NZ

11 Paying the Premium will allow you to keep or hold the Futures Option Contract until its Expiry Date (when it can either be exercised or it will lapse) or to sell it at any given point of time prior to its Expiry Date i.e. Close Out the open Futures Option Contract. The value of an Futures Option Contract will fluctuate during the life of the Futures Option Contract depending on a number of factors, including: a. the price of the Underlying Instrument; b. the nominated Expiry Date and the time remaining to expiry; c. the nominated Exercise Price; d. the volatility of the Underlying Instrument; and e. interest rates, dividends and other distributions paid or payable in respect of the Underlying Instrument and general risks applicable to markets Settlement The settlement of Futures Option Contracts is more complex than the settlement of Futures Contracts. Futures Option Contracts which are in the money or at the money are in most instances automatically exercised by the Clearing House. In the case of Futures Option Contracts, the resulting position is settled as a Futures Contract or in some cases another type of settlement method, for example cash if the Futures Option Contract is cash settled on the Expiry Date. You should check this position before the Expiry Date. 2.6 Key Benefits of The key benefits of are as follows: a. Hedging: Futures Contracts and Options Contracts can be used to hedge your exposure to the Underlying Instrument. b. Speculating: You may take a view on a particular Underlying Instrument and invest in Futures Contracts and Options Contracts according to this belief. c. Leverage: involve a high degree of leverage. They enable a client to outlay a relatively small amount (in the form of the Initial Margin) to secure an exposure to the movements in the price of the Underlying Instrument without having to pay the full price of actually acquiring the Underlying Instrument. d. Limited counterparty risk: There is limited counterparty risk when trading Futures Contracts and Futures Option Contracts as the Clearing House for the relevant Futures Exchange stands behind the contract guaranteeing the performance of the Transaction (for more information on Clearing Houses see section of this PDS). e. Close Out: Due to the system of registration and novation referred to in sections and of this PDS, Closing Out can be achieved without going back to the original party with whom the Futures Contract or Futures Option Contract was traded. This is a major difference from OTC derivatives products. f. Profit potential in both rising and falling markets: do not require a rising market to make money. There is the potential for profit (and loss) in both rising and falling markets depending on the strategy you employ. g. Flexibility: There is also some flexibility in entering and exiting the market prior to the Expiry Date. This enables you to take a view on market movements and trade accordingly. h. Standardisation: Futures Contracts are standardised and interchangeable, meaning that Futures Contracts of a particular class are perfect substitutes for each other. This means that a trader who has bought a Futures Contract can cancel the position by selling the same contract. The net result is that the trader no longer holds a position. Similarly, a trader who has sold a given Futures Contract can cancel the position by buying the same contract. The principle of standardisation also applies to trading in Futures Option Contracts (i.e. Futures Option Contracts of a particular class are perfect substitutes for each other). A trader who has bought (or sold) an Futures Option Contract can Close Out their position by selling (or buying) the same contract. HALIFAX NZ 6

12 2.7 Margin Obligations are subject to margin obligations i.e. clients must have sufficient Net Free Equity in their Trading Account for security and margining purposes. You are responsible to meet all margin obligations. Margins are generally a feature of all exchange-traded derivative products (including Futures Contracts and Futures Option Contracts) and are designed to protect the Clearing House against default. A margin is the amount calculated by the Clearing House as necessary to cover the risk of financial loss on an open exchange traded derivatives contract due to an adverse market movement. As noted in section 2.4.2, the Clearing House contracts with Clearing Participants. Where a Clearing Participant has an exposure under an open Futures Contract to the Clearing House, the Clearing House will call amounts of money known as margin from the Clearing Participant to cover the risk exposure to the Clearing House. The amount of margin required is determined daily by the Clearing House, following the close of trading each day. In times of extreme volatility an intraday Margin Call may be made by the Clearing House Types of Margin Margin Requirements have two components; Initial Margin and Variation Margin Initial Margin In order to enter into a Futures Contracts or Futures Option Contracts you will be required to pay us the Initial Margin or have an amount of Net Free Equity in your Trading Account that is at least equal to the Initial Margin. The Initial Margin represents collateral for your exposure under a Transaction and is used to cover any potentially adverse fluctuations against your initial position. The Initial Margin required depends on the Futures Exchange on which the Futures Contracts or Futures Option Contract is traded. The Initial Margin will vary from time to time according to the volatility of the market. This means that an Initial Margin may change after a position has been opened, requiring a further payment (or refund, where applicable). The buyer of a Futures Option Contract ( long ) is generally not subject to margin obligations as the buyer of an Futures Option Contract is required to pay the full value of the Premium at the time the Futures Option Contract is acquired. However in some instances an Initial Margin may be acceptable as opposed to paying the full premium when initiating a long position. The seller of the Futures Option Contract ( short ) is entitled to receive a portion of the Premium based on the mark to market valuation of the Futures Option Contract (i.e. the seller of an Futures Option Contract does not receive the full value of the Premium upfront). A seller would also be required to pay an Initial Margin to open the position. The Initial Margin will typically be between 2% and 10% of the face value of the Futures Contract or the Options Contract. However, it is possible for Initial Margins to be above this range. The amount may change at any time and at the discretion of the relevant Clearing House (or the relevant Futures Exchange, in some cases). You should refer to the website of the relevant Futures Exchange to confirm the actual requirement for your proposed Transaction at any particular time Variation Margin As the value of your open positions will constantly change due to changing values of the Underlying Instrument, the Margin Requirement (being the minimum Net Free Equity required in your Trading Account) on the open positions will also constantly change. This is referred to as a Variation Margin. The amount of your Margin Requirements (being the Initial Margin and any adverse Variation Margin) at any one time will be displayed on the open positions report made available through your Trading Platform. Any adverse price movements in the market must be covered by further payments from you (unless you already have sufficient Net Free Equity in your Trading Account). We will also credit the Variation Margin to your Trading Account when a position moves in your favour. 7 HALIFAX NZ

13 We determine the Variation Margin for a Transaction by reference to changes in the value of the Underlying Instrument. In other words, each contract is effectively marked to market on at least a daily basis. Marked to market means that an open position is revalued generally in real time or at least on a daily basis to the current market value. The difference between the real time/current day s valuation compared to the previous real time/ day s valuation respectively is the amount which is debited (in the case of unrealised losses) or credited (in the case of unrealised profits) to your Trading Account. The valuations are calculated using the closing value (at the close of trading on each day) of the Underlying Instrument as determined by the relevant Pricing Source. Intraday marked to market revaluations will be based on the last available value of the Underlying Instrument as determined by us in our sole discretion. Margin Calls are made on a net Trading Account basis i.e. should you have several open positions with respect to a particular Trading Platform, then Margin Calls are netted across the group of open positions. In other words, the realised and unrealised profits of one Transaction can be used or applied as Initial Margin or Variation Margin for another Transaction. It is your responsibility to monitor your Variation Margin obligations. Any notification of a Margin Call will be via a pop up screen or screen alert which you will only receive notice of if you access your online Trading Account via your Trading Platform s website. There may be instances where we do not provide you with a Margin Call notifying you of an obligation to meet a Variation Margin. This does not waive your obligation to meet that Variation Margin. If you fail to meet a Variation Margin we may in our absolute discretion (but without an obligation to do so) Close Out, without notice, all or some of your open Transactions Notifications regarding Margin Requirements As described in section 2.7.3, Margin Calls will be notified to you using pop-up screens or screen alerts on the Trading Platform. You are required to log into the Trading Platform regularly when you have open positions to ensure you receive notification of any Margin Calls. Halifax is under no obligation to contact you in the event of any change to the Margin Requirements or any actual or potential shortfalls in your Trading Account Failing to meet a Margin Call Halifax generally applies risk limits (referred to as Default Liquidation Thresholds) to ensure that the percentage of your Trading Account balance which you are using at any one time to satisfy Margin Requirements (Margin Utilisation) does not exceed certain pre-defined levels. If your Margin Utilisation exceeds the Default Liquidation Threshold for your Trading Platform, a Margin Call will generally be applied to your Trading Account. If you do not meet a Margin Call immediately, we may Close Out some or all of your open Transactions without notice to you. The Default Liquidation Threshold is determined by Halifax. It is implemented for risk management purposes, and may be varied by Halifax at any time. See Schedule 1, Annexure B of the Other Material Information document on the Disclose Register for more information. If you fail to meet a Margin Call, then we may in our absolute discretion (but without an obligation to do so) Close Out, without notice, all or some of your open Transactions and deduct the resulting realised loss from your Trading Account. You may be required to provide additional funds to us if the balance of your Trading Account is insufficient to cover these losses. If a Close Out occurs you will not be able to enter into another Transaction until you transfer additional funds to us How Margin Calls are to be met When we make a Margin Call you must immediately transfer the amount of funds that we request into our nominated Trust Account. All funds received from clients are held, used and withdrawn in accordance with our Client Services Agreement and applicable New Zealand laws. All interest that may accrue on any positive balance in your Trading Account will be kept by us, unless we otherwise agree with you. HALIFAX NZ 8

14 2.7.7 How to deposit money with Halifax You will only be permitted to deal in and maintain open positions on the basis of cleared funds being provided to meet your Margin Requirements. It is your responsibility to provide the funds meet for your margin obligations on time. You should bear in mind accepted New Zealand banking practice in relation to fund transfers or deposits from other financial institutions, which typically require three business days clearance for personal cheques and one business days clearance for direct deposits (depending on the timing of your transfer). Any delay in crediting your Margin Requirements is at your risk. In practical terms, you also need to know and prepare yourself for the methods of depositing money in response to a Margin Call as this may determine whether some or all of your open positions are Closed Out. Some of the methods for depositing money in response to a Margin Call that can be used by you are: a. Real time gross settlement (RTGS): This is an immediate transfer of cleared funds which may not be available at the institution that you bank with. b. Electronic transfer of funds (ETF): This is a transfer of funds that in most instances if lodged with a New Zealand bank, will be placed as cleared funds usually within the next business day with Halifax, but can be delayed through various external factors outside of yours or Halifax s control. c. International electronic transfer of funds (IETF): This is a transfer from an overseas bank that in most instances if lodged with an overseas bank will be placed as cleared funds usually within five business days, but can be delayed through external factors outside of yours or Halifax s control. d. Bank cheque: This is a cheque that is issued by a bank that traditionally requires three business days or more to clear and would be required to be deposited with a special answer to be made available as cleared funds the following business day (if required), but can be delayed through external factors outside of yours or Halifax s control. e. Business cheque and personal cheque: This is a cheque that is issued by a business or person that traditionally requires three business days or more to clear and would be required to be deposited with a special answer to be made available as cleared funds the following business day (if required), but can be delayed through external factors outside of yours or Halifax s control. If Halifax receives confirmation of RTGS and ETF, Halifax will determine this as cleared funds. Unfortunately, as IETF, bank cheques, business cheques and personal cheques can be cancelled or withdrawn, Halifax will need to assess on a case by case basis whether this method of deposit is appropriate or, alternately if cleared funds will still need to be provided by you. Whilst RTGS or ETF facilities may imply an immediate transfer of funds, you should also be aware that these processes can take additional time which could have some impact on your ability to trade and to control your open positions while the funds are waiting to be cleared. We recommend that you clarify with your bank or financial institution what timeframes or delays may be experienced when transferring funds via RTGS or ETF facilities to Halifax. Credit cards may not be used to open or trade on your Trading Account at any time. We also do not accept other financial products as collateral for opening or trading on your Trading Account. You should be aware that timing delays in your ability to transfer funds to us could affect your ability to satisfy a Margin Call in time, which could result in us Closing Out an open Transaction. 9 HALIFAX NZ

15 2.8 Entering into, altering and terminating a Futures Contract or Futures Option Contract Opening an account and getting a Trading Account To open a Trading Account, you must firstly contact us either by using the contact details in section 6 of this PDS or by completing an online application and account opening form which can be located on our website at You will also need to execute a Client Services Agreement, which forms part of the account application. The Client Services Agreement sets out the general terms of your dealings with us for the financial products covered by this PDS and also for dealings not covered by this PDS (such as trading in other financial products offered by Halifax). Once you have completed the account application and have opened a Trading Account with us, you may deposit funds in your Trading Account by using one of the methods described in section of this PDS. Once funds have been deposited in your Trading Account and are cleared, you may then place an order (i.e. provide an instruction to either open or Close Out a Transaction) Cooling off arrangements and altering the terms of Futures Contracts and Futures Option Contracts There are no cooling-off arrangements for. This means that when you enter into a Futures Contract or Futures Option Contract, you do not have the right to return the product, nor request a refund of the money paid to hold the product. Should you change your mind after entering into a Transaction, you should Close Out your position by entering into an opposite Transaction (although loss may be incurred in doing so) Opening a position Orders to open a position can be given through your chosen Trading Platform or by contacting us within business hours. Section 2.3 contains a summary of the types of orders that you can place with Halifax. We are not obliged to accept orders from you. For example, we may refuse to accept orders from you if: a. there is insufficient Net Free Equity in your Trading Account to meet your Margin Requirements (for more information about your margin obligations see section 2.7 of this PDS); b. we are unable to quote values in the relevant Underlying Instrument due to the unavailability of information from the Futures Exchange or Pricing Source (as applicable) on which the Underlying Instrument is traded; c. there are problems with systems, the website or the Trading Platforms (see risks in section 3 of this PDS). Once you have entered an order into one of the Trading Platforms, the system will automatically report the main elements of that order to you in a pop up window or in the trade log. This is a preliminary notification and provides you with a quick reference point for your trade. It will enable you to print a confirmation of the primary data, including the quantity, price, and the date and time the order was transmitted to us. Once your order has been executed you can obtain a comprehensive trade confirmation by accessing the daily statement on your Trading Platform. It is your obligation to review any confirmation immediately to ensure its accuracy and to report any discrepancies within 48 hours Opening and Closing Out a Futures Contract or Futures Option Contract You can open or Close Out a Futures Contract or Futures Option Contract by contacting us via the Trading Platform or by contacting us within business hours to determine the current market price for the Underlying Instrument. After receiving (and accepting) your instructions, we will then provide a quote for the current market price for the Futures Contract or Futures Option Contract. You will then decide whether to accept that price. If you accept the price, you will instruct us to either open a Transaction or Close Out an existing Transaction. HALIFAX NZ 10

16 2.8.5 Expiry Dates and First Notice Days Futures Contracts may be left open up to and including the Expiry Date or First Notice Day (whichever comes first) and can be Closed Out at any time prior to the Expiry Date or First Notice Day. If you do not Close Out by the Expiry Date or First Notice Day (whichever comes first), the Futures Contract will be Closed Out automatically by the system on Expiry Date or First Notice Day and cash settled at the last available closing price as determined by the Futures Exchange or Clearing House. Futures Option Contracts may be left open up to and including the Expiry Date and can be Closed Out at any time prior to the Expiry Date (if it is an American Option) or at Expiry Date (if it is a European Option). If you do not Close Out by the Expiry Date then: a. if the Options Contract is out of the money or at the money (in some instances) then it will expire worthless; or b. if the Futures Option Contract is in the money or at the money (in some instances) then holder will be assigned the Underlying Instrument (i.e. a Futures Contract). 2.9 How are traded Trading Platforms Halifax enables its clients to trade using Trading Platforms. Each client must select a Trading Platform as part of the account opening and application process. You should carefully consider which of the Trading Platforms is likely to best meet your needs. Before you enter into a you should open a demo account and conduct simulated trading. This enables you to become familiar with the attributes of the various online Trading Platforms. It is important to note that there are significant and fundamental differences between each Trading Platform. These differences include the following: a. The nature of the online interface through which you can transact and monitor your Trading Account. b. The Underlying Instruments over which you can enter into a Transaction. c. The fees and costs you are charged for the Transaction Third party providers of the Trading Platforms Halifax has outsourced the operation of its Trading Platforms to various third parties, and in doing so relies upon these third parties to ensure the relevant systems and procedures of the Trading Platforms are regularly updated and maintained. You can change Trading Platforms at any time by contacting us. You can also choose to use one of the other Trading Platforms. An open position however cannot be transferred from one Trading Platform to another. The Trading Platforms that we use, and the third parties that operate those trading platforms, are set out below. We encourage you to review the website of each Trading Platform to an understanding of how they each operate. Trading Platform Halifaxonline Third Party for Trading Platform Saxo Capital Markets (Australia) Pty Ltd Web address to access Trading Platform or au.saxomarkets.com Trader Work Station Interactive Brokers LLC or 11 HALIFAX NZ

17 2.9.3 Trading Hours The trading hours for the Trading Platforms will depend on the Futures Exchange on which the Underlying Instrument is traded or based. A list of the Futures Exchanges are set out in Schedule 1, Annexure A of the Other Material Information document on the Disclose Register. Outside these hours, you may still access the Trading Platforms and view your Trading Account, market information, research and our other services. However, there will not be any live prices or trading. It is at the sole discretion of Halifax to provide services to you outside these trading hours. Any changes to trading hours will be displayed on our website at 3 Risks of these derivatives 3.1 Product Risks Changes in the price, value or level of the Underlying Instrument Trading in the involves a high degree of risk. It is important that you carefully consider whether trading is appropriate for you in light of your investment objectives, financial situation and needs. If there is an adverse change in the price of the Underlying Instrument, you will be required to immediately transfer additional funds to us in order to maintain your position if you do not have sufficient Net Free Equity in your Trading Account. Those additional funds may be substantial. If you fail to provide those additional funds immediately, we may Close Out some or all of your open positions. You will also be liable for any shortfall in your Trading Account balance following those closures. involve a high degree of leverage because the Margin Requirements that must be paid at the outset (referred to as the Initial Margin Requirement) are relatively small in comparison to the price or value of the Underlying Instrument. The use of leverage can lead to large losses. Even a slight fluctuation in the value of the Underlying Instrument could result in you incurring substantial losses. By entering you could lose the full balance of your Trading Account (and more) Other variables that lead to losses for clients The following is a description of some of the other significant risks associated with trading the Futures Contract and Futures Option Contracts offered by us. a. Incorrect details are entered: If you incorrectly place your intended order you are responsible for the result of the incorrectly placed order, including all costs to close out the position and any resulting profit or loss on the outcome. b. Foreign exchange risk: In instances where you trade in a Futures Contract or Futures Option Contract based on an Underlying Instrument priced in a currency other than your Trading Account Currency, your profit or loss will be determined by movements in the price of the Underlying Instrument and also by the impact of movements in the Exchange Rate. Adverse Exchange Rate movements could cause you to incur significant losses. c. Market conditions: Under certain market conditions it could become difficult or impossible to manage the risk of open positions by entering into opposite positions in another contract or to Close Out an existing position. Market conditions may also mean that the price of Futures Contract or Options Contract may not maintain their usual relationship with the value of the Underlying Instrument. d. Order acceptance risk: When you place an order (i.e. request to open or Close Out a position), we have an absolute discretion whether or not to accept and execute such request. The effect of our discretion is that an order you give may not be executed and you may suffer loss (whether it be actual loss or an opportunity loss) as a result. We are not responsible for such loss. HALIFAX NZ 12