PRODUCT DISCLOSURE STATEMENT contracts for difference Halifax New Zealand New Zealand Financial Services Register 146605 AIG Building, Level 11/41 Shortland Street Auckland City 1010 New Zealand as Introducing Broker for Halifax Investment Services Limited Australian Financial Services License No. 225973 Date 25th September 2013 Halifax Product Disclosure Statement 1
Important Information and Disclaimer In addition to Reading, Understanding and acknowledging this PDS you must complete a Client Contract For Difference (CFD) Suitability Test As of the 31st of March 2012, all issuers dealing in Over-the-counter (OTC) derivatives are required to meet the disclosure benchmarks outlined in Regulatory Guide 227: Over-thecounter contracts for difference: Improving Disclosure for Retail Investors. These benchmarks are not mandatory, however if they are not satisfied the issuer has an obligation to disclose on an if not, why not basis the reasons why the benchmark is not met and what they are doing to address the issue. Meeting the Disclosure Benchmark Client Qualification As many investors do not receive advice about whether or not (CFDs) are appropriate for their objectives, financial situation and needs ASIC has determined that issuers are to play a role in ensuring that only investors with a sound understanding of the features and risks of CFDs are eligible to open an account and trade. This is as ASIC believes that investors who thoroughly understand the features and risks of the product will be able to determine whether Over-the-counter (i.e. non-exchange traded) contracts for difference (OTC CFDs) are an appropriate investment for them and to manage the risks associated with trading on an ongoing basis. This requirement is enforced through Disclosure Benchmark 1 of RG 227. Benchmark 1 of RG 227 reads: An issuer should maintain and apply a written client qualification policy that: (a) Sets out the minimum qualification criteria that prospective investors will need to demonstrate they meet before the issuer will agree to open a new account on their behalf; (b) Outlines the processes the issuer has in place to ensure that prospective investors who do not meet the qualification criteria are not able to open an account and trade in CFDs; and (c) Requires the issuer to keep written records of client assessments. A client suitability test has been implemented as part of the policy required to meet part (a). A grading scheme has also been adopted to meet part (b) of the benchmark and ensure that investors who do not pass the test are not able to open an account and trade in CFDs. These documents will be kept on record as a part of satisfying part (c). The client suitability test includes questions which both test the investor s knowledge and also act to reiterate some aspects of the disclosure requirements for OTC CFDs. For example, a number of questions are designed so that the correct answer will ensure that the investor recognises or appreciates risks inherent in OTC CFDs. It should be remembered that testing client knowledge is the primary aim of the client suitability test reinforcing the disclosure requirements is merely a convenient way to enhance investor understanding. You can complete your Suitability Test prior to or after opening an account with Halifax. To find out more contact 1300 363 505 Account Opening. Decisions to enter into transactions involving ( CFD ) products are very important. They often have significant risks and consequences. Over the Counter contracts can be highly leveraged and speculative with a high degree of risk. Potential investors should be experienced in CFD products and/or other derivative products or understand and accept the risks of investing in such products. Refer to section 11 for more information about significant risks in trading CFD products. In preparing this Product Disclosure Statement ( PDS ), we have not considered your personal circumstances. This document only provides a summary of the significant features and risks of CFD products. Before trading in CFD products, you need to be satisfied that these financial products are appropriate to your financial objectives, situation and needs. Halifax Investments Services Ltd strongly recommends that before opening an account and beginning to trade that you read this PDS in its entirety and that you understand it. It is your responsibility to ensure that you fully understand the products, how they are traded and the risks involved. Halifax also recommends that you consider seeking financial, legal, taxation and other professional advice to ensure that you fully understand CFD products and that they are appropriate for you before you begin trading in these products. To the extent permitted by law, neither Halifax nor its affiliates accepts any responsibility for errors or misstatements, negligent or otherwise, nor for any direct, indirect, consequential or other loss arising from any use of these documents and/or further communication in relation to them. Do you have all the relevant documents? This PDS is subject to the detailed provisions of the Client Services Agreement and Financial Services Guide ( FSG ). You must ensure you have read and fully understand the Client Services Agreement, the FSG and this PDS. 2 Halifax NEW ZEALAND Product Disclosure Statement
Index 1. Introduction... 4 2. Terms and Conditions... 4 3. The Purpose of this PDS.... 4 4. Changes to this PDS... 5 5. The Financial Products this PDS Covers... 5 6. About Halifax.... 5 7. Purpose of Halifax s CFD products.... 5 8. RG227 Disclosure Benchmarks... 6 9. Key Features of CFDs... 9 10. Key Benefits... 10 11. Significant risks... 11 12. CFDs... 15 13. Margin obligations... 18 14. Opening and Closing Out a CFD Position... 20 15. Electronic Trading Platforms... 21 16. Trading Hours... 22 17. Trading Examples... 22 18. Clients Money.... 22 19. Charges, fees and other amounts payable... 23 20. Confirmation of transactions... 26 21. Protection against Fraudulent activity... 26 22. Market Information... 27 23. Cooling Off Arrangements... 28 24. Taxation implications.... 28 25. Dispute Resolution... 28 26. Privacy.... 30 27. Glossary of terms... 30 28. Annexure A... 31 29. annexure B... 36 Halifax NEW ZEALAND Product Disclosure Statement 3
1. Introduction This PDS is dated 28th September 2012 and is issued by Halifax Investment Services Ltd ( Halifax ). Halifax is an unlisted Australian public company (ABN 52 096980522) that holds an Australian Financial Services ( AFS ) Licence issued by the Australian Securities and Investments Commission ( ASIC ) (AFS Licence Number 225973). Under the Corporations Act 2001 (Cth) ( Corporations Act ), Halifax is regarded as the issuer of financial products which are derivatives. This PDS has been prepared by Halifax as the issuer of Contracts for Difference ( CFDs ) referred to in this PDS. CFDs are an Over the Counter ( OTC ) derivative product. The information in this PDS is general information only and does not take into account your personal objectives, financial situation and needs. We also refer you to the detailed provisions of the Client Services Agreement and the FSG. Before making a decision to acquire the financial products described in this PDS you should read this PDS, the FSG and Client Services Agreement and be satisfied that any trading you undertake in relation to those CFD products is appropriate in view of your objectives, financial situation and needs. You can access the FSG and the Client Services Agreement from our website or, by calling Halifax and requesting that a paper copy be provided to you free of charge. Given that the financial products referred to in this PDS are a sometimes complex area of the financial markets, we have provided a glossary of terms at the end of this PDS (refer to section 27 of this PDS). 2. terms and Conditions This PDS and the FSG set out important information about the financial products and are binding on you and Halifax. Additional legal terms governing your dealing with us are set out in: your Client Services Agreement with us; any supplementary terms for particular financial products; any supplementary terms for any electronic Trading Platform which you use. You will need to execute a Client Services Agreement by completing the application form provided by Halifax. The Client Services Agreement sets out the general legal terms of your dealings with us for the products covered by this PDS and also for dealings not covered by this PDS (such as trading in other financial products offered by Halifax). By opening an account with us you agree to the terms of the Client Services Agreement. 3. The Purpose of this PDS Under the Corporations Act, a retail client must receive a PDS from an AFS Licensee before acquiring a financial product. The PDS is the document that sets out the significant features of a financial product, including its risks, benefits, costs and fees and other related information. The purpose of this PDS is to provide you with sufficient information to make an informed decision in relation to the acquisition of our financial products. You may also use this PDS to compare the financial products described with similar financial products offered by other issuers i.e. other CFD providers. This PDS seeks to explain to you about our products in a clear, concise and effective manner. When we use the terms Halifax, we, our or us in this PDS, the reference is to Halifax, the issuer of the CFD products. When we use the term you we mean you as the applicant for or holder of our CFD products. When we refer to client we mean you or another applicant for or holder our CFD products. This PDS is an important document and provides you with key information about our CFD products. CFD products are highly leveraged and speculative with a high degree of risk. Potential investors should understand and accept the risks of investing in CFD contracts (i.e. derivative products). Before trading in the CFD products referred to in this PDS you should give consideration to your objectives, financial situation and needs. We recommend that you take all reasonable steps to fully understand the possible outcomes of trades and strategies in relation to the CFD products offered. You should also be aware of the risks involved and be satisfied that trading in these products is suitable for you in view of your financial circumstances. If you have any questions in relation to this PDS, please do not hesitate to contact us (our contact details are in section 6 of this PDS). Halifax is required to give you this PDS because it is the issuer of the financial products described in this PDS. Other Jurisdictions The offer to which this PDS relates is available only to persons receiving the PDS in Australia. The distribution of this PDS in jurisdictions outside Australia may be subject to legal restrictions. Any person who resides outside Australia who gains access to this PDS should comply with any such restrictions as failure to do so may constitute a violation of financial services laws. The offer to which this PDS relates is not available to US investors. 4 Halifax NEW ZEALAND Product Disclosure Statement
4. changes to this PDS This PDS replaces all previous versions and is current at the time it was prepared, but is still subject to change from time to time and may be updated on Halifax s website www.halifaxonline.co.nz. a copy can be downloaded from our website or, by calling Halifax and requesting that a paper copy be provided to you free of charge. if any new information is materially adverse information, we will issue a new or supplementary PDS with the new information. if the new information is not materially adverse, we may not issue a new PDS or Supplementary PDS but you will be able to find the updated information on our website at www.halifaxonline.co.nz or by contacting us. Our contact details are set out in section 6 of this PDS. 5. The Financial Products this PDS Covers This is a PDS for CFD products offered by Halifax. These are OTC derivative contracts. An OTC product is one that is traded off-market rather than on an exchange such as a stock exchange or futures exchange. A CFD is an agreement by which you can make a profit or loss from changes in the market price of the Underlying Product of a CFD, usually an ASX traded share or a share listed on an international stock exchange (but also may be a market index), without actually owning that financial product (share) or having any indirect interest in the financial product. Because the value of the CFD is (in part) derived from the value of the Underlying Product, a CFD is a derivative product. Halifax offers CFD products on: (i) Australian and international shares ( Share CFDs ) refer section 12.4.1 for additional details; and (ii) Australian and international market indices ( Index CFDs ) refer section 12.4.2 for additional details. Each transaction which is agreed and entered into with a client will be entered into as principal by Halifax. Halifax makes a market in its CFD products as it regularly states the price at which it is prepared to deal with the client as principal. 6. About Halifax Halifax is the issuer of this PDS and the issuer of the CFD products referred to in this PDS. In accordance with its AFS Licence, Halifax is authorised by ASIC to advise, deal and make a market to both retail and wholesale clients in derivatives. CFD products are derivatives. Pursuant to its AFS Licence, Halifax is also authorised to provide general and/or personal financial product advice in relation to, and to deal in, the following products for both retail and wholesale clients: (i) deposit and payment products limited to basic deposits; (ii) interests in managed investment schemes excluding investor directed portfolio services; (iii) foreign exchange contracts (and make a market); (iv) securities; and (v) miscellaneous financial investment products (limited to managed investment warrants). In making a market in its CFD products, Halifax offers Trading Platforms for clients to trade in its CFD products. All enquiries to Halifax should be made during business hours to the Operations Manager. Halifax s contact details are: Contact Details: The Operations Manager Halifax Investment Services Ltd Governor Phillip Tower Level 40, 1 Farrer Place Sydney, NSW 2000 Ph: 1300 363 505 Facsimile: 61 2 9241 4331 Email: operations@halifax.com.au Website: www.halifaxonline.co.nz Halifax New Zealand New Zealand Financial Services Register 146605 AIG Building, Level 11/41 Shortland Street Auckland City 1010 New Zealand Ph: 0800 557 777 Ph: +649 309 0088 7. Purpose of Halifax s CFD products CFD products are generally used for one of two purposes hedging or speculating. CFDs can provide those who deal in the Underlying Product with a facility for managing the risks associated with changing prices for those investments. This strategy is known as hedging. CFDs are also traded by speculators, who trade in the anticipation of profiting purely from changing prices in the Underlying Product. Generally, trading CFDs allows you to leverage your positions to take a much greater exposure than if you were to purchase the Underlying Product. Trading in CFDs does however, involve significant risk. Transactions should only be entered into by traders and investors who understand the nature and extent of their rights, obligations and risks (for more information on risks see section 11 of this PDS). Halifax NEW ZEALAND Product Disclosure Statement 5
8. rg227 Disclosure Benchmarks ASIC Regulatory Guide 227 requires issuers of over-the-counter (OTC) derivatives to publish certain information addressing a range of disclosure benchmarks. These benchmarks are required to be addressed on an if not, why not basis, and are intended to assist retail investors to properly understand the complexity and risks of trading in OTC derivative products, particularly with regard to leverage. There are 7 disclosure benchmarks required to be addressed, all of which we are of the view, have been met by Halifax. Halifax s compliance with each benchmark is addressed in the following table: Benchmark description How does Halifax meet this benchmark? Relevant sections of the PDS which may provide further relevant information Client qualification Halifax maintains and applies a written policy which sets out the minimum qualification criteria that prospective retail investors will need to demonstrate before we will open a trading account for you. Halifax also maintains a written policy/procedure to ensure such criteria are properly applied, and unsuitable investors are not accepted. We also maintain records of our assessments. Opening Collateral Counterparty risk hedging Please note that we do not provide personal advice regarding the suitability of trading in these products for your personal financial circumstances and objectives. However, Halifax does not accept retail investors unless they are able to satisfactorily answer the questionnaire included in our trading account application form which addresses the following criteria: Previous trading experience in financial products; Understanding of leverage, margins and volatility; Understanding of the key features of the product; Understanding the trading process and relevant technology; ability to monitor and manage the risks of trading; and Understanding that only risk capital should be traded. Halifax only permits clients to open an account and trade with cleared funds (ie transfer of cash from your banking account to your trading account). Please note that credit cards may not be used to open or trade an account at any time. Halifax does not accept other financial products as collateral for opening or trading an account, due to the potential for double leverage in such circumstances. Halifax maintains and applies a written policy to manage our exposure to market risk from client positions. This includes strict risk management controls to assess and monitor our hedging counterparties (to ensure they are of sufficient financial standing, are licensed by a comparable regulator, and are of sound reputation). Section 13.5 Section 18.2 Halifax is a 100% straight through processor and essentially hedges 100% of its exposure. Halifax facilitates all client trades through our liquidity providers and we do not hold any proprietary positions. A summary of our policy, which notes our current approved hedging counterparties, is available on our website (and may be updated from time to time as counterparties change). 6 Halifax NEW ZEALAND Product Disclosure Statement
Benchmark description How does Halifax meet this benchmark? Relevant sections of the PDS which may provide further relevant information Counterparty risk financial resources Halifax maintains and applies a written policy to ensure the ongoing maintenance of adequate financial resources. Please note that we have a designated compliance officer who monitors our compliance with our licence conditions and ASIC RG 166 (financial) obligations, as well as review and input from our independent external legal and accounting advisers. Further, our external independent auditor conducts an audit at the conclusion of every financial year, a copy of which can be provided to you upon written request. Please note we do not undertake stress testing in relation to unhedged market exposures, as all transactions with clients are fully hedged. Section 11.2 Client money Halifax maintains and applies a clear policy with regard to the use of client money. Please note that money you deposit into your trading account is co-mingled with other client money in our client trust account. Such monies are only applied to client trades/settlement obligations and to pay agreed fees etc, in line with the Corporations Act requirements. Please note that monies deposited into your trading account to meet margins, deposits, fees, transaction settlements, or other costs shall be immediately on-forwarded (where applicable) to our licensed third party clearing and execution providers, and applied against your margin, exchange, fee and settlement obligations. Client monies which are held pending future transactions and payments, are retained in our segregated account in accordance with the Corporations Act. It is important to note that holding your money in one or more segregated accounts may not afford you absolute protection. Halifax enters into arrangements with third party execution and clearing providers for the facilitation of transactions and settlements, and avails monies received for margin calls and settlements to such providers for this purpose. Accordingly clients are indirectly exposed to the financial risks of our counterparties and organisations with whom Halifax holds client funds. If the financial condition of Halifax or assets of our counterparties or the parties with which we hold client assets deteriorate, then clients could suffer loss because the return of the client capital could become difficult. Client trades can only be placed when there are cleared funds in the client s account. Accordingly, no scenario is anticipated which would result in a shortfall in the client trust account, necessitating the use of one client s money to cover the obligations of another client. Section 18 Halifax NEW ZEALAND Product Disclosure Statement 7
Benchmark description How does Halifax meet this benchmark? Relevant sections of the PDS which may provide further relevant information Suspended or halted underlying assets An underlying financial product may be placed in a trading halt on the relevant exchange in various circumstances. Additionally, it may be suspended or delisted in certain circumstances. Halifax may, in its absolute discretion, cancel your order in respect of a CFD transaction which has not yet been opened, or close any open CFD, where the underlying financial product is the subject of a trading halt, suspension or delisting. If the CFD is over a security which ceases to be quoted on the Exchange or is suspended from quotation for 5 consecutive Business Days on that exchange, we may elect to close the CFD, rather than change the margin requirements or re-price the position. When you place an order for a CFD with us, it is likely that we will place a corresponding order to purchase or sell the relevant product to hedge our market risk. Halifax has the discretion as to when and if it will accept an order. Without limiting this discretion, it is likely that we will elect not to accept an order in circumstances where our corresponding order cannot be filled. Accordingly, Halifax may at any time determine, in our absolute discretion, that we will not permit the entry into CFDs over one or more underlying financial products. Section 14.2 Margin calls Halifax maintains and applies a written policy detailing our margining practices. This details our rights regarding the levying of margin calls and closing out of positions when such calls are not met in a timely manner, and what factors we consider when exercising such close-out rights. Clients are required to monitor all open positions themselves on a real-time basis intraday, to ensure changing margin requirements are identified and actioned in a timely manner. Halifax will not notify you of margin calls. Halifax does not notify you of margin calls it is your responsibility to monitor your trading account and fund margin calls accordingly. Please note that certain market conditions or events may trigger extreme volatility, requiring urgent funds to be applied to retain your open positions. We reserve our full rights to immediately close positions in relation to which margin calls have not been met, in order to protect against exposure to further losses in the positions. We reiterate that trading in OTC derivative products carries a high level of risk and returns are volatile. The risk of loss in trading can be substantial, and you can incur losses in excess of the capital you have invested. Accordingly, you should only trade with risk capital ie money you can afford to lose, and which is excess to your financial needs/obligations. Section 13 8 Halifax NEW ZEALAND Product Disclosure Statement
9. Key Features of CFDs The key features of CFDs are: A CFD product broadly replicates the price movement of the Underlying Security (in the case of Share CFDs) or change in value of an Underlying Index (in the case of Index CFDs) i.e. if the price of the Underlying Product changes, so will the value of the CFD product. Share CFDs are a trading solution that provides the opportunity to profit (or incur loss) by dealing in the Underlying Security without having to actually own the Underlying Security. Unlike contracts traded on an exchange, OTC products are not standardised. The terms of a CFD are individually tailored to the particular requirements of the parties involved in the contract i.e. Halifax and the client. In the case of Share CFDs, you have no right or obligation to acquire the Underlying Security itself. This is unlike trading in the Underlying Security where you acquire a beneficial interest in the actual share. As the holder of a Share CFD, you do not have a beneficial interest in the Underlying Security and you have none of the rights of a shareholder, such as voting rights. You are also not entitled to dividends or other distributions which may be paid in respect of the Underlying Security (in the case of Share CFDs). However, certain cash adjustments may be made to your account (for more information see sections 12.6 to 12.8 of this PDS). CFDs are OTC derivative products with Halifax acting as counterparty (and principal) in its dealings with you. It is a transaction between you and Halifax and can only be entered into with Halifax and Closed Out with Halifax. It is not possible to Close Out the CFD with any other party. CFDs are subject to Margin Requirements and marked to market on a daily basis (for more information see section 13 of this PDS). CFDs do not have an expiry date and will remain in place until either you or, in its discretion, Halifax, Close Out the open position. Other features of CFDs are described as follows: 9.1. Quotes A CFD quote e.g. where one ANZ share is the Underlying Product, the CFD may be quoted as 14.70/14.71. This represents the bid/ask spread. This quote means that you can: (a) buy the CFD at 14.71; and/or (b) sell the CFD at 14.70. 9.2. You can take both long and short positions You can take both long and short CFD positions. If you take a long position (i.e. purchase CFDs), you profit from a rise in the price of the Underlying Product, and you lose if the price of the Underlying Product falls. Conversely, if you take a short position (i.e. sell CFDs), you profit from a fall in the price of the Underlying Product and lose if the Underlying Product s price rises. As well as dealing Share CFDs, you can also deal CFDs on many world indices which are referred to as Index CFDs. The same principle applies you will go short if you think the market index is going to fall, or go long if you think the index is going to rise. This can be useful if you want to follow a specific market trend rather than individual shares. CFDs also allow investors to take long or short positions with investors being able to deposit funds (Initial Margin) and to cover all net debit adverse market movements by making additional payments of a Variation Margin or alternatively by Closing Out positions (refer to sections 13 and 14 for further information). Halifax NEW ZEALAND Product Disclosure Statement 9
9.3. Calculating profits and/or losses The amount of any profit or loss made on the CFD will be equal to the difference between the price or value of the CFD s Underlying Product when the CFD is opened and the price or value of the CFD s Underlying Product when the CFD is Closed Out, multiplied by the number of the CFDs held. The calculation of profit or loss is also affected by other payments, including payments relating to dividends declared in relation to the Underlying Security, funding charge, transaction costs and any other charges (for more information on costs and charges see section 19 of this PDS). Example 1: Assume 1000 Share CFDs were purchased where the Underlying Security was an ANZ share whereby you bought the CFDs at a price of $22.71 and later sold the CFDs at a higher price of $23.31 and Closed Out against the bought open position. The resulting gross profit would be $600 being: Sale price ($23.31) less buy price ($22.71) x 1000. The net profit is determined after deducting funding charge, transaction costs and any other charges. The impact of fees on the net profit realised will be dependent on many factors and in particular, the length of time the open position was held as the funding charge is a daily charge (for more information on costs and charges see section 19 of this PDS and we also refer you to the various trading examples which can be found on our website at www.halifaxonline.co.nz). Example 2: Assume 1000 Share CFDs were purchased where the Underlying Security was an ANZ share whereby you bought the CFDs at a price of $22.71 and later sold the CFDs at a lower price of $22.01 and Closed Out against the bought open position. The resulting gross loss would be $700 being: Sale price ($22.01) less buy price ($22.71) x 1000. The total loss is determined after adding funding charge, transaction costs and any other charges. The impact of fees on the total loss realised will be dependent on many factors and in particular, the length of time the open position was held as the funding charge is a daily charge (for more information on costs and charges see section 19 of this PDS and we also refer you to the various trading examples which can be found on our website at www.halifaxonline.co.nz). 9.4. realised and unrealised profits and losses Profits and/or losses are realised if both the buy and the sell side of the transaction have been completed and have been matched against each other or Closed Out. Profits and/or losses are unrealised if only one side of the transaction has been completed i.e. it remains an open position. In other words, if you do not instruct the Trading Platform to match selected trades against previous trades then it will default to matching trades on a First In First Out ( FIFO ) basis. This will result in the transactions remaining open and only being matched at settlement date. This may result in additional interest being generated whilst awaiting settlement (as opposed to being matched and Closed Out immediately where no additional fees will be incurred). for a worked example of how an open position is Closed Out we refer you to the trading examples on our website at www.halifaxonline.co.nz. alternatively, please contact a representative of Halifax to assist you in understanding the importance of and how to match and close out trades. 10. Key Benefits CFDs provide a number of benefits which must, of course, be weighed against the risks of using them. These advantages include: Ability to use CFDs to hedge You can use CFDs to hedge your exposure to the Underlying Product. Ability to use CFDs to speculate You can use CFDs for speculation, with a view to profiting from market fluctuations in the Underlying Product. You may take a view of a particular Underlying Product and therefore invest in our CFD products according to this belief in anticipation of making a profit. CFDs enable you to take a position with an exposure to a particular Underlying Product without needing to buy or sell the actual Underlying Product. Tailored A major benefit of entering into an OTC contract (such as a CFD offered by Halifax) is that you can tailor the transaction to meet your specific circumstances. As described in section 8 of this PDS, unlike exchange traded products, OTC contracts are not standardised and can be personally tailored to suit your requirements. For example, Halifax allows you to enter into CFDs in small amounts whereas exchange traded products have a minimum transaction size based on a dollar value. 10 Halifax NEW ZEALAND Product Disclosure Statement
Profit potential in both rising and falling markets Since the prices in the Underlying Products are constantly moving, there are always trading opportunities, whether a particular Underlying Product is increasing or decreasing. There is the potential for profit (and loss) in both rising and falling markets depending on the strategy you employ. Leverage The use of CFDs involves a high degree of leverage. These products enable a user to outlay a relatively small amount (in the form of the Initial Margin) to secure an exposure to the Underlying Product without having to pay the full price of, for example, holding the Underlying Security. You can effectively take a position with the same results as you would get from purchasing or selling the shares, but for less initial outlay than the equivalent physical transaction and still potentially benefit from a price move. However, if the price move is unfavourable, then the use of leverage makes it possible that you will lose more than the Initial Margin. Accordingly, leverage gives the user the ability to take a greater level of risk for a smaller initial outlay, thus amplifying the risks and rewards. However, you need to fully understand that leverage also increases risks and can magnify losses see section 11 Significant Risks and, in particular, the paragraph entitled Leverage in section 11.2. The use of leverage can lead to large losses as well as large gains. For example, if you have a positive view about the prospects of a company, say XYZ, you could either buy 10,000 shares of XYZ at $1.00 and pay your stock broker $10,000 (plus costs) or you could buy 10,000 Share CFDs from Halifax (where the Underlying Security is XYZ shares) and lodge an Initial Margin (depending on the particular company) of somewhere between $500 and $2,500 (plus costs). For the experienced investor, this leverage provides an attractive means of gaining exposure to the performance of the Underlying Securities without the need to invest in the physical shares. Strategies Strategies may be complex and will have different levels of risk associated with each strategy. Please contact representative of Halifax to assist you in different trading strategies available to you. We can assist you by providing general advice which will be generic in nature and will not take into consideration one or more of your objectives, financial situation or needs. 11. Significant risks You should be aware that trading in the CFD products offered by Halifax involves risks. It is important that you carefully consider whether trading our products is appropriate for you in light of your investment objectives, financial situation and needs. Halifax has a risk management framework within the software supporting the Trading Platforms which, assuming you meet all of your obligations to us (as fully set out in the Client Services Agreement), attempts to limit your potential loss to the amount in your account. However, at all times, if you have open positions with us your potential loss can be substantial and is not limited to any amount. Halifax recommends that you do not risk money that you are not in a position to lose and that you adopt a philosophy of capital preservation and implement risk mitigation techniques (such as the use of stop loss orders. For more information on stop loss orders and other order types, you are referred to Annexure A of this PDS). The following is a description of the significant risks associated with trading CFD products offered by Halifax. 11.1. Risks associated with Derivatives Derivative markets can be highly volatile. Accordingly, the risk of loss in trading in derivatives contracts can be substantial. You should carefully consider whether trading is appropriate for you in light of your personal and financial circumstances. In deciding whether or not you will become involved in trading, you should be aware of the following matters: You could sustain a total loss of the amount that you deposit with Halifax to establish or maintain a contract. Your loss is not limited to that amount i.e. you could lose additional money beyond the funds you have deposited with us. In this situation Halifax will require those funds to be paid immediately. If the market moves against your position, you will be required to deposit additional funds in order to maintain your position i.e. to top up your account (refer to section 13 of this PDS). Those additional funds may be substantial. If you fail to provide those additional funds immediately, Halifax may Close Out some or all of your open positions. You will also be liable for any shortfall resulting from that closure. Under certain market conditions, it could become difficult or impossible for you to manage the risk of open positions by entering into opposite positions in another contract or Close Out existing positions (refer section 11.2 of this PDS under the heading Market Risk ). Halifax NEW ZEALAND Product Disclosure Statement 11
Under certain market conditions the prices of our CFD products may not maintain their usual relationship with the Underlying Product. The CFD products offered by Halifax involve risk. However, the placing of contingent orders such as a stop loss order may potentially limit your loss. A stop loss order shall be executed at or near the price or value requested by you, but is not guaranteed at the exact level. Accordingly, stop loss orders may not limit your losses to the exact amount you specified. A transaction of this nature shall be executed as soon as the price or value of the Underlying Product reaches or goes through the price or value given by you. As noted in section 11.2 of this PDS, a high degree of leverage is obtainable in trading the CFD products offered by Halifax because of the small Initial Margin requirements which can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. The impact of leverage is that even a slight fluctuation in the price or value of the Underlying Product could mean substantial gains when these fluctuations are in your favour, but could also mean considerable losses if the fluctuations are to your detriment. Trading in CFDs offered by Halifax may result in the total loss of the amount you deposited with Halifax plus you may be liable for further losses. 11.2. General Risks Client monies Funds deposited with Halifax are deposited into our client trust account. Notwithstanding, your funds are at risk in the event of another client default as individual client funds are not separated from each other. We refer you to section 18.1 of this PDS for additional information. In addition, Halifax may use the client funds in its client trust accounts to manage its dealings with its hedging counterparties (for more information about the use of client monies see section 18 of this PDS). Market risk Financial markets such as stock markets can change rapidly due to external market forces. Share prices (on which the value of Share CFDs are based) depend on a number of factors including for example, interest rates, demand and supply, actions by the company concerned and potentially, the actions of governments. In some cases, shares may be suspended from trading or have their quotation withdrawn from the exchange where they are traded. This will directly affect a Share CFD position. Fluctuations in share indices, and thus Index CFDs, are a direct result of the fluctuating prices of the underlying shares which comprise the relevant index. This will directly affect an Index CFD position. Given the potential levels of volatility in the markets, it is therefore recommended that you closely monitor your open positions at all times. Substantial losses Despite trying to Close Out open positions, your loss on a transaction could be very substantial. Stop loss orders are instructions placed by the client with Halifax to Close Out an open position if a market trades at or through a specific level. Stop loss orders are often used to attempt to limit or minimise the amount which can be lost on an open position. Stop loss orders may not always be filled and, in any event, may not limit your losses to the amounts specified in the order. The operation of stop loss orders should be discussed with a representative of Halifax. Payment of Variation Margin If the price or value of the Underlying Product moves against your CFD position, you will be required to have sufficient funds on deposit with us to meet Margin Calls in order to maintain your position. The amount of the Variation Margin may be substantial. If you fail to satisfy a Margin Call immediately, your position may be Closed Out at a loss and you will be liable for any shortfall in your account resulting from that failure. Positions are marked to market on a real time daily basis, with payments being settled in real time to account for market movements (for more information about Margin Obligations see section 13 of this PDS). If the amount available in your account is less than the amount of the Margin Requirement to enter a new or maintain a CFD position, Halifax reserves the right to Close Out some or all of your open positions in order to reduce our exposure. The risk of abrupt adverse changes in the price or value of the Underlying Product is even greater in circumstances where there is an increase in market volatility. Traditionally, volatility can increase significantly as a result of unexpected news or unknown data being released such as terrorist attacks, acts of god, or financial market collapse. Co-mingling of client monies Funds paid to Halifax by you are first deposited into a client trust account maintained by Halifax. This means that client funds (and property) deposited with us are held in safe keeping and segregated from our own funds (or property). Client monies are held, used and withdrawn in accordance with the Corporations Act, this PDS and our Client Services Agreement. This means that those funds are not available to pay general creditors in the event of receivership or liquidation by Halifax. For money deposited in our client trust accounts, you should be aware that individual client accounts are not separated from each other and all clients funds are co-mingled into the one client trust account. 12 Halifax NEW ZEALAND Product Disclosure Statement
Generally, you should also be aware that the client money provisions of the Corporations Act 2001 may not insulate any individual client s funds from a default in a client trust account if such a default were to occur. Such a default may arise from trading by any client or clients i.e. by a client failing to pay for all losses incurred on their account. We also refer you to Section 18.1 for additional detail. Not a regulated market The CFD products offered by Halifax are OTC derivatives and are not covered by the protections for exchange-traded derivatives arising from any domestic or international exchange rules (such as guarantee or compensation funds). Notifications are via the electronic platform that you use If you do not actively monitor your open positions via the Trading Platform, you may not be aware when some or all of your open positions are Closed Out. Counterparty risk Given you are dealing with Halifax as counterparty to every transaction, you will have an exposure to us in relation to each of those transactions. This is common to all OTC financial market products. You can assess Halifax s financial ability to meet its counterparty obligations by reviewing its financial accounts. Should you wish to be provided with a copy of the most recent audited financial accounts of Halifax then please request this Information directly from us and we will provide it free of charge. You are reliant on Halifax s ability to meet its counterparty obligations to you to settle the relevant contract. If Halifax were to become insolvent, then we may be unable to meet our obligations to you in full or at all. Halifax limits this exposure by entering into opposite transactions as principal in the wholesale market with its hedging counterparties in relation to its exposures to its clients i.e. we hold back to back positions (with you as one counterparty and with a hedging counterparty as the other counterparty). It is possible that a hedging counterparty may become insolvent while controlling client money. Therefore any funds paid by clients to Halifax may not be protected if there is a default in the overall client trust account. Refer to the paragraph titled Clients Money in section 18 of this PDS for further information. Leverage The high degree of gearing or leverage associated with CFDs because of small Initial Margin requirements can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. CFDs offer the potential to make a higher return from a smaller outlay than for a non-leveraged transaction such as direct share investing. Whilst the initial outlay of capital may be small relative to the total position value, a small market movement still has the potential to have a proportionately larger impact on the amount of funds supporting the position. Leverage can therefore work both for and against you by magnifying profits and losses. Order Acceptance Risk When you request to place an order (i.e. instruction to open or Close Out a transaction), Halifax has an absolute discretion whether or not to accept and execute any such request. Halifax s discretion includes, but is not limited to, Stop Loss orders, Market orders, Market-on-Open orders, Stop Entry orders, One cancels the other orders, If Done orders and any other order type established and defined on the relevant Trading Platform from time to time. Halifax s rights to refuse your request to receive/place an order (to establish a new position or amend an existing open position) are set out in full at section 4 of the Client Services Agreement. You should refer to these paragraphs for the circumstances in which Halifax may exercise its discretion not to accept your order and to section 1 of Annexure A of this PDS for further information. The effect of Halifax s discretion is that an order you give may not be executed and you may suffer loss (including actual loss or lost opportunity) as a result. Halifax is not responsible for any such loss. Liquidity Under certain conditions, it may become difficult or impossible for you to Close Out a position. This can, for example, happen when there is a significant change in the price or value of the Underlying Product over a short period of time. Use and Access to the Website You are responsible for providing and maintaining the means by which to access a Trading Platform, which may include without limitation a personal computer, modem and telephone or other access line. While the internet and the World Wide Web are generally reliable, technical problems or other conditions may delay or prevent access. If you are unable to access the internet and thus, the Trading Platform, it will mean you may be unable to trade in the CFD product offered by Halifax and you may suffer a profit or loss as a result. Halifax NEW ZEALAND Product Disclosure Statement 13
Furthermore, in unforeseen and extreme market situations, Halifax reserves the right to suspend the operation of our online Trading Platform or any part of it. We will however, endeavour to contact you beforehand in this regard. In such an event, Halifax may, at its sole discretion (with or without notice), Close Out your open positions at prices or values it considers fair and reasonable at such a time. Halifax may impose volume limits on client accounts, at its sole discretion. This could occur if you placed an order and Halifax deemed the size of the order to have an excessive impact on the risk profile that Halifax was prepared to take. If you require further clarification please contact the Operations Manager of Halifax for additional explanation. Electronic Trading Platforms You should be aware that there are a number of risks associated with using internet-based Trading Platforms. Such risks include, but are not limited to, risks related to the use of software and/or telecommunications systems such as software errors and bugs, delays in telecommunications systems, interrupted service, data supply errors, faults or inaccuracies and security breaches. These risks and the occurrence of disruptive events are outside the control of Halifax and, accordingly, you will have no recourse against Halifax in relation to the use of or availability of our Trading Platforms or any errors in the software and/or related information systems. There are important provisions regarding the use of the Trading Platforms contained in the Client Services Agreement. You must ensure that you fully understand these provisions and the risks involved in relying on an on-line, electronic trading system and the limitations in the service that Halifax can provide in relation to the Trading Platforms. Halifax relies on a number of technology solutions to provide you with its online Trading Platforms. Halifax has outsourced the operation of its Trading Platforms to various third parties, and in doing so has relied on these third parties to ensure the systems are regularly updated and maintained. Halifax has been operating various Trading Platforms since 2005. Additional Trading Platforms may be offered from time to time at the discretion of Halifax. Trading on the Halifax Trading Platforms may differ from trading on electronic trading systems offered by other providers. A disruption to the Halifax Trading Platforms could mean you are unable to trade in a CFD product offered by Halifax and that you may suffer a financial loss or an opportunity loss as a result. In most cases, orders can be placed using any of the Trading Platforms we provide, however there may be certain circumstances that could restrict order entry. Some examples of these include: 1. Order size this could occur if you were trading and Halifax deemed the size of your order to be potentially adverse to the risk profile that Halifax was prepared to take. 2. Product type this could occur if the Underlying Product was illiquid. 3. availability this could occur as a result of the Trading Platform server or connectivity being down or inoperative. 4. Order type this could occur if Halifax deemed that the order was placed outside the current fair value of the Underlying Product in an attempt to protect you from error. Please note that if you attempt to contact Halifax by phone to execute an order when the same order could have been placed through the Trading Platform i.e. the Trading Platform is available but for some reason you choose to place the order by phone, you may incur an additional fee. This fee will not be any more than the maximum fee Halifax charges (refer to section 19 of this PDS). However, this fee will not be charged if you are placing the phone order due to a disruption to the Halifax Trading Platforms which results In you not being able to place an order through the Trading Platforms. Systems Risk Halifax is not responsible for any external disruptions such as your computer and internet service not being operational. Foreign Exchange Risk Halifax is not responsible for exchange rate movements where you trade in a CFD based on an Underlying Product priced in a currency other your account currency. Your profit or loss will be determined by movements in the price of the Underlying Product and also by the impact of movements in the exchange rate. Your account is always maintained in a specific currency (which you nominate), for example AUD. You will instruct us what you want this currency to be. All Margin Requirements, profits, losses and all other variables (such as fees) will be debited or credited to your account in the nominated account currency (in this example, AUD) at the prevailing exchange rate (plus a conversion fee (refer Section 19.5 for additional details). If you transact in a CFD where the Underlying Product is denominated in a currency other than the account currency (e.g. a share traded on the New York Stock Exchange is priced in USD), all Margin Requirements, profits and losses will be converted from USD to the account currency. If you hold an open position and the exchange rate when you Close 14 Halifax NEW ZEALAND Product Disclosure Statement