CLIENT SERVICE AGREEMENT Halifax New Zealand Limited eement Agr Product Disclosure Statement for CONTRACTS FOR Service DIFFERENCE Client This is a replacement Product Disclosure Statement which replaces the Product Disclosure Statement for dated 26 th May 2015 This document provides important information about to help you decide whether you want to enter into any of these derivatives. There is other useful information about this offer at www.business.govt.nz/disclose. 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 2013. Halifax New Zealand Limited Financial Services Provider No. 146605 Date 30 th June 2016 v1.01 HALIFAX Client Service Agreement 1
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1. Key Information Summary 1.1 What is this? This is a product disclosure statement (PDS) for (CFD) provided by Halifax New Zealand Limited (Halifax, we, our, us). CFDs are derivatives, which are contracts between you and Halifax that may require you (client) or Halifax to make payment or deliver on the CFDs underlying index, equity, commodity, financial product, or other asset (as the case may be). The value of the contract will depend on the price or value of the underlying index, equity, commodity, financial product, or other asset. The contract specifies the terms on which those payments and deliveries are to be made. 1.2 Warning 1.2.1 Risk that you may owe money under the derivative If the price, value, or level (as the case may be) of the underlying 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 2.8 of this PDS on how payments are calculated. 1.2.2 Your liability to make margin payments Halifax may require you to make additional margin payments to contribute towards your future obligations under the CFDs. These payments may be required at short notice and can be substantial. You should carefully read section 2.8 of this PDS about your obligations. 1.2.3 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 an index, equity, commodity, financial product, or other asset (as the case may be) as required. You should carefully read section 3 of the PDS (risks of these derivatives) and consider the creditworthiness of Halifax and its Platform Counterparties. If Halifax or the Platform Counterparty 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 is a New Zealand company which issues derivatives on CFDs, exchange traded options, margin foreign exchange and foreign exchange options. It also offers broking services in futures contracts and futures options contracts. For more information about Halifax see section 6 of this PDS. 1.4 Which derivatives are covered by the PDS? The derivatives covered by this PDS are CFDs issued by Halifax. CFDs are over-the-counter (OTC) derivative contracts. This means that they are created and traded off-market between you and Halifax rather than on an exchange, such as a stock exchange or futures exchange. HALIFAX NZ ii
1.4.1 What is a CFD? CFDs are OTC derivative contracts which are negotiated and entered into between you on one hand and Halifax as principal on the other hand. Under a CFD, you and Halifax each agree to pay the other the difference arising from movements in the value of an Underlying Product (for example, changes in a stock index, a commodity or equity). This is a counterparty relationship which means that any positions you choose to open with Halifax can only be Closed Out with Halifax. Your Trading Account will either be credited or debited according to the profit or loss of that trade. We offer CFDs in the following Underlying Products: a. Share CFDs: International shares refer to section 2.3.1 of this PDS for additional details. b. Index CFDs: International market indices refer to section 2.3.2 of this PDS for additional details. c. Expiring CFDs: Commodities, bonds and interest rates refer to section 2.3.3 of this PDS for additional details. Trading in CFDs does not result in the ownership by you in the Underlying Product and you will have none of the rights of an owner in that Underlying Product. When you enter into a CFD with us, you do so through an online interface (referred to as a Trading Platform). See section 2 of this PDS for further information about entering into a CFD and the Trading Platforms. We hedge 100% of our exposure to you under every CFD Transaction. This means that for each CFD Transaction you enter into with us, we will hedge our exposure to you by entering into an equivalent matching CFD with a Platform Counterparty (referred to as a Hedge Transaction). 1.4.2 What are the key benefits and uses of CFD products? CFDs 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 Product. b. Speculation: They can be traded by speculators, who trade in them hoping to profit from the changing prices in the Underlying Product. For more information about CFDs see section 2 of this PDS. CFDs allow you to utilise margins to leverage your positions to take a much greater exposure to the price of an Underlying Product than if you were to buy and sell the Underlying Product directly. This has the capacity to significantly increase the potential losses or returns. See section 2.8 of this PDS for further information regarding the use of margins when trading CFDs. iii HALIFAX NZ
Contents 1. Key Information Summary ii 2. Key features of the derivatives 1 3. Risks of these derivatives 11 4. Fees 13 5. How Halifax treats funds and property received from you 17 6. About Halifax New Zealand Limited 18 7. How to complain 19 8. Where you can find more information 19 9. How to enter into Client Services Agreement 19 Glossary 20 HALIFAX NZ iv
2. Key features of the derivatives 2.1 What is a CFD? A CFD is an agreement between you and Halifax to pay the other the difference arising from movements in the value of an Underlying Product, without either party having to actually own the Underlying Product. A CFD is an OTC derivative product. This means that CFDs are created and traded off-market between you and Halifax rather than being traded on an exchange, such as a stock exchange or futures exchange. We offer CFDs in the following Underlying Products: a. Share CFDs: Shares listed on international exchanges (Underlying Securities) refer to section 2.3.1 of this PDS for additional details. b. Index CFDs: International market indices (Underlying Index) - refer to section 2.3.2 of this PDS for additional details. c. Expiring CFDs: Commodities (Underlying Commodity), bonds (Underlying Bond) and interest rates (Underlying Interest Rate) - refer to section 2.3.3 of this PDS for additional details. As a party to a CFD, you can be paid an amount of money (profit), or be required to pay an amount of money (loss) depending on movements in the value of the Underlying Product. CFDs are therefore cash adjusted between you and Halifax. 2.2 Trading CFDs When you enter into a CFD with us, you do so through an online interface (referred to as a Trading Platform). The Trading Platforms that can be used to trade CFDs are Halifaxonline, Halifax Pro MetaTrader4 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 a CFD on a Trading Platform). Order type Market Stop Loss Stop Entry Market If Touched 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. 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. Limit One Cancels The Other If Done Good Til Cancelled Orders Standing Order 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. 1 HALIFAX NZ
2.3 Types of CFDs Halifax offers Share CFDs, Index CFDs and Expiring CFDs. 2.3.1 Share CFDs You can enter into CFDs based on shares listed on international exchanges. These CFDs are referred to as Share CFDs. Share CFDs derive their price from real time fluctuations in the exchange traded price of the Underlying Security on which the Share CFDs are based. For example, if you bought 1000 Share CFDs and the price of the Underlying Security was quoted as 25.70/25.71 then the Share CFDs would have a notional value or contract value of $25,710 (being 25.71 x 1000). This example is included for illustrative purposes only. It provides an example of one situation only and does not reflect the specific circumstances or the obligations that may arise under a derivative you enter in to. Prices for Share CFDs are only quoted and can only be traded during the open market hours of the relevant exchange on which the Underlying Security is traded. Open hours of the relevant exchanges are available by viewing the exchange websites which are set out in Schedule 1, Annexure A, of the Other Material Information document on the Disclose Register. Halifax may in its sole discretion choose not to quote a price on a Share CFD over a particular Underlying Security. This may occur, for example, in instances where the Underlying Security is illiquid or in suspension or the company that issues the Underlying Security has gone into external administration. Halifax does not offer Share CFDs over all listed global stocks, and the Underlying Security on which you can enter into a Share CFD will differ depending on which Trading Platform you use. For more information on which Share CFDs you can trade with us, please download a demonstration Trading Platform located on the Halifax website http://www.halifaxonline.co.nz/free-demo/ or contact us. 2.3.2 Index CFDs You can enter into CFDs on many world indices. These CFDs are referred to as Index CFDs. Index CFDs derive their price or value from the real time fluctuations in the value of an Underlying Index as calculated by the relevant exchange or Halifax s valuation of that Underlying Index. For example, if the level of the ASX S&P 200 is 5000 then trading 10 Index CFDs would mean the notional value or contract value of the trade would be $50,000. This example is included for illustrative purposes only. It provides an example of one situation only and does not reflect the specific circumstances or the obligations that may arise under a derivative you enter in to. Similar to Share CFDs, prices are only quoted for Index CFDs and can only be traded during the open market hours of the relevant exchange on which the Underlying Index is determined. The opening hours of the exchanges are available on the website of each exchange. The website addresses for the exchanges are set out in Schedule 1, Annexure A, of the Other Material Information document on the Disclose Register. Index CFDs allow you to trade anticipated market trends rather than individual shares or commodities. Halifax offers Index CFDs on the majority of major market indices. These market indices are set out in Schedule 1, Annexure B, of the Other Material Information document on the Disclose Register. 2.3.3 Expiring CFDs You can enter into CFDs over futures on many traded physical commodities, bonds and interest rates. These CFDs are referred to as Expiring CFDs. Expiring CFDs derive their value from fluctuations in the value of the relevant Underlying Commodity, Underlying Bond or Underlying Interest Rate as calculated by us from time to time. We will generally calculate the value of the Underlying Commodity, Underlying Bond or Underlying Interest Rate for an Expiring CFD by reference to publicly available Pricing Sources, such as futures markets or cash indices published on the relevant Trading Platforms. We may however, in our sole discretion, use a different source for pricing an Expiring CFD. Although the Underlying Commodity, Underlying Bond or Underlying Interest Rate on which an Expiring CFD is based may trade over specific trading times, we reserve the right to reduce or extend the trading times at our sole discretion. An example of when this may occur is in instances where the underlying market trades over a 24 hour period, but only has sufficient liquidity during the main session (for example 10.00 a.m. to 4.00 p.m.) then the CFD may only be made available during the main session trading hours of 10.00 a.m. to 4.00 p.m. as opposed to the HALIFAX NZ 2
full 24 hour trading period where the underlying market may still be open. The Underlying Commodities, Underlying Bonds or Underlying Interest Rates on which you can enter into an Expiring CFD will differ depending on which Trading Platform you use. For more information on which Expiring CFDs you can trade with us, please download a demonstration Trading Platform located on the Halifax website http://www.halifaxonline.co.nz/free-demo/ or contact us. 2.4 The capacity in which Halifax acts CFDs are negotiated and entered into between you on one hand and Halifax as principal on the other hand. This is a counterparty relationship, which means that any positions you choose to open with Halifax can only be Closed Out with Halifax. We hedge 100% of our exposure to you under every CFD Transaction. This means that for each CFD Transaction you enter into with us, we will hedge our exposure to you by entering into an equivalent matching CFD with a Platform Counterparty. 2.5 Two models for determining the price or value quoted by Halifax of a CFD There are two models or ways of trading CFDs with Halifax. The first is via what is commonly known as, the DMA Model. The second is via what is commonly known as, the Market Made Model. You can elect to use either model. The default model for new clients of Halifax that do not elect a preferred model will depend upon the Trading Platform selected, for example Halifaxonline defaults to a Market Made Model whilst Trader Workstation defaults to a DMA Model. 2.5.1. The DMA Model Under the DMA Model all CFD quotes will be the same as the price or value of the Underlying Product on the relevant exchange i.e. we will not apply any spread to prices or values of CFDs. The spread is the difference between the bid price and the offer price. 2.5.2. The Market Made Model Under the Market Made Model all CFD quotes made by Halifax are with direct reference to the price or value of the Underlying Product on the relevant exchange but an additional spread may be applied to the price or value of the CFDs. The value of the spread will be determined by Halifax in its sole discretion. 2.5.3. The fundamental difference between the DMA and Market Made Models The fundamental difference between the DMA Model and the Market Made Model is the way in which the Platform Counterparty hedges your CFD position. Under the Market Made Model the Platform Counterparty may hedge your position via its internal order book or may take on the risk of your position in their own account i.e. the Platform Counterparty s market maker chooses not to hedge your position. Under the DMA Model the Platform Counterparty will immediately offset (hedge) your position in the underlying market. There may also be a difference in the way in which Halifax charges its commission to you. Under the Market Made Model, the commission may be charged via a widening of the spread (the difference between the bid price and the offer price) as opposed to, or in addition to a separate commission fee. Using the DMA Model, Halifax charges a commission on each CFD Transaction; being the greater of the percentage value of the CFD Transaction and the minimum fixed charge. Refer to section 4 of this PDS for more information on the fees and charges payable in connection with CFD Transactions. 3 HALIFAX NZ
2.6 Key features of CFDs The key features of CFDs are as follows: a. CFDs and Underlying Product are closely aligned: A CFD broadly replicates the price movement of the Underlying Product i.e. if the price of the Underlying Product changes, so too will the value of the CFD. b. No requirement to own Underlying Security: Share CFDs are a trading solution that provide the opportunity to profit (or incur loss) by dealing in the Underlying Security without having to actually own the Underlying Security. This is unlike trading in the Underlying Security itself where you acquire a beneficial interest in the actual Underlying Security i.e. the 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 or any entitlements to dividends or other distributions which may be paid to shareholders in respect of the Underlying Security. c. OTC contracts are not standardised: Unlike contracts traded on an exchange, OTC products are not standardised. The terms of a CFD are individually tailored to the particular requirements of you and Halifax. d. Counterparty relationship: CFDs are OTC derivative products. CFDs are an agreement between you and Halifax and can only be entered into and Closed Out with us. e. Margin Requirements: CFDs are subject to Margin Requirements and are marked to market (for more information see section 2.8 of this PDS). f. Expiry Date: CFDs generally do not have an expiry date (unless the Underlying Product itself has an expiring date i.e. Expiring CFDs), and will remain in place until either you or we, in our sole discretion, Close Out the open position. Expiring CFDs will be Closed Out on the expiry date of the Underlying Product unless Closed Out by you or us, in our sole discretion, prior to that expiry date. g. 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. h. Calculating profits and/or losses: The amount of any gross profit or loss made on a CFD Transaction will be equal to the difference between the value of the Underlying Product when the CFD is opened and the value of the Underlying Product when the CFD is Closed Out, multiplied by the number of the CFDs held. The value of the Underlying Product is determined by Halifax by reference to the relevant Pricing Source. The calculation of profit or loss is also affected by fees and charges payable in respect of each CFD Transaction. There may be certain adjustments made in relation to the CFDs which may affect the calculation of profit or loss. Section 4 of this PDS sets out the fees and charges payable in connection with CFD Transactions. For example: Assume: i. you purchase 1,000 Share CFDs (i.e. you enter into a long CFD) where the Underlying Security is an ANZ share and the price at which you enter into the CFD is $32.71; and ii. you later Closed Out the CFD by selling (or entering into a short CFD) at a higher price of $33.31. The resulting gross profit on the transaction would be $600 being sale price ($33.31) less buy price ($32.71) x 1,000. The net profit is determined after deducting commission, funding charges, 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 applied daily. The example above is included for illustrative purposes only. It provides an example of one situation only and does not reflect the specific circumstances or the obligations that may arise under a derivative you enter in to. It should not be considered to be indicative of the actual prices, rates, fees or spreads which might be offered. For additional trade examples please refer to Halifax NZ s CFD Trading Examples Booklet found on Halifax NZ s website at http://www.halifaxonline.co.nz/support/ disclosure-documents. HALIFAX NZ 4
2.7 Key Benefits CFDs provide a number of benefits which must be weighed against the risks of using them. The benefits of CFDs are as follows: a. Ability to use CFDs to hedge: CFDs can be used to hedge your exposure to the Underlying Product. b. Ability to use CFDs to speculate: You may take a view on a particular Underlying Product and invest in our CFDs according to this belief. c. Tailored: OTC contracts (such as the CFDs offered by Halifax) 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. d. Profit potential in both rising and falling markets: CFDs 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. e. Leverage: CFDs involve a high degree of leverage. CFDs 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 value of the Underlying Product without having to pay the full price of actually acquiring the Underlying Product. 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 shares of XYZ) 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 or to pay the full purchase price. The use of CFDs involves a high degree of leverage and gives a client the ability to take a greater level of risk for a small initial outlay, thus amplifying the risks and rewards. You need to fully understand that leverage also increases risks and can magnify losses - see section 3 of this PDS and, in particular, section 3.1.1. The example above is included for illustrative purposes only. It provides an example of one 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 CFD Trading Examples Booklet found on Halifax NZ s website at http://www.halifaxonline.co.nz/support/disclosuredocuments. 2.8 Margin Obligations CFDs are subject to margin obligations i.e. clients must have sufficient balance in their Trading Account for security and margining purposes. You are responsible for meeting all margin payments required by Halifax. 2.8.1. Types of Margin There are two components of the Margin Requirements which you may be required to pay in connection with CFDs; Initial Margin and the Variation Margin. 2.8.2. Initial Margin In order to enter into a CFD Transaction 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. This amount represents collateral for your exposure under the transaction and covers the risk we take on you. Depending on the particular CFD Transaction, the market volatility for the Underlying Product and the Trading Platform you use, the Initial Margin for a CFD Transaction will typically be between 1% and 30% of the face value or contract value of the CFD Transaction. However, it is not uncommon for Initial Margins to be above this range. 5 HALIFAX NZ
Margin Requirements differ depending on the Trading Platform you choose. In choosing a Trading Platform, you should carefully consider the Margin Requirements of each Trading Platform as Margin Calls could have an adverse impact on your investment. We may, in our sole discretion and without the need to notify you, change the percentage Margin Requirements for a Trading Platform from to time. You should refer to the Initial Margin schedule on your Trading Platform for more information about the Margin Requirements each time you enter into a CFD Transaction. You must have an amount of Net Free Equity in your Trading Account that is at least equal to the Initial Margin amount before entering into a CFD Transaction. 2.8.3. Variation Margin As the value of your CFD will constantly change due to changing values of the Underlying Product, the Margin Requirement (being the minimum Trading Account balance you must maintain in order for us not to Close Out some or all of your CFD Transactions) on the open positions will also constantly change. This is also commonly 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. We determine the Variation Margin for a CFD Transaction by reference to changes in the value of the Underlying Product. 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 Product as determined by the relevant Pricing Source. Intraday marked to market revaluations will be based on the last available value of the Underlying Product as determined by us in our sole discretion. We will attempt to provide you with notice of any adverse Variation Margin by making a Margin Call (via pop-up screens or screen alerts on the Trading Platform). 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 CFD Transactions. 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 CFD Transaction can be used or applied as Initial Margin or Variation Margin for another CFD Transaction. 2.8.4. Notifications regarding Margin Requirements As described in section 2.8.3, 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. HALIFAX NZ 6
2.8.5. Failing to meet a Margin Call If you do not meet Margin Calls immediately, some or all of your positions may be Closed Out by Halifax without further reference to you. 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 CFD Transactions without notice to you. The Default Liquidation Threshold is determined by the Platform Counterparty for your Trading Platform. It is implemented for risk management purposes, and may be varied by the Platform Counterparty at any time. See Schedule 1, Annexure C, 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 CFD 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 CFD Transaction until you transfer additional funds to us. 2.8.6. 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. 2.8.7. How to deposit money with Halifax You will only be permitted to deal in and maintain open CFD Transactions on the basis of cleared funds being provided to meet your Margin Requirements. It is your responsibility to provide the funds 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 as follows: a. Real time gross settlement (RTGS): This is an immediate transfer of cleared funds which may or 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. 7 HALIFAX NZ
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 CFD Transaction. 2.9 Entering into, altering and terminating a CFD 2.9.1. 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 account application and account opening form which can be located on our website at http:// www.halifaxonline.co.nz/getting-started/. 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 2.8.7 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 CFD Transaction). 2.9.2. Cooling off arrangements and altering the terms of CFDs There are no cooling off arrangements for the CFDs offered by Halifax. This is consistent with other product issuers in similar products. This means that when you enter into a CFD Transaction with Halifax, you do not have the right to return the product, or request a refund of the money paid to acquire the CFD. Should you change your mind after entering into the CFD Transaction with Halifax you should Close Out your position by entering into an opposite transaction (although loss may be incurred in doing so). 2.9.3. Price of CFDs Halifax, via its Trading Platforms, provides continuous quotations for CFDs offered by Halifax. Any quotation provided by Halifax for a CFD is valid for so long as it is displayed on the Trading Platform. Halifax reserves the right to amend the quotations offered at any time. You should ensure that you enter an order to trade immediately if the quote for a CFD is at a level price or value at which you wish to trade. You should be aware that Halifax, at its absolute discretion, may quote different prices to different clients (for example due to different order sizes). You will always have the option to either accept or reject any quotation displayed on the relevant Trading Platform, although if you delay in accepting the price it may no longer be available at a later time. HALIFAX NZ 8
2.9.4. Opening a position Orders to open a position can be given through your chosen Trading Platform or by contacting us within business hours. Section 2.2 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 2.8 of this PDS); b. we are unable to quote values in the relevant Underlying Product due to the unavailability of information from the relevant exchange or Pricing Source (as applicable) on which the Underlying Product is traded; or c. there are problems with systems, the website or Trading Platform (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 online. This is an online report that you can access and print upon demand and highlights all of the particulars concerning the transaction If you have provided us with an email or other electronic address, you consent to confirmations being dispatched to you electronically, including by way of the information posted to your Trading Account in the Trading Platform. It is your obligation to review any confirmation immediately to ensure its accuracy and to report any discrepancies within 48 hours. Confirmations can be viewed electronically through the Trading Platform and from daily statements (an example of a daily statement is available on our website). 2.9.5. Adjustments Under the Client Services Agreement, we have the right to decide to make an adjustment in a number of circumstances if we consider an adjustment is appropriate. Our right to make an adjustment to your open position, as well the circumstances in which we may make an adjustment are set out in the Client Services Agreement. 2.9.6. Expiry of CFDs CFDs generally do not have an expiry date (unless the Underlying Product itself has an expiry date i.e. Expiring CFDs), and will remain in place until either you or we, in our discretion, Close Out the open position. Expiring CFDs may be left open up to close of trading on the expiry date for the Underlying Product (being the futures contract over the Underlying Commodity, Underlying Bond or Underlying Interest Rate you select for your Expiring CFD) and can be Closed Out at any time prior to the expiry date. If an Expiring CFD is not Closed Out by close of trading on the expiry date, the CFD will be Closed Out automatically at that time and cash settled at the last available closing value. When you enter into an Expiring CFD, you will need to select the term of the futures contract over the relevant Underlying Commodity, Underlying Bond or Underlying Interest Rate. 2.9.7. What factors affect the CFD value on Close Out? On the day that the CFD is Closed Out, Halifax will calculate your remaining payment rights and obligations to reflect movements in the contract value since the previous business day s close (including interest and other credits/debits). The closing contract value may also be affected by the following factors: a. External administration: If the Share CFD is over shares in a company which becomes externally administered, the CFD will be Closed Out by Halifax at that time and any resultant profit or loss will be credited or debited to your Trading Account. If this happens, Halifax will determine the price at which the CFD will be Closed Out having regard to any factors it considers appropriate including for example, the last traded price of the Underlying Security. It is the policy of Halifax that it will not continue to offer or quote Share CFDs where the Share CFD is over shares in a company which becomes externally administered. b. Takeovers: If a Share CFD is over shares in a company which becomes the subject of a takeover offer, Halifax may give you notice of its intention to Close Out the CFD. If this happens, Halifax will determine the closing price at its discretion. The closing price will usually be determined taking into account the terms of the takeover offer. 9 HALIFAX NZ
c. Trading halts: If a Share CFD is over shares in a company in respect of which there is a trading halt, we will determine the closing price at our discretion. The closing price we determine may be zero. You may be required to pay us an amount on Closing Out the CFD. d. Suspension: If the CFD is over: i. Underlying Shares which cease to be quoted on the exchange on which they were quoted when the CFD was entered into, or are suspended from quotation for five consecutive business days (or such lesser period as may be agreed with you); ii. iii. an Underlying Index which ceases to be calculated by the relevant index sponsor, or the index parameters are materially changed; or an Underlying Commodity, Underlying Bond or Underlying Interest Rate for which pricing ceases to be available from a reputable pricing provider, we may elect to Close Out the CFD and/or call additional Margin. If we elect to Close Out the CFD, we will determine the closing value and in making such determination, will, at our discretion, have regard to a number of factors including the last value of the Underlying Product and the reasons for any suspension (e.g. administration, liquidation, removal of listed stock or termination of the index). 2.10 How CFDs are traded 2.10.1 Trading Platforms Halifax enables it clients to trades CFDs 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 CFD Transaction 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 Products over which you can enter into a CFD Transaction. c. The credit risk you take on the Platform Counterparty for your Trading Platform. d. The fees and costs you are charged for the CFD Transaction. 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 Platform Counterparties 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 Platform counterparty Web address to access trading platform Halifaxonline Saxo Capital Markets (Australia) Pty Ltd http://www.halifaxonline.co.nz/platforms/halifax-online/ or au.saxomarkets.com Trader Work Station Interactive Brokers LLC http://www.halifaxonline.co.nz/platforms/trader-workstation/ or www.interactivebrokers.com Halifax Pro MetaTrader4 Halifax Investment Services Ltd http://www.halifaxonline.co.nz/platforms/metatrader4/ or www.halifax.com.au Trading Station FXCM LLC http://www.halifaxonline.co.nz/fxcm or www.fxcm.com.au HALIFAX NZ 10
2.10.2 Trading Hours The trading hours for our CFDs will depend on the market or exchange on which the Underlying Product is traded or based. A list of these markets and exchanges are set out in See Schedule 1, Annexures A and B, 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. 2.11 Trading Examples When trading CFDs offered by Halifax, you should be aware of the risks and benefits and review examples of how the CFDs can be traded. Halifax has prepared various trading examples which can be found on our website at http://www.halifaxonline. co.nz/support/disclosure-documents. 3. Risks of these derivatives 3.1 Product risks 3.1.1 Changes in the price, value or level of the Underlying Product Trading in CFDs involves a high degree of risk. It is important that you carefully consider whether trading CFDs are appropriate for you in light of your investment objectives, financial situation and needs. If there is an adverse change in the price, value or level of the Underlying Product, you will be required to immediately transfer additional funds to us in order to maintain your position i.e. to top up your Trading Account balance. 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 that closure. This shortfall may, in some instances, be substantial. CFDs 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 Product. The use of leverage can lead to large losses. Even a slight fluctuation in the value of the Underlying Product could result in you incurring substantial losses. By entering CFD Transactions you could lose the full balance of your Trading Account (and more). 3.1.2 Other variables that lead to losses for clients The following is a description of some of the other significant risks associated with trading CFDs offered by us. a. Incorrect details 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. Exercise of our discretion to Close Out: We have absolute discretion to Close Out a client s open positions at values we determine (see section 2.9.7 of this PDS). The effect of us exercising our discretion is that we may Close Out your open position and you may suffer loss as a result (including actual loss or opportunity loss if the value improves from the value the open position was Closed Out). We are not responsible for any such loss. c. 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. d. Substantial losses: Stop loss orders are often used to attempt to limit or minimise the amount which can be lost on an open CFD Transaction. Stop loss orders may not always be filled and, in any event, may not limit your losses to the amounts specified in the order. 11 HALIFAX NZ
e. 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 CFDs may not maintain their usual relationship with the value of the Underlying Product. These circumstances could be pre-market pricing, settlement, corporate actions and price anomalies not related to standard price action. f. Foreign Exchange risk: In instances where you trade in a CFD based on an Underlying Product priced in a currency other than the nominated currency of your Trading Account, 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. Adverse foreign exchange rate movements could cause you to incur significant losses. g. Platform Counterparty: You will take on credit exposure not only on us, but also on the Platform Counterparty with which we enter into Hedge Transactions in respect of your CFD Transactions. This means that our obligations to you are linked to the performance by the Platform Counterparty of its obligations under the Hedged Transaction. If the Platform Counterparty fails to perform its obligations under the Hedged Transaction our obligations to you for your corresponding CFD Transaction will be reduced accordingly. If the Hedging Counterparty becomes insolvent, you might lose some or all of the balance of your Trading Account (even though we might continue to be solvent). You also might face considerable delays before you are able to access the amount (if any) that is able to be recovered from the Platform Counterparty. Therefore, you should make your own assessment of both our ability to perform our obligations under the CFD Transaction and the relevant Platform Counterparty s ability to meet its obligations under the corresponding Hedge Transaction (see section 5.2 of this PDS for more information). h. 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 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 Account, you should be aware that individual client accounts are not separated from each other and all clients funds are co-mingled in the one Client Trust Account. 3.1.3 The consequences of a failure by the investor to make a payment or delivery If the level of the Underlying Product moves against your CFD position, you will be required to have sufficient funds in your Trading Account to meet your Margin Requirement in order to maintain your position. The amount of funds required may be substantial. If you fail to pay us immediately, your position may be Closed Out at a loss and you will be liable for any shortfall in your Trading Account balance. 3.1.4 The consequences of altering the terms of a derivative or terminating a derivative Under the Client Services Agreement, we have the right to decide to make an adjustment in a number of circumstances if we consider an adjustment is appropriate. We have a discretion to determine the extent of the adjustment so as to place the parties substantially in the same economic position they would have been in had the event giving rise to the need for the adjustment not occurred. We may elect to vary or Close Out a position if an adjustment event occurs for example, if the sponsor of the Index ceases to calculate the index; an Underlying Security is the subject of a takeover offer or corporate actions are taken in respect of an Underlying Security. HALIFAX NZ 12