For Forward Foreign Exchange & Foreign Exchange Option Contracts

Transcription

1 Product Disclosure Statement For Forward Foreign Exchange & Foreign Exchange Option Contracts This document provides important information about Forward Foreign Exchange and Foreign Exchange Option contracts to help you decide whether you want to enter into any of these derivatives. There is other useful information about this offer at 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. Tuatara Management Limited has prepared this document in accordance with the Financial Markets Conduct Act This Product Disclosure Statement is issued on 28 May KEY INFORMATION SUMMARY What is this? This is a Product Disclosure Statement for Forward Foreign Exchange contracts and Foreign Exchange Option contracts provided by Tuatara Management Limited. Forward Foreign Exchange contracts and Foreign Exchange Option contracts are derivatives, which are contracts between you and Tuatara Management Limited that may require you or Tuatara Management Limited to make payments or deliver currency. The value of the contract will depend on the price of the underlying currency. The contract specifies the terms on which those payments or deliveries must be made. Warning Risk that you may owe money under the derivative If the price of the underlying currency 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 of this Product Disclosure Statement (Key features of the Derivatives) on how payments are calculated. 1

2 Your liability to make margin payments Tuatara Management Limited may require you to make additional payments referred to as margins to contribute towards your future obligations under these derivatives. These payments may be required at short notice and can be substantial. You should carefully read section 3 of this Product Disclosure Statement (Risks of these Derivatives) about your obligations. Risks arising from issuer s creditworthiness When you enter into derivatives with Tuatara Management Limited, you are exposed to a risk that Tuatara Management Limited cannot make payments or deliver a currency as required. You should carefully read section 3 of the Product Disclosure Statement (Risks of these Derivatives) and consider Tuatara Management Limited s creditworthiness. If Tuatara Management Limited runs into financial difficulty, the margins or collateral you provide may be lost. ABOUT TUATARA MANAGEMENT LIMITED Tuatara Management Limited is a derivatives issuer of Forward Foreign Exchange contracts and Foreign Exchange Option contracts. WHICH DERIVATIVES ARE COVERED BY THIS PRODUCT DISCLSOURE STATEMENT? This Product Disclosure Statement covers Forward Foreign Exchange contracts and Foreign Exchange option contracts. Nature of Derivatives This Product Disclosure Statement covers over-the-counter Forward Foreign Exchange contracts and Foreign Exchange Option contracts. The term foreign exchange describes the simultaneous purchase of one currency and sale of another currency at an agreed Exchange Rate. Forward Foreign Exchange contracts mature on a Value Date (a predetermined date which can be any Business Day acceptable to the two parties of the contract) where the date can be up to 24 months. Forward Foreign Exchange contracts are deliverable contracts and will involve an obligation to give or to take delivery of currency at the Value Date. Delivery terms are agreed at the outset of each individual contract. Foreign Exchange Options contracts are an agreement that affords the buyer the right but not the obligation to a future, pre-agreed rate of exchange. When the 2

3 option reaches its expiration date the buyer can then decide whether they wish to take up their rights on that option to purchase or not. Key Benefits of the Derivatives When companies conduct business across borders, they must deal in foreign currencies. Companies must exchange foreign currencies for home currencies when dealing with receivables, and vice versa for payables. This is done at the current exchange rate between the two countries. Foreign exchange risk is the risk that the exchange rate will change unfavourably before payment is made or received in the currency. For example, if a New Zealand Company doing business in United States is compensated in US dollars, that company has risk associated with fluctuations in the value of the US dollars versus the New Zealand dollar. To avoid this risk this company could hedge its exposure to the US dollar by: Taking a forward contract to lock in the exchange rate of today at which the currency transaction will occur at a future date; or Taking an option which sets an exchange rate at which the company may choose to exchange currencies. If the exchange rate is more favorable, then the company will not exercise this option. 3

4 TABLE OF CONTENTS 1. KEY INFORMATION SUMMARY KEY FEATURES OF THE DERIVATIVES KEY FEATURES & BENEFITS OF FORWARD FOREIGN EXCHANGE CONTRACTS KEY FEATURES & BENEFITS OF FOREIGN EXCHANGE OPTION CONTRACTS ENTERING DERIVATIVE AND RIGHTS TO ALTER TERMS OR TERMINATE DERIVATIVE RISKS OF THESE DERIVATIVES PRODUCT RISKS ISSUER RISKS RISKS WHEN ENTERING OR SETTLING THE DERIVATIVE FEES HOW TUATARA MANAGAEMENT LIMITED TREATS FUNDS AND PROPERTY RECEIVED FROM YOU ABOUT TUATARA MANAGEMENT LIMITED HOW TO COMPLAIN WHERE YOU CAN FIND MORE INFORMATION HOW TO ENTER INTO A CLIENT AGREEMENT

5 2. KEY FEATURES OF THE DERIVATIVES The term foreign exchange (FX) describes the simultaneous purchase of one currency and sale of another currency at an agreed Exchange Rate. Unlike financial products traded on an Exchange, Forward Foreign Exchange contracts and Foreign Exchange Option contracts are not standardised but are individually tailored to the particular requirements of the parties involved in the contract. The variables involved in the negotiation of a Forward Foreign Exchange contract and Foreign Exchange Option contract are: the currencies exchanged; the amount of such currencies; the Exchange Rate i.e. the rate at which such currencies are exchanged; and the Value Date of the transaction. Forward Foreign Exchange contracts mature on a Value Date which is a predetermined date in the future which can be any Business Day acceptable to the two parties of the contract. Forward foreign exchange contracts are deliverable contracts and will involve an obligation to give or to take delivery of currency at the Value Date. Delivery terms are agreed at the outset of each individual Forward Foreign exchange contract. A summary of the key features of Forward Foreign Exchange contracts are provided below: Forward Foreign Exchange contracts are over-the-counter financial products issued by Tuatara Management Limited. They are not exchange-traded. Forward Foreign Exchange contracts facilitate the exchange of currencies and result in physical payments being undertaken on delivery date. You send us your Sold Currency and we will send you your Bought Currency. Forward Foreign Exchange contracts enable clients to protect themselves from adverse exchange rate fluctuations by providing cash flow certainty. After a Forward Foreign Exchange contract is agreed, you maybe required to pay an upfront part payment amount called an Initial Margin and, if requested, any later Margin Call amounts. Foreign Exchange Option contracts are an agreement that affords the buyer the right but not the obligation to a future, pre-agreed rate of exchange. When the option reaches its expiration date the buyer can then decide whether they wish to take up their rights on that option to purchase or not. A summary of the key features of Foreign Exchange Option contracts are provided below: A Foreign Exchange Option contract may only be exercised on the expiration date. If the market rate does not move significantly in either direction, but remains at similar levels to the rate at which you first purchased the option, then you will have lost the benefit of the premium paid. 5

6 Peace of mind for the option buyer that they have protected themselves from any possible future adverse currency movement up to the option s expiry. 2.1 KEY FEATURES & BENEFITS OF FORWARD FOREIGN EXCHANGE CONTRACTS Features Currency can be exchanged on business days Monday to Friday 7.30 am to 5.30 pm New Zealand time. Benefits You can undertake a Forward foreign exchange transaction at a time suitable to you. An agreement to exchange one currency for another up to 24 months in advance but at a fixed, agreed Exchange Rate based on prevailing market rates. By committing to an agreed Exchange Rate now you avoid the risk of any future adverse currency movements. A Forward Foreign Exchange contract gives you cash flow certainty by locking in an Exchange Rate. Competitive Exchange Rates quoted by our experienced dealing team. Total transparency which enables you to compare our Exchange Rates with other providers rates. Payments by you to us and from us to you are via electronic bank transfers. Not handling large amounts of cash or worrying about bank drafts being lost in the post. The Exchange Rate is agreed over the telephone with a Cash flow certainty by locking in an Exchange Rate. member of our experienced dealing team or requested via . A confirmation note is sent shortly afterwards. FORWARD FOREIGN EXCHANGE TRANSACTION EXAMPLE An importer needs to pay an offshore supplier located in the United States US$100,000 in 90 days' time. The importer can either: wait to buy the USD in 90 days' time at the market rate on the day (and then pay the supplier) or lock in the rate now. Let's assume: The current Exchange Rate is (i.e. 1 NZD = USD) In 90 days the Exchange Rate is (i.e. 1 NZD = USD). If the company bought USD today (to pay the supplier) then it would have cost U$100,000/ = NZD$133,333. However, if in fact, the importer bought the USD in 90 days' time then it would cost U$100,000/ =NZD$142,857. The Opportunity Cost = loss of NZD$9,524 (NZD$133,333 - NZD$142,857) 6

7 To eliminate this risk (or uncertainty) the importer could enter into a Forward Foreign Exchange contract with Tuatara Management Limited. In this example, Tuatara Management Limited would guarantee the Exchange Rate to be charged 90 days from now for the US$100,000. This guaranteed Exchange Rate, valid for the NZD USD conversion 90 days from now, is called the Forward Exchange Rate. For the purposes of this example let's assume: Interest rates in the US are lower than the interest rates in New Zealand. Current Exchange Rate = NZD/USD month forward point adjustment = -U$ (reflecting the interest rate differential between New Zealand and the US) Forward Foreign Exchange Rate = ( ) = U$ If however in 90 day s time the Exchange Rate is (i.e. 1 NZD = USD) then there will be a Opportunity Cost of taking out the Forward Exchange Contract: If the company bought took out the Forward Exchange contract today then in 90 days it would have cost U$100,000/ = NZD$134,409. However, if in fact, the importer bought the USD in 90 days' time then it would cost U$100,000/ =NZD$125,000 The Opportunity Cost = loss of NZD$9,409 (NZD$134,409 - NZD$125,000) An importer needs to pay an offshore supplier located in the United States U$100,000 in 90 days' time. The importer can either: wait to buy the USD in 90 days' time at the market rate on the day (and then pay the supplier) or lock in the rate now. Let's assume: The current Exchange Rate is (i.e. 1 NZD = USD) In 90 days the Exchange Rate is (i.e. 1 NZD = USD). If the company bought USD today (to pay the supplier) then it would have cost U$100,000/ = NZD$133,333. However, if in fact, the importer bought the USD in 90 days' time then it would cost U$100,000/ =NZD$142,857. The Opportunity Cost = loss of NZD$9,524 (NZD$133,333 - NZD$142,857) 7

8 TRANSACTION FLOW Forward FX Transaction Client Request Confirmation Payment Process Client requests and agrees to a Forward FX transaction with TML TML sends a confirmation of the transaction to the client Client makes payment for the transaction to TML as per the deal confirmation on the date of settlement TML makes the payment to the clients specified beneficiary in accordance with the clients instructions (The examples above are for demonstration purposes only. They do not reflect any specific circumstances or the obligations that may arise under a derivative entered into by the investor.) 2.2 KEY FEATURES & BENEFITS OF FOREIGN EXCHANGE OPTION CONTRACTS Features Benefits Tuatara Management Limted can sell Foreign Flexibility for the option buyer that they can still participate Exchange Option contracts in all major currency pairs in any possible future favourable currency movement up to and will issue you with a confirmation summarising your the option s expiry. transaction. A Foreign Exchange Option contract is an agreement Peace of mind for the option buyer that they have that affords the buyer the right but NOT the obligation protected themselves from any possible future adverse to a future, pre-agreed rate of exchange. currency movement up to the option s expiry. Foreign Exchange Option contracts require an upfront, non-refundable, payment (known as Premium). Flexibility for the option buyer that they can still participate in any possible future favourable currency movement up to the Foreign Exchange Option s contract expiry. The Premium is a modest payment in relation to the overall transaction being protected. The buyer can select the currencies they are looking to Foreign exchange markets are subject to many influences exchange on the future date that they wish to protect, which cause price fluctuations. Foreign Exchange Option the amount of currencies involved and the actual worst contracts protect against downside risk whilst leaving open case Exchange Rate they wish to protect. the opportunity for unlimited upside potential. BUYING A FOREIGN EXCHANGE OPTION CONTRACT EXAMPLE Let's assume that you are migrating to New Zealand from the United States in 90 days' time and are concerned that the NZD will appreciate against the USD since you need NZD$100,000 to purchase a property in New Zealand to live in. 8

9 You could purchase a Foreign Exchange Option contract, ensuring that you'll be able to buy (call) NZD100,000 and sell (put) USD, in 90 days time, at a certain predefined rate that you determine (Strike Price), say.7000 NZD per USD. The Premium for that Foreign Exchange Option contract is, say, NZD$1,000. You have bought a call Foreign Exchange Option contract and have the right to lock-in an Exchange Rate of.7000 in 90 days from today. This right comes at a cost to you, being the NZD$1,000 Premium you have paid. The Foreign Exchange Option contract ends at the end of the 90 day period i.e. at the Expiration Date. The various scenarios on maturity: Assuming the Exchange Rate is You would exercise the Foreign Exchange Option contract and exchange USD for NZD at.7000 NZD$100,000 *.7000 = U$70,000 Assuming the Exchange Rate is.6800 (all any rate lower than your Strike Price of.7000) Then you let the Foreign Exchange Option contract lapse, writing off the Premium you paid of NZD$1,000 and transact at the prevailing market rate of.6800 (instead of.7000) NZD$100,000 *.6800= U$68,000. TRANSACTION FLOW FX Option Transaction Client Request Confirmation Payment Process Client requests and agrees to an FX Option transaction with TML TML sends a confirmation of the transaction to the client Client makes payment for the premium to TML as per the deal confirmation within 2 days of the transaction If the Option is exercised TML makes the payment to the beneficiary in accordance with the clients instructions (The examples above are for demonstration purposes only. They do not reflect any specific circumstances or the obligations that may arise under a derivative entered into by the investor.) 9

10 2.3 KEY FEATURES & BENEFITS OF MARKET ORDERS Features Benefits If you are looking to achieve a specific Exchange Rate, we can arrange a Market Order. This is available via telephone or . This enables you to target a predetermined Exchange Rate that may occur in the future. Your order is ''live'' 24 hours per Business Day and can be amended or cancelled at any time during our business hours prior to the Target Rate being executed. Tuatara Management Limited may, in its discretion, accept a Market Order from you to: Capture favourable movements, known as a Limit Order. Protect you from adverse currency movements, known as a Stop Loss Order. Place both a Limit Order and Stop Loss Order known as a One Cancels the Other Order so as to capture a favourable market movement whilst protecting against a potential unfavourable market movement. A Limit Order will lock in a favourable Exchange Rate if and when achieved. Stop Loss Orders will limit financial loss giving you peace of mind. A One Cancels the Other Order allows you to capture an Exchange Rate between a certain range acceptable to you. TERMS OF MARKET ORDER The key terms of a Market Order may be summarised as follows: For each Market Order, on the Target Rate being reached, Tuatara Management Limited will enter into a Foreign Exchange contract with you on the terms of the Market Order. Although your Market Order, if agreed, is not a transaction by itself, we agree to execute it subject only to market conditions. Usually we will accept and commit to your Market Order from the time that your instructions are received by us. We will promptly let you know if we do not accept it. You may cancel a Market Order at any time before the Target Rate is executed by giving us notice by telephone. You may not cancel a Market Order after the Target Rate has been executed, whether or not we have notified you that the Target Rate has been executed. When the Target Rate is executed you will be bound by it. The Target Rate will be deemed to have been executed only when we determine that our Exchange Rates have reached or exceeded that level. You may find that, in some cases, the Exchange Rate spikes (also referred to as gaps ) with the result that the Exchange Rate you have nominated in your Stop Loss Order has been exceeded but has changed before we are able to execute the Market Order at or near your nominated Target Rate. If this occurs we will fill your Stop Loss Order at the best Exchange Rate available to us in the prevailing market conditions. Because of this we cannot guarantee Stop Loss Target Rates (this is called slippage ). 10

11 Tuatara Management Limited may, in its discretion, accept a Market Order from you to enter into a contract if the price moves to or beyond a level of Exchange Rate specified by you. 2.4 ENTERING DERIVATIVE AND RIGHTS TO ALTER TERMS OR TERMINATE DERIVATIVE ENTERING DERIVATIVE CONTRACTS In order to transact with us you will first need to establish an Account by completing Tuatara Management Limited s Account application form. By opening an Account, you agree to our Terms. The Terms govern your dealings with us and are set out in the document which came with your application form and this Product Disclosure Statement. Tuatara Management Limited reserves the right to decline the account and is not bound to provide reasons for doing so. Order placed by telephone: 1. Contact your Tuatara Management Limited Representative to discuss your currency transaction. We endeavour to digitally record telephone conversations at all times to ensure that instructions can be verified in the event of a dispute. 2. In the unlikely event that your Tuatara Management Limited Representative is unavailable, you can contact a Representative of Tuatara Management Limited who will be able to assist you with market information and pass on any bid or offer quotations made by Tuatara Management Limited. 3. Based on the quotations received, you will enter into a Forward Foreign Exchange contract or Foreign Exchange Option contract with Tuatara Management Limited, when Tuatara Management Limited accepts your Order. 4. Once you have agreed with Tuatara Management Limited over the phone to buy currency at an agreed rate or buy a Foreign Exchange Option contract, you have by that agreement entered into a transaction with Tuatara Management Limited. A confirmation is sent subsequently and is confirmation of the transaction. The confirmation gives details of the transaction including the amount of Bought Currency, the Exchange Rate and the Value Date, or the amount of the Premium with respect to a Foreign Exchange Option contract, or the Margin due if it is a Forward Foreign Exchange contract. 5. You must then provide us details of your onward payment instructions (including the beneficiary s name and physical address) to enable our 11

12 currency payment due to you to go direct to your nominated destination. You tell us your nominated account destination by providing these details by way of or telephone. Orders placed by 1. Send us your instruction to enter into a Forward Foreign Exchange contract or Foreign Exchange Option contract via . Upon receipt we will enter into your requested transaction. The transaction will be binding on you when we process your . You acknowledge that, if you choose to book a Forward Foreign Exchange contract or Foreign Exchange Option contract by , it may not be processed immediately. 2. A confirmation is sent when your is processed and it is confirmation of the transaction.the confirmation gives details of the transaction including the amount of Bought Currency, the Exchange Rate and the Value Date, or the amount of the Premium with respect to a Foreign Exchnage Option, or the Margin due if it is a Forward Foreign Exchange contract. 3. You must then provide us details of your onward payment instructions (including the beneficiary s name and physical address) to enable our currency payment due to you to go direct to your nominated destination. You tell us your nominated account destination by providing these details by way of or telephone. RIGHTS TO ALTER TERMS OR TERMINATE DERIVATIVE Tuatara Management Limited reserves the right to terminate contracts in certain events and these are set out in the Terms (which you should read carefully) which give us discretions. While we consider it is very unlikely that we will need to rely on them except in highly unusual cases, you should be aware that we have the discretion to terminate your Forward Foreign Exchnage contract or Foreign Exchange Option contract if: Tuatara Management Limited determines that the value of all of your Forward Foreign Exchange contracts and Foreign Exchange Option contracts represents a substantial net unrealised loss to you such that continued transacting, or failure to terminate, one or more of your Forward Foreign Exchange contracts or Foreign Exchange Options contract will or is likely to materially prejudice you or your capacity to perform the transactions (which is a safety measure for you and us, such as if we do not think you are monitoring your deteriorating positions); Tuatara Management Limited determines there is a material risk of you being unable to comply with your obligations to Tuatara Management Limited as 12

13 and when they fall due, which could be based for example on you telling us that you will not be able to pay the remaining balance of the Sold Currency but that date has not yet occurred; or Tuatara Management Limited considers termination of one or more Forward Foreign Exchange contracts or Foreign Exchange Option contracts is necessary or desirable for its own protection, including (without limitation and by way of example only) when volatile market conditions exist. If we Close Out your Forward Foreign Exchange contract or Foreign Exchange Option contract we may terminate the Terms between us. We may set off all or any part of any margin paid by you against any amount actually or contingently due and payable by you to Tuatara Management Limited. CONFIRMATIONS OF FORWARD FOREIGN EXCHANGE CONTRACTS AND FOREIGN EXCHANGE OPTION CONTRACTS By providing Tuatara Management Limited with an or other electronic address, you have consented to confirmations being sent electronically. It is your obligation to review the confirmation immediately to ensure all details are accurate (including the name and address of beneficiaries being paid) and to report any discrepancies within 24 hours. The contents of the confirmation are deemed to have been accepted and cannot be disputed after 24 hours of your receipt. SETTLING TRANSACTIONS On the day of you entering into a Forward Foreign Exchange contract or Foreign Exchange Option contract, Tuatara Management Limited will send you a confirmation as highlighted above which will advise you of the amount(s) and the date(s) upon which you will need to send money to Tuatara Management Limited. Once your transaction reaches the Value Date (i.e. the settlement date for your Forward Foreign Exchange contract or Foreign Exchange Option contract), and Tuatara Management Limited has received all of the balance of your Sold Currency in cleared funds and the beneficiary s name and physical address, Tuatara Management Limited then instructs its bank to send the Bought Currency via international payment systems to your nominated account. HOW IS THE EXCHANGE RATE CALCULATED? The Exchange Rates offered by Tuatara Management Limited take into consideration the current "inter bank"exchange Rates, the Value Date plus our margin that is built into the price quoted and the amount of currency that you wish to buy or sell. The decision to transact at a particular rate will always be your decision. Tuatara Management Limited Representatives cannot predict future 13

14 Exchange Rates and our rate quotations are not a forecast of or other advice on where we believe Exchange Rates will be at a future date. ENTERING INTO A FORWARD FOREIGN EXCHANGE CONTRACT The particular terms of each Forward Foreign Exchange contract are agreed between you (the Client) and Tuatara Management Limited before entering into the Forward Foreign Exchange contract. A Forward Foreign Exchange contract is an arrangement that allows you to exchange currencies at an agreed date in the future (up to 24 months) at an Exchange Rate that you agree now. This will enable you to know what the Exchange Rate will be at the time the exchange of currencies becomes necessary. This allows you to avoid the risk and uncertainty associated with adverse Exchange Rate movements. FORWARD FOREIGN EXCHANGE CONTRACTS - INITIAL MARGIN OBLIGATION We may at our discretion at any time during a transaction request margin calls which will be immediately due and payable, the amount of which will be sufficient to provide us with an amount which as a result of an adverse market movement, you would lose if the transaction was closed out or otherwise such amount that we will determine at our discretion. We may use, setoff and apply funds provided under any margin call in the same way as if they were funds provided as a transaction deposit. PRE-DELIVERIES AND ROLLOVERS OF FORWARD FOREIGN EXCHANGE CONTRACTS Tuatara Management Limited may, in its absolute discretion: allow delivery of a Forward Foreign Exchange contract earlier than the Value Date, however that will likely result in an adjustment to the Exchange Rate; allow an extension to a date later than the Value Date, however, Tuatara Management Limited may either adjust the current Forward Foreign Exchange contract for a new Exchange Rate or Tuatara Management Limited may Close Out the existing Forward Foreign Exchange contract at the existing Exchange Rate and enter into a new Forward Foreign Exchange contract on agreed terms appropriate to the extension. CLOSING A FORWARD FOREIGN EXCHANGE CONTRACT A Forward Foreign Exchange contract can be Closed Out before and up to the Value Date in the following circumstances: as agreed in the Terms; or by agreement between you and Tuatara Management Limited. Key Close Out events under the Terms include: a breach of a Term by you; 14

15 your insolvency or bankruptcy; or your failure to comply with an obligation to Tuatara Management Limited. If your circumstances change and you no longer require a Forward Foreign Exchange contract for your commercial purposes, Tuatara Management Limited might agree to you Closing Out a Forward Foreign Exchange contract before the Value Date by you entering into an equal and opposite transaction with Tuatara Management Limited using the prevailing market rates. If the contract is Closed Out because your circumstances have changed and the Close Out gives rise to a profit, you will receive the profit amount (including any Margin) and a confirmation advising all details. Under no circumstances will Tuatara Management Limited be liable to pay you any profit arising from the Close Out of a Forward Foreign Exchange contract if you are in breach of a Term. If the Close Out gives rise to a loss you will be required to pay Tuatara Management Limited the amount of the loss. Your Margin amount (if any) will be offset against the amount owing to Tuatara Management Limited and a confirmation will be issued advising all details. You will be liable for any loss, costs, fees, charges or other expenses, including interest, incurred by Tuatara Management Limited in consequence of the Close Out. You should be aware that your investment in a Forward Foreign Exchange contract might suffer a loss, depending on the market value of your Forward Foreign Exchange contract at termination compared with the total cost of your investment in that Forward Foreign Exchange contract up to the time of termination. HOW IS A FORWARD RATE CALCULATED? A currency forward rate is dependent on the interest rate differentials for the currency pair. For example, assume a current spot rate for the New Zealand dollar of NZD$1 = USD$ , a one-year interest rate for New Zealand dollars of 3%, and one-year interest rate for US dollars of 1.5%. After one year, based on interest rate parity, NZD$1 plus interest at 3% would be equivalent to USD$ plus interest at 1.5%. Or, NZD$1 ( ) = USD$ x ( ). So NZD$1.003 = USD$0.7489, or NZD$1 = U$ The one-year forward rate in this instance is NZD$ = USD$ Note that because the New Zealand dollar has a higher interest rate than the US dollar, it trades at a forward discount to the US dollar. Note, the actual spot rate of the New Zealand dollar one year from now has no correlation on the one-year forward rate at present. The currency forward rate is merely based on interest rate differentials, and does not incorporate your expectations of where the actual exchange rate may be in the future. 15

16 (The examples above are for demonstration purposes only. They do not reflect any specific circumstances or the obligations that may arise under a derivative entered into by the investor.) ENTERING INTO A FOREIGN EXCHANGE OPTION CONTRACT If you decide to enter into a Foreign Exchange Option contract with us, you will need to tell us the amount, the currencies to buy and sell, the Strike Price and the Expiration Date. The purchase price (amount paid) of the Foreign Exchange Option contract is called a Premium. This amount is non-refundable and is determined based upon the Strike Price (also known as the Exercise Price ), the amount of the currency you require and the length of time to the Expiration Date of the Foreign Exchange Option contract. With respect to Foreign Exchange Option contracts, the Premium must be paid to Tuatara Management Limited no later than one Business Day from the date the Foreign Exchange Option contract was purchased. Foreign Exchange Option contracts do not commit you, the buyer - it gives you the right to buy the Bought Currency at the agreed Exchange Rate. Tuatara Management Limited can sell you a Foreign Exchange Option contract in all the major currency pairs and will issue you with a confirmation summarising your Foreign Exchange Option contract. There is no Close Out required for Foreign Exchange Option contracts. The Foreign Exchange Option contract will terminate on the agreed Expiration Date either by the client exercising the Foreign Exchange Option contract or by the client allowing the Foreign Exchange Option contract to lapse worthless. EXERCISING AN OPTION You may exercise your Foreign Exchange Option contract only on the Expiration Date. This is commonly known as a European style option. When the Foreign Exchange Option contract reaches its Expiration Date, you can then decide whether you wish to take up your rights on that Foreign Exchange Option contract. You would compare the actual current Exchange Rate on that day to the Strike Price of the Foreign Exchange Option contract which you bought. If you decide to exercise your rights, then you follow the notice procedures and Tuatara Management Limited will enter into a transaction with you. The details as to price and the amount of the currency will be the same as specified in the Foreign Exchange Option contract. If however you do not take up your right to exercise the Foreign Exchange Option contract then the Foreign Exchange Option contract will expire worthless. 16

17 3. RISKS OF THESE DERIVATIVES 3.1 PRODUCT RISKS MARKET RISK This is the risk that the markets move in a direction not anticipated. External market forces can cause markets and prices to change quickly, such forces include changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and the prevailing psychological characteristics of the marketplace. As the price of your Order and/or foreign exchange option contract is based on an underlying currency these factors may affect your position and our ability to execute, settle or close out transactions on your behalf. CAPITAL RISK You could lose the entire Margin and/or premium that you deposit to establish or maintain a Forward Foreign Exchange contract or Foreign Exchange Option contract. All derivatives involve risk and there is no trading strategy that can eliminate it. The placing of contingent orders (such as a stop-loss order) may not always limit your losses to the amounts that you may want as market conditions may make it impossible to execute such orders. CONSEQUENCES OF FAILURE TO MAKE PAYMENT Should the price of the underlying currency on which your contract is based move against you, you may be called for additional margin and, at short notice, be required to deposit further funds into your account in order to maintain your contract. Should Tuatara Management Limited make a margin call you must deposit sufficient funds into your account immediately. In the event of you failing to make margin payments we may reduce or close all your open contracts without further notice and you will be liable for any shortfall. You must be in a position to fund such payments at all times. Margins must be paid immediately after the call. Should your account reach a level where it has insufficient equity to maintain contracts, Tuatara Management Limited has the right to close contracts in its absolute discretion. CONSEQUENCES OF ALTERING THE TERMS OF DERIVATIVES OR TERMINATING A DERIVATIVE Should the terms of an underlying financial product, which your contract with Tuatara Management Limited is based, become altered or terminated then the corresponding alteration or termination of the contract specifications will be passed onto you. The effect of this could mean that you suffer a loss of some or all of your 17

18 margins and could be exposed to further losses, which Tuatara Management Limited would seek to recover from you. 3.2 ISSUER RISKS Given you are dealing with Tuatara Management Limited as counterparty to every transaction, you will have an exposure to us in relation to each transaction. This is common to all over-the-counter contracts such as Forward Foreign Exchange contracts and Foreign Exchange Option contracts.. You are subject to Tuatara Management Limited s credit risk. If we were to become insolvent, we may be unable to meet our obligations to you. Tuatara Management Limited enters into arrangements with registed banks for the facilitation of transactions and settlements. If the financial conditions of Tuatara Management Limited or the parties with which we hold client assets deteriorate, then you could suffer a loss because the return of your capital and other clients capital could become difficult. Tuatara Management Limited s creditworthiness has not been assessed by an approved rating agency. This means that Tuatara Management Limited has not received an independent opinion of its capability and willingness to repay its debts from an approved source. 3.3 RISKS WHEN ENTERING OR SETTLING THE DERIVATIVE SLIPPAGE In fast moving or illiquid markets slippage may occur. Slippage occurs when market prices do not follow a smooth or continuous trend and are typically caused by external factors such as world, political, economic and corporate related events. Should slippage occur in the underlying currency on which your Order is based, you may not be able to close out your contract or open a new contract at the price at which you have placed your order. STOP LOSS ORDERS Stop loss orders are designed to limit your loss should the market move against you and close the position if the price reaches the pre-defined level set. Stop loss orders are not guaranteed and the execution of such orders will depend on market volatility and liquidity. So whilst stop losses generally allow you to control potential losses should the market move against you, please be aware that stop loss orders may not always limit your losses in the way you anticipate. In cases where stop loss orders have been placed and the market price moves immediately to a level away from your stop loss order you would suffer a loss as your stop loss order is not guaranteed. 18

19 LIQUIDITY Under certain conditions it may become difficult or impossible for your order to be executed. This can occur when there is a significant change in the price of the currency over a short period of time. Some international markets may have a lower trading volume than other more liquid international markets, which may increase the risk that the liquidity of a currency is decreased or removed from the market due to unforeseen economic, political, natural disasters or catastrophic events. SYSTEMS RISK Tuatara Management Limited relies on a number of technolgy solutions to provide you with efficient foreign exchnage services. In this regard Tuatara Management Limited relies on banks and international settlement system providers to assist in currency transfers between accounts which Tuatara Management Limited will not be able to control and is not liable to you for this. ORDER EXECUTION You shall be responsible for providing and maintaining the means by which you communicate with us. While the Internet and telephone systems are generally reliable, technical problems or other conditions may delay or prevent access to communicating with us. If you are unable to communicate ( or telephone) with us, it will mean you will be unable to excute a Forward Foreign Exchange contract or Foreign Exchange Option contract (open/close/alter) and you may suffer a loss as a result. Furthermore, in unforeseen and extreme market situations, such as an event like September 11 or a global catastrophe, Tuatara Management Limited reserves the right to suspend its services or any part of it. In such an event, Tuatara Management Limited may, at its sole discretion (with or without notice), close out your open contracts at prices it considers fair and reasonable at such a time. Tuatara Management Limited may impose limits on client accounts at its sole discretion. Please note that such measures would only be implemented in extreme market conditions, and such discretion only reasonably exercised in the best interests of the client. 4. FEES BANK FEES A Telegraphic Transfer (TT) fee of $25 is payable for transactions up to $20,0000 A Telegraphic Transfer (TT) fee of $10 is payable for transactions over $20,0000 All fees are charged in New Zealand dollars. 19

20 SPREADS Tuatara Management Limited acts as a market maker and makes its profit from the spreads that are embedded in the prices we quote. All spreads are determined on a deal by deal basis and the factors that determine the spread include, the size or amount of the transaction, the length of time and the currency involved. All spreads are determined at the time the transaction is agreed with the client. The the size and time have the largest impact on the spread whilst the currency has a lessor impact. WHEN ARE FEES PAYABLE All fees are payable at time of settlement. RIGHT TO ALTER FEES Tuatara Management Limited reserves the right to alter fees from time to time. This will generally be based on Tuatara Management Limited passing on increases of fees it is charged from its providers. If an increase is made, Tuatara Management Limited will update this Product Disclosure Statement and issue notification to you. 5. HOW TUATARA MANAGAEMENT LIMITED TREATS FUNDS AND PROPERTY RECEIVED FROM YOU Tuatara Management Limited only accepts money and does not accept property. Money paid by you to Tuatara Management Limited for margin, fees and settlement is held in separate client trust accounts. This money is not regarded as a part of the assets of Tuatara Management Limited and cannot be accessed by Tuatara Management Limited except to pay for margining, fees or settling Forward Foreign Exchange contracts or Foreign Exchange Option contracts. All client money is held in a designated Trust Account with a registered bank in accordance the Financial Markets Regulations 2014 and all hedging and settlements are entered into with registered banks. Client money remains in the trust account until the contract is settled and at that time Tuatara Management Limited removes its money from the trust account. Tuatara Management Limited does not use client money to hedge its contracts as it uses its own money for these purposes, however Tuatara Management Limited requires its clients to hold margin in the trust account as collateral. Should you default on the contract terms, Tuatara Management Limited has the right to the margins paid by you. 20

21 Interest is paid on deposit amounts of $10,000 and over that are held for seven (7) days or more. 6. ABOUT TUATARA MANAGEMENT LIMITED Tuatara Management Limited is a New Zealand registerd company (Company Number: ) and holds a Derivatives Issuers Licence which is issued and regulated by the Financial Markets Authority. Tuatara Management Limited is also registered on the Financial Services Providers Register (FSPR No ) and is a member of the Financial Dispute Resolution scheme. OUR SERVICE Tuatara Management Limited specialises in providing foreign currency dealing services to both corporate and individual clients who need to buy or sell foreign currencies for a commercial purpose or take physical delivery of the currency purchased i.e. as part of their day-to-day business activities, thereby needing to settle foreign invoices (payments) and convert foreign currency receipts. The service involves asking us to perform a Forward Foreign Exchange contract and/or a Foreign Exchange Option contract and transfer the proceeds of that transaction to your nominated bank account. Forward Foreign Exchange contracts and Foreign Exchange Option contracts are requested, agreed, issued and managed on the terms set out in our Terms. Tuatara Management Limited provides the following: Foreign Exchange Forward contracts; and Foreign Exchange Option contracts CONTACT DETAILS TUATARA MANAGEMENT LTD Level 5, 228 Queen Street P O Box Auckland 1143 New Zealand FREEPHONE NUMBERS Within New Zealand Within Australia Within the UK Within Japan Phone Fax

22 KEY CONTACT PEOPLE Mike Houlahan or Hilary Hunt or HOW TO COMPLAIN What should you do if something goes wrong? In the event that you wish to make a complaint, you should first make the complaint in writing detailing the nature of the complaint and send it to Tuatara Management Limited s Compliance Officer. Upon receipt of your complaint, Tuatara Management Limited will confirm to you that it has received the same and will endeavour to investigate it and respond to you within 10 days. Our contact details are: Level 5, 228 Queen Street P O Box Auckland 1143 New Zealand Website: Telephone: Fax: Compliance Officer: Joanna Boag joanna@tuatara.co.nz DISPUTE RESOLUTION In the first instance the Compliance Officer will try and resolve the dispute between the parties. However, if a satisfactory outcome cannot be achieved, you should refer the matter to Financial Dispute Resolution and follow the instructions set out at Financial Dispute Resolution is an approved dispute resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act Our participant details are set out at: Financial Dispute Resolution will not charge you any fee to investigate or resolve your complaint. 22

23 Financial Dispute Resolution contact details: Financial Dispute Resolution P O Box 5730 Wellington 6145 New Zealand Telephone: or Freephone: enquires@fdr.org.nz Website: 8. WHERE YOU CAN FIND MORE INFORMATION Further information relating to Tuatara Management Limited and the Forward Foreign Exchange contracts and Foreign Exchange Option contracts as described in this Product Disclosure Statement can be obtained on the Offer Register (for example, financial statements) at A copy of the information on the offer register is available on request to the Registrar of Financial Services Providers. The Offer Register contains a link to Tuatara Management Limited's financial statements. Those financial statements are not prepared in accordance with the Financial Markets Conduct Act 2013 for the most recently completed accounting period. Instead, those financial statements have been prepared in accordance with NZ GAAP accounting standards for the year ended 31 March However, on or before 31 July 2015, that link will be replaced with a link to a copy of Tuatara Management Limited's financial statements that comply with the Financial Markets Conduct Act 2013 for the period ending on 31 March 2015 together with a link to an auditor s report on those statements. UPON REQUEST TO TUATARA MANAGEMENT LIMITED For general information about Forward Foreign Exchange contracts and Foreign Exchange Option contracts, opening an account and placing orders etc., please contact a Tuatara Management Limited Representative by making a request by telephone or ing us as follows: Telephone: Fax: Main contact person: Mike Houlahan mike@tuatara.co.nz Mobile: No charge will be made for any information requested. 23

24 9. HOW TO ENTER INTO A CLIENT AGREEMENT ESTABLISH AN ACCOUNT In order to transact with us you will first need to establish an Account by completing Tuatara Management Limited s Account application form. By opening an Account, you agree to our Terms. The Terms govern your dealings with us and are set out in the document, which came with your application form and this Product Disclosure Statement. We recommend that you consider seeking independent legal advice before entering into the Agreement, as the terms detailed therein are important and affect your dealings with us. If you wish to enter into a Forward Foreign Exchange contract and Foreign Exchange Option contract with Tuatara Management Limited, you must indicate your consent to Tuatara Management Limited s terms before you can open a trading account with us. To open an account, please contact us via our contact form on our website: TML s terms can be viewed on our website: 24