Short and Leverage ETPs MAKE MORE OF COMMODITIES

Transcription

1 May 2015 LISTED PRODUCTS Short and Leverage ETPs MAKE MORE OF COMMODITIES THIS COMMUNICATION IS DIRECTED AT SOPHISTICATED RETAIL CLIENTS IN THE UK

2 Contents 3 KEY TERMS YOU WILL COME ACROSS IN THIS BROCHURE 4 INVESTING IN COMMODITIES 5 COMMODITY FUTURE PRICES 6 THE FUTURES CURVE 8 ROLLING FUTURES 12 CURRENCY RISK 12 SUMMARISING THE ISSUES 13 USING SHORT & LEVERAGE ETPS 14 Advantages and risks 15 HOW TO TRADE IMPORTANT INFORMATION Short and Leverage ETPs are directed at sophisticated retail clients in the UK, who have a good understanding of the underlying market and characteristics of the products. Capital is fully at risk. Short and Leverage ETPs are not covered by the provisions of the Financial Services Compensation Scheme ( FSCS ), nor any similar compensation scheme. The information within this brochure does not constitute legal, tax or financial advice. Societe Generale has not given any such advice. Short and Leverage ETPs are securities that are listed on the London Stock Exchange (LSE) and are issued by SG Issuer via an Issuing Programme which is approved by the UK Listing Authority. SG Issuer is a 100% subsidiary of Societe Generale. If SG Issuer as the Issuer of the Short and Leverage ETP, and Societe Generale as the Guarantor, were to default or become insolvent, the Short and Leverage ETPs will terminate immediately. The amount that you receive back on your investment will depend on i) the market value of your investment at that time and on ii) the value of the Collateral Assets at the time of default. You may receive back less than your initial investment. Read the Investment Guide for more information. This is a marketing document designed to convey the key features of the products. Final Terms are published for all Short and Leverage ETPs detailing their specific characteristics and their pay-off, and the product features given in the Final Terms are prescribed by the approved Base Prospectus. Both documents can be found at and should be read prior to investment. You should read this document carefully so that you understand what you are buying, and then keep it safe for future reference. 2 16

3 Key Terms you will come across in this brochure Term Daily Performance Compounding Daily Long Daily Short Maturity Leverage Leveraged Index Spread (Bid/Ask) Trading Day Underlying Asset Warrant Futures Contract Spot Price Cost of Carry Contango Backwardation Collateral Yield Futures Curve Roll Yield Description The change in closing price on one Trading Day to the closing price the following Trading Day. Consecutive gains or losses are compounded over periods of more than a day. Read the Investment Guide for more information. A product which is designed for investors looking to gain a return of two, three or five times the positive compounded Daily Performance of the Underlying Asset. A product which is designed for investors looking to gain a return of two, three or five times the negative compounded Daily Performance of the Underlying Asset. The date that the Short and Leverage ETPs will expire. At expiry investors will automatically receive a payout based on the final value of the Leveraged Index. The amount by which the Short and Leverage ETP s price moves in relation to a 1% change in the price of the Underlying Asset. For example, 5 times leverage means that a 1% move in the Underlying Asset would result in a 5% move in the price of the product before Costs & Fees. A Short and Leverage ETP provides exposure to the performance of a Leveraged Index. It is the Leveraged Index which multiplies the performance of the Underlying Asset. See page 4 for more information. There is always a spread between the buy (Ask) and sell (Bid) price for Short and Leverage ETPs. As with shares, investors always buy at the higher price (Ask price) and sell at the lower price (Bid price). Under normal market conditions (see Secondary Market on page 15), Societe Generale Options Europe provides Bid/Ask spreads throughout the regular Trading Day to provide liquidity. The London Stock Exchange (LSE) Trading Day is from 8.05am to 4.30pm. Short and Leverage ETPs can be bought or sold at any time during LSE market hours in normal market conditions. The Index or commodity that the Short and Leverage ETP provides leveraged exposure to. Exposure to the Leveraged Index is gained through a financial instrument called a Warrant. A contractual agreement between buyer and seller to trade a defined quantity of a commodity at a pre-agreed price, on a specific date. The live price to trade and take delivery of a physical commodity. The cost of storing, maintaining and insuring a physical commodity. When long dated futures are more expensive than short dated futures, the market is said to be in Contango. When long dated futures are cheaper than short dated futures, the market is said to be in Backwardation. Interest payments received for the collateral posted against a Futures Contract. A graphical curve plotting the price of all available Futures Contracts for a given commodity against the expiry date. The positive or negative return created by rolling from one Futures Contract to the next available contract. 3 16

4 INVESTING IN COMMODITIES Investing in commodities is not as simple as buying or selling shares. For a start commodities are a physical item. Buying them entails paying for them to be delivered, stored and looked after. Most investors just don t have the appetite, space or funds to trade in commodities physically. To get around these issues commodities can be traded through Futures Contracts, which are essentially a contractual agreement between buyer and seller to trade a defined quantity of a commodity at a pre-agreed price, on a specific date. The big benefit of investing via commodity Futures is that you don t ever have to actually take delivery of a barrel of oil to profit from its changing value. Instead you buy a futures contract on your chosen commodity, and as long as you sell it before it expires, you will never have to actually own the commodity. If you don t like the sound of continually buying and selling the futures yourself, you can instead invest via a commodity index, which will do it for you. The advent of commodity indices has certainly made it easier to gain continuous exposure to commodities. However, even here there are complications. In this short guide we aim to steer you through the main issues, and demonstrate the impact each has on a Short & Leverage ETP. If you want to know more about Short & Leverage ETPs themselves, you should read our guide to Short & Leverage ETPs which can be found on our website www. sglistedproducts.co.uk. Leveraging your exposure to commodity markets Short and Leverage ETPs multiply the daily rise or fall of a commodity future by 2, 3 or 5 times. This means that every 1 invested in a Short & leveraged ETP provides the same profit or loss as investing 2, 3 or 5 in a commodity future for a day. In order to provide the amplified returns, a Short and Leverage ETP provides exposure to the performance of an independently calculated Leveraged Index via a financial instrument called a Warrant. It is this Leveraged Index which multiplies the Daily Performance of the Commodity Future. It does this by investing in the `front month futures contract, which is always the next to expire. To avoid holding to expiry it automatically sells the expiring contracts and buys the next available ones before they expire. This constant rolling between contracts provides investors with continuous exposure to commodity futures. It is this process of rolling futures, and the pricing of a futures contract, which need to be understood prior to investing in a commodity Short & Leverage ETP. Leveraging the return of a commodity future; example 5 times leverage 1% Commodity Future 5% Leveraged Index 5% Short and Leverage ETP 4 16

5 COMMODITY FUTURE PRICES A Futures Contract specifies an agreed price between buyer and seller to trade a given commodity on a fixed date in the future. If you are the buyer, and the commodity is worth more than you agreed to pay when the contract expires, you make money because you pay the seller the agreed price, and receive the higher market value. If however the commodity is worth less than the agreed price, you lose money as you have to pay the agreed price and receive the market value. Holding Futures to expiry is simple as all terms are defined in the contract. The complication comes in trading in or out of a Futures Contracts prior to expiry. This is because a Futures Contract does not move in perfect harmony with the Spot Price, which is a physical commodity s live market value. It will in fact move according to three variables; the change in Spot Price, the Cost of Carry and the Collateral Yield. We will explain each of these next. The Spot Price The Spot Price is essentially the market value of a physical commodity at any given moment. If you want to buy a bar of gold, the Spot Price is the price you would pay to receive it now. It is a simple function of supply and demand, if demand goes up and supply can t meet that demand, the price will rise. However, if supply out strips demand, the Spot Price will fall. The Cost of Carry A futures price is not the same as the Spot Price. It isn t based solely on what the commodity is worth now, but what it is expected to be when the Futures Contract expires, and what it would cost to own the physical commodity for the duration of the contract - i.e. if you buy pigs you have to house, feed, insure and take care of them. On top of that, by investing your money in buying the pigs, you forego the interest you could have earned from keeping your money in the bank. The Collateral Yield The Collateral Yield has a relatively minimal impact but is borne from the fact that when you buy a Futures Contract you do not pay the agreed price up front, instead you deposit a fraction of the value in the form of Collateral. This Collateral earns a daily interest based on the return from US Treasuries. A total return commodity index includes the Collateral Yield in its performance. Spot Price These costs are together called the Cost of Carry. Typically, the longer the duration of the contract, the higher the Cost of Carry, and the larger the difference between the Spot Price and the Futures Price. However, the Cost of Carry is not always negative, and it falls as the Future nears expiry. Whether or not the result is positive for your investment will depend on the shape of the Futures Curve. We look at this on page 6. Collateral Yield Cost of Carry Bringing it all together To sum it all up, the price of a Futures Contract at any time is based on the combination of the Spot Price, the Cost of Carry and the Collateral Yield. To make a profit on a Futures Contract the increase in Spot Price and Collateral Yield must outweigh any negative impact from the Cost of Carry. The table below is taken for a three month WTI Future trading at $61.82 and a Spot Price of $ What this shows you is that the Spot Price is by far the largest contributor to the Futures Price, and as such, changes to the Spot Price will be the most influential on the price of the Future. However, for the purpose of this guide we generally assume a static Spot Price in order to more clearly demonstrate the affect of the other price variables. Spot Price of Oil Daily Collateral yield (12 month Treasuries) Cost of Carry Current $ % $1.49 approximately For illustrative purposes only. Source Bloomberg. Data as of May 12th,

6 THE FUTURES CURVE At any given time there will be many Futures Contracts available with expiries ranging from one month to many years. By plotting the price of each Future against the corresponding expiry date for the contract, we have what is called the Futures Curve. The shape of the Futures Curve is important as it can curve up, which means that longer dated Futures are more expensive than those with a shorter date, or it can curve down which means that you will pay more for a shorter dated contract. The former suggests that the Spot Price is expected to rise over time. This is a state called Contango, and it is typically what you would expect to see in the market. The latter is called Backwardation and it suggests that Spot Prices will fall over time. The chart below illustrates Contango and Backwardation using the prices of WTI Oil Futures in blue to illustrate Contango, the current WTI Future Spot Price in green, and a fictional curve for WTI Oil Futures in Backwardation. The Backwardation example prices have been created by simply mirroring the actual prices in the Contango example. They are not real. An illustration of Contango & Backwardation $66.00 $64.00 $62.00 Futures price $60.00 $58.00 $56.00 Contango Backwardation Spot Price $ month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month 10 month 11 month 12 month Maturity Date For illustrative purposes only. Source Bloomberg. Data as of May 12th,

7 THE IMPACT OF THE CURVE In normal, `Contango market conditions, the price of a Futures Contract is higher than the Spot Price. This is because the Futures Contract includes the Cost of Carry. Over time the Cost of Carry reduces and the Futures Price will naturally fall towards the Spot Price. However, when a commodity is in `Backwardation, the Futures price is below the Spot Price and will naturally rise towards the Spot Price as the Future nears expiry. We illustrate both scenarios in the chart below which again are based on the WTI Futures Prices in blue, the WTI Spot Price in green and the fictional Backwardation example in red. Here the Futures Contracts are held for a year and the Spot Price of $60.33 remains constant for the whole period (a highly unlikely scenario). In both examples the price of the Futures Contract converges with the Spot Price by the time the contract expires. If you were holding the Contango Future you would lose $3.97 (6.2%) over the year. However, if you were holding the Future in Backwardation you would have made a profit of $3.95 (7.0%) purely from the price rising back towards the Spot. In reality the Spot Price will move too so the return on the Futures Contract will be determined by a combination of this natural convergence, and the actual change in Spot Price. An illustration of convergence $66.00 $64.00 Futures price $62.00 $60.00 $58.00 $56.00 $54.00 Contango Backwardation Spot Price $52.00 Today 1 month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month 10 month 11 month Time For illustrative purposes only. Source Bloomberg. Data as of May 12th, The impact of convergence on a Short & Leverage ETP When it comes to a Short & Leverage ETP, this convergence effect is amplified as it all feeds into the daily performance of the Futures Price, and the Short & Leverage ETP is simply designed to amplify this return. This is important as without the Spot Price moving you can lose money if you bought a Daily Long in Contango markets, or profit if the Future is in Backwardation. Conversely if you bought a Daily Short, you would profit from Contango and Lose from Backwardation. The impact of this natural convergence towards the Spot Price is further amplified by the daily compounding of a Short & Leverage ETP if the trend continues, and you hold for more than a day. Trade Contango Backwardation Daily Long Negative Positive Daily Short Positive Negative The above assumes no change in the Spot Price. 7 16

8 ROLLING FUTURES One natural limitation of using Futures Contracts is that they have a finite duration marked by the expiry date. So what do you do if you want to continue your exposure beyond that expiry date? The only option is to roll your position from one contract to the next. To do this you simply sell the existing contract and buy the next available contract. An illustration of the roll process In the case of the Leveraged Indices used in a Short & Leverage ETP, this rolling process is completed over a 5 day period. Each day of this period the Index sells 20% of its holding in the Front Month Future and invests the proceeds into the Next Available contract. This means that by day 5, the Index is fully exposed to the Next Available Future having sold all of its prior holdings. Because the price of both futures is moving over this 5 day period, the index can average out the price paid across the 5 days. 100% Front month future Next available future 80% Exposure 60% 40% 20% 0% Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Time ROLLING A FUTURE IN CONTANGO In a state of Contango far dated Futures are more expensive than short dated ones. This is important as when you come to roll from one contract to the next, it costs more to buy the new longer dated Future than you would receive for selling the old one. As such, you can buy less for your money and your market exposure is reduced. This is called a negative roll yield. Futures curve in Contango $63.00 $62.50 $62.00 Futures price $61.50 $61.00 $60.50 Roll into new contract $60.00 $59.50 $59.00 $ month 2 month 3 month 4 month 5 month 6 month Time 8 16

9 An illustrative example For example, imagine that you had 100 Futures Contracts that were nearing expiry and you wanted to roll them into the Next Available Future. Over the five day rolling period, you manage to sell your holdings for an average price of $60.99, realising a total sale value of $6099. However the average price you had to pay for the Next Available Future was $ In this case your $6,099 would only buy you Futures Contracts. As such, your exposure has reduced by 4.67%. We would call this a negative Roll Yield of 4.67%. In reality you can t buy partial futures so you would buy 95 contracts. A summary of the investments Selling Front Buying Next Date Price Number Value Price Number Value Day 1 $ $1, $ $1, Day 2 $ $1, $ $1, Day 3 $ $1, $ $1, Day 4 $ $1, $ $1, Day 5 $ $1, $ $1, Total value 100 $6, $ Average price $60.99 $63.98 What does it mean for your investment? The result of a negative Roll Yield is that you have reduced your exposure to the market. In the examples below we look at two scenarios; one, that the Futures price rises $1, the other, that the Futures price fell $1. Here you can clearly see that in a rising market, the reduced exposure means that your profit is lower than it would have been pre-roll. However, in a falling market, your loss is reduced too. You can also see that the impact of this is amplified in a Short & Leverage ETP, where the difference in performance is greater. Rising market Av Future Futures $1 rise in New Futures FUTURES No. Futures price Holding Future Holding PERF. S&L ETP perf. Pre-roll 100 $60.99 $6, $61.99 $6, % 8.20% Post-roll $63.98 $6, $64.98 $6, % 7.81% Falling market Av Future Futures $1 fall in New Futures FUTURES No. Futures price Holding Future Holding PERF. S&L ETP perf. Pre-roll 100 $60.99 $6, $59.99 $5, % -8.20% Post-roll $63.98 $6, $62.98 $6, % -7.81% For illustrative purposes only. 9 16

10 ROLLING A FUTURE IN BACKWARDATION In a state of Backwardation far dated Futures are cheaper than short dated ones. This is important as when you come to roll from one contract to the next, it costs less to buy the new longer dated Future than you would receive for selling the old one. As such, you can buy more for your money and market exposure is increased. This is called a positive roll yield. Futures curve in Backwardation $63.00 $62.50 $62.00 Futures price $61.50 $61.00 Roll into new Futures $60.50 $60.00 $ month 2 month 3 month 4 month 5 month 6 month Time An illustrative example For example, imagine that you had 100 Futures Contracts that were nearing expiry and you wanted to roll them into the Next Available Future. Over the five day rolling period, you manage to sell your holdings for an average price of $59.54, realising a total sale value of $5, However the average price you had to pay for the Next Available Future was $ In this case your $5, would buy you Futures Contracts. As such, your exposure has increased by 5.28%. We would call this a positive Roll Yield of 5.28%. A summary of the investments Selling Front Buying Next Date Price Number Value Price Number Value Day 1 $ $1, $ $1, Day 2 $ $1, $ $1, Day 3 $ $1, $ $1, Day 4 $ $1, $ $1, Day 5 $ $1, $ $1, Total value 100 $5, $5, Average price $59.54 $

11 What does it mean for your investment? The result of a positive Roll Yield is that you have increased your exposure to the market. In the examples below we look at two scenarios; one, that the Futures price rises $1, the other, that the Futures price fell $1. Here you can clearly see that in a rising market, the increased exposure means that your profit is higher than it would have been pre-roll. However, in a falling market, your loss is increased too. You can also see that the impact of this is amplified in a Short & Leverage ETP, where the difference in performance is greater. Rising market Av Future Futures $1 rise in New Futures No. Futures price Holding Future Holding Perf. S&L ETP perf. Pre-roll 100 $59.54 $5, $60.54 $6, % 8.40% Post-roll $5, $57.58 $6, % 8.84% Falling market Av Future Futures $1 fall in New Futures No. Futures price Holding Future Holding Perf. S&L ETP perf. Pre-roll 100 $59.54 $5, $58.54 $5, % -8.40% Post-roll $56.58 $5, $55.58 $5, % -8.84% A summary of the futures roll impact Trade Contango Backwardation Daily Long Negative Positive Daily Short Positive Negative FUTURES CURVES ARE DYNAMIC A word of caution at this point. A Futures Curve in Backwardation is no guarantee of profit. We have seen that Futures in Backwardation will converge higher to their Spot Price, and that on rolling there can be a real benefit. However, the Spot Price can still move against you, taking the Futures Price with it, and more importantly, a Futures Curve is not set in stone. A market can move between Backwardation and Contango quickly if there is a major change in supply for the commodity. In such cases, the Futures can behave very differently

12 CURRENCY RISK The last point to note is not exclusive to commodity based Short & Leverage ETPs, but applies to any product where the underlying asset trades in a currency different to that of the product. For example, gold is denominated in USD and so is the Gold Futures x5 Leveraged Index that we use for our Gold Short & Leverage ETPs. However, the Gold Short & Leverage ETPs themselves can be denominated in GBP. In this case, the return of the Index is in USD but the product is in GBP. As such, the product is exposed to the GBP/USD exchange rate, which would affect the return. For example, the return generated by SG Gold x5 GBP Daily Long (5GOL), which is denominated in GBP would potentially be different to that of SG Gold x5 USD Daily Long (5GUL), which is denominated in USD. The potential disparity between the two products would depend on changes within the GBP/ USD exchange rate. A strengthening of the GBP/USD rate would enhance the performance of 5GOL, but if GBP/USD weakens, the performance of 5GOL would suffer. Investors should be aware of how changes in the value of underlying currencies can affect their positions. SUMMARISING THE ISSUES As we have seen in the earlier sections, the performance of a Futures Contract is impacted by three variables; the change in Spot Price, the Roll Yield and the impact of the Collateral Yield. As the Short & Leverage ETP is designed to amplify the performance of the Futures Contract, the effect of all these variables is multiplied in a Short & Leverage ETP. Whether the result is positive or negative for you will depend on whether the Futures Contract is in Contango or Backwardation, and whether you have purchased a Daily Long or a Daily Short. The important point is that because performance is measured daily in a Short & Leveraged ETP, the impact of these variables will be compounded if you are holding your investment for more than a day. Below we summarise the main possibilities. Market state Daily Long Daily Short Rise in Spot Price Fall in Spot Price Roll Yield Collateral Yield Exchange Rates Contango Positive Negative Backwardation Positive Negative Contango Negative Positive Backwardation Negative Positive Contango Negative Positive Backwardation Negative Positive Contango Positive Negative Backwardation Positive Negative GBP strengthens Negative Negative GBP weakens Positive Positive 12 16

13 USING SHORT & LEVERAGE ETPS Short and Leverage ETPs enable you to gain two, three or five times the Daily Performance of a commodity, without risking more than you invested. Short and Leverage ETPs are designed for experienced traders who are prepared to take more risk in pursuit of higher returns. A key feature of Short & Leverage ETPs is that they will multiply the daily rise or fall of your chosen commodity by 2, 3 or 5 times. This means that every 1 invested in a Short & leveraged ETP provides the same profit or loss as 2, 3 or 5 invested directly in the commodity future for a day. You know what you stand to gain because it is fixed at 2, 3 or 5 times the Daily Performance of your chosen commodity Future. You know what you could lose because it will never be more than you invested. You know that you can buy or sell your product at any point during the Trading Day, because live prices must be provided to the London Stock Exchange (LSE). You also know that the price you see is the same as anyone else; whether they are a professional trader, or a private individual. A key difference with Short and Leverage ETPs is that they are entirely designed around Daily Performance. This means that your profit or loss each day is determined by how much a Commodity Future has risen or fallen from its closing price the day before. You can hold a Short and Leverage ETP for more than a day but gains and losses will be compounded over time. Using them in your portfolio DAILY LONG MULTIPLY THE RISE Daily Longs are for the bullish investor who believes that a commodity is set to rise over the day, and wants the opportunity to amplify their returns. As a long investment, a Daily Long will rise in value as the commodity rises. DAILY SHORT MULTIPLY THE FALL Daily Shorts are for the bearish investor who believes that the Underlying Asset is set to fall over the trading day, and wants the opportunity to generate an enhanced return based on the fall. As a short investment, a Daily Short will rise in value as the commodity falls. In either case, if you call the markets wrong, your Short and Leverage ETP will amplify losses in the same way as it will profits, and you capital is entirely at risk. Buying and selling Societe Generale is the product provider. You cannot trade directly with Societe Generale. Short and Leverage ETPs can be bought and sold like a share at any point during market hours in normal market conditions. Eligibility The Product can be purchased in the following accounts: Individual Savings Account (ISA) A Self Invested Personal Pension Account (SIPP) Direct Dealing Account For more information on what Short & Leverage ETPs are, and how they work please read the Investment Guide

14 Advantages and risks Advantages Leverage. Gain 2,3 or 5 times the Daily Performance of the Underlying Asset. Risks Capital risk. Capital is fully at risk and is not covered by the provisions of the Financial Services Compensation Scheme ( FSCS ), or any similar scheme. Directional. Long or Short positions available for directional investment or hedging. Leverage risk. If the investment results in a loss, any such losses will be increased by 2, 3 or 5 times, depending on the particular leverage. Consequently, you could lose more than you would if you invested directly in the Underlying Asset. Access. Available on a wide range of equity indices and commodities. Risk management. Air Bag mechanism is designed to slow the rate of loss in extreme market conditions. Read the Investment Guide for more information. Intended eligibility. Can be traded individually, just like a share in a SIPP, ISA or regular dealing account. Underlying risk. The Underlying Asset can be volatile, which can lead to large movements in price; either for you, or against you. Compound returns. Gains and losses are compounded over periods of more than one Trading Day, and as such will deviate from the leveraged performance of the Underlying Asset. Read the Investment Guide for more information. Counterparty risk. If Societe Generale were to default or become insolvent, the product will terminate. The amount you receive back will depend on the value of a basket of Collateral Assets. Read the Investment Guide for more information. Liquidity risk. Societe Generale is the only party providing prices for these products. Prices will only be available in normal market conditions. See below. Tax situation. Trading outside of a SIPP or ISA will be subject to capital gains tax but not stamp duty.* Currency risk. If the Underlying Asset is quoted in a currency other than GBP, exchange rate fluctuations will impact the price of the product. *Any statement in relation to tax, where made, is generic and non-exhaustive and is based on our understanding of the laws and practice in force as of the date of this document and is subject to any changes in law and practice and the interpretation and application thereof, which changes could be made with retroactive effect. Any such statement must not be construed as tax advice and must not be relied upon. The tax treatment of investments will, amongst other things, depend on an individual s circumstances. Investors must consult with an appropriate professional tax adviser to ascertain for themselves the taxation consequences of acquiring, holding and/or disposing of any investments mentioned in this brochure

15 HOW TO TRADE Short and Leverage ETPs trade on exchange in a similar way to shares. Each product has an EPIC code which is used to identify the product with your stockbroker. You can buy or sell a Short and Leverage ETP at any time between 08:05 Sell Price and 16:30 in a regular dealing account, ISA or a SIPP. Like a share, you buy at the Ask Price, and sell at the Bid Price. There will be a small difference between the two prices. Buy Price Bid Ask Spread Prior to trading a Short and Leverage ETP your stockbroker will require you to complete a Complex Instruments Appropriateness Assessment, in the same way that you would with any leveraged product. Highly regulated trading Short and Leverage ETPs are regulated by the Financial Conduct Authority (FCA). They are also governed by the rules of the LSE, which include: Minimum tradable volumes to ensure liquidity Maximum Bid / Ask spread of 2 pence or 1% of the Ask price Live prices must be provided throughout the Trading Day in normal market conditions COSTS AND FEES Investors holding for less than a day will simply pay a dealing commission to their broker, and a small spread on the Bid & Ask prices. However, Investors holding their position overnight will incur a Commission and Collateral Charge. For Example, as of May, 2015, the Commission on 5GOL was 1.00% per year, and the Collateral Charge was 0.05%. The Collateral Charge may increase in times of increased volatility. The Commission and Collateral Charge are together known as the Annualised Cost, which is prorated and charged daily. Products with a higher leverage of 5 times and above will also incur a Gap Premium. Gap Premium is a hedging cost that protects against extreme market movements overnight. Without Gap Premium, the Short and Leverage ETP could lose more than 100% of its value. However, because of the Gap Premium, the worst that can happen is that the product is worth nothing. Gap Premium is calculated daily according to the prevailing level of volatility. For example, as of May, 2015, 5GOL had a Gap Premium of % per day. SECONDARY MARKET Societe Generale is the only market-maker, and therefore the only liquidity provider for Short and Leverage ETPs. This means we are governed by LSE rules to buy back and sell our products at the prevailing market price between (8.05am to 4.30pm). By investing in a Short and Leverage ETP you can be assured that Societe Generale will buy back your product at any time during market hours in normal market conditions. However, during abnormal market conditions, there is no guarantee that liquidity or live prices will be available on the secondary market. Instances of abnormal market conditions include: The Underlying is suspended or not tradable There is a period of extreme volatility in any of the Underlying Asset Classes There is a failure in the LSE or Societe Generale systems This means that you may find it difficult or impossible in certain circumstances to sell the Short and Leverage ETP or may be offered a price less than you paid for it

16 THIS COMMUNICATION IS DIRECTED AT SOPHISTICATED RETAIL CLIENTS IN THE UK This document is issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority) and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. Although information contained herein is from sources believed to be reliable, Societe Generale makes no representation or warranty regarding the accuracy of any information. Any reproduction, disclosure or dissemination of these materials is prohibited. The products described within this document are not suitable for everyone. Investors capital is at risk. Investors should not deal in this product unless they understand its nature and the extent of their exposure to risk. The value of the product can go down as well as up and can be subject to volatility due to factors such as price changes in the underlying instrument. Prior to any investment in this product, investors should make their own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us, both in this document and the Final Terms of the product available on the website We recommend that you consult your own independent professional advisers. Investors should note that holdings in this product will not be covered by the provisions of the Financial Services Compensation Scheme, nor by any similar scheme in the country where the Issuer is domiciled. The securities can be neither offered in nor transferred to the United States. Any statement in relation to tax, where made, is generic and non-exhaustive and is based on our understanding of the laws and practice in force as of the date of this document and is subject to any changes in law and practice and the interpretation and application thereof, which changes could be made with retroactive effect. Any such statement must not be construed as tax advice and must not be relied upon. The tax treatment of investments will, inter alia, depend on an individual s circumstances. Investors must consult with an appropriate professional tax adviser to ascertain for themselves the taxation consequences of acquiring, holding and/or disposing of any investments mentioned in this document. For more information: see the Terms and Conditions available on our website Index Disclaimer The index referred to herein (the Index ) is not sponsored, approved or sold by Société Générale. Société Générale shall not assume any responsibility in this respect. Solactive Indexes have been licensed by Solactive AG for use by Société Générale. The Notes are not sponsored, endorsed, issued, sold, or promoted by Solactive AG nor does this company make any representations regarding the advisability of investing in the Notes. CONTACT For further information on the range of SG Listed Products, go to Alternatively, call the Freephone line or listedproducts@sgcib.com Telephone calls may be recorded and/or monitored for training and quality purposes.