ASX CFDS PRODUCT DISCLOSURE STATEMENT

Transcription

1 ASX CFDS PRODUCT DISCLOSURE STATEMENT YOU ARE WHAT YOU DO

2 Important notes and disclaimers Issued by Commonwealth Securities Limited ABN AFSL ( CommSec ) Locked Bag 34 Australia Square NSW 1214 Australian Financial Services Licence No Date of Issue: 1 July 2013 The latest version of this PDS can be found on the CommSec web site at commsec.com.au. Changes to the PDS that are not considered to be materially adverse will be available from the CommSec web site, where you can download an updated version. Alternatively, you can call an ASX CFD dealer on during trading hours. Important information This PDS has been prepared without taking account of your objectives, financial situations or needs. For that reason, before acting on the information in this PDS, you should consider its appropriateness to your objectives, financial situation and needs, and if necessary seek appropriate professional advice. Trading ASX CFDs can involve considerable risks. For that reason, you should only trade ASX CFDs if you understand the nature of the product (especially your rights and obligations) and the extent of the risks you are exposed to. Before trading, carefully consider this PDS and the relevant booklets regarding ASX CFDs from the Australian Securities Exchange (ASX). You should also carefully assess your experience, investment objectives, financial objectives, financial resources and other relevant issues. Products offered by this PDS This PDS covers ASX CFDs traded on the ASX 24. ASX CFDs are derivatives held over selected Australian shares, indices, foreign currency pairs and commodities. A complete list of securities and financial instruments which ASX CFDs are traded over can be found on the ASX website. Commonwealth Securities Limited ABN AFSL (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN AFSL and a Participant of the ASX for the ASX 24 Market. Foreign jurisdictions The distribution of the PDS in jurisdictions outside Australia may be restricted by law and therefore persons into whose possession those documents come should seek advice on and observe any such restrictions. Failure to comply with relevant legislation may violate those laws. This PDS does not constitute an offer or invitation in relation to an ASX CFD in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The financial products offered under this PDS have not been and will not be lodged or registered under the Unites States Securities Act of 1933, as amended, and may not be offered or sold directly in the United States. Before you begin dealing through CommSec, you must complete, sign and return the ASX CFD Client Agreement and then have your application approved by CommSec. The offer or invitation to open an ASX CFD account and enter in CommSec ASX CFDs is only available to persons receiving the PDS (whether in paper or electronic form) within Australia who are Australian residents and who provide an Australian address for service when making their application to open an ASX CFD account. ASX CFD Client Agreements which do not specify an Australian address for service or which are accompanied by payment drawn from a foreign bank account may be rejected and returned.

3 CONTENTS Join the ASX CFD revolution 2 What is an ASX CFD? 2 Features of ASX CFDs 3 The benefits of trading ASX CFDs 7 The power of leveraging 8 I can do that 8 The risks of trading ASX CFDs 9 Example of a loss 11 Practical risk management 12 I can do that 12 Calculating your position 13 Margins 13 Initial Margin 13 Variation Margin 13 Free Equity and Gross Liquidation Value 14 Additional Margin 14 Example of a Margin call 15 When CommSec will close out your ASX CFD 18 Trading with multi-currencies 18 How it works Foreign Exchange transfer 18 How it works Trading ASX Foreign Exchange CFDs 19 I can do that 20 Currency conversion and public holidays 22 Available currencies 22 What will it cost? 23 Brokerage fees 23 ASX Australian Equity CFDs 23 ASX Index CFDs 23 ASX Commodity CFDs 24 ASX FX CFDs 24 Advised ASX CFD Accounts 24 Currency Conversions Spreads 24 Using CommSecIRESS 25 Cashflow payments 25 Contract interest 27 Open Interest Charge (OIC) 28 Other interest cashflows 29 Dividend Cashflow 29 Franking Credit Cashflow (FCC) 30 Yield Cashflow 31 Other things you need to know 32 Where to find out more 32 Default events 32 Security Interest 33 Trading halts, suspensions and delistings 34 Suspension of trades and alteration of settlement prices 34 Market disruptions 34 Client agreements and documents 34 Termination of the ASX CFD Client Agreement 34 Taxation 34 Tax considerations 34 Gains or losses made on ASX CFDs 35 Interest, dividend adjustments, yield cashflow and other charges 35 Treatment of other expenses 35 Interest on an ASX CFD account 35 Taxation Ruling 35 Taxation of Financial Arrangements 36 Foreign Exchange gains and losses 36 Foreign currency considerations on interest, dividends and other income and expenses 36 Tax File Number (TFN) Interest Withholding Tax 36 Goods and Services Tax (GST) 36 Rights of CommSec 37 Resolving disputes 37 External dispute resolution 38 An ASX CFD in action 39 Long position a profit 39 Short position a loss 42 Glossary 46 Time to get started 49 Open an ASX CFD Trading Account 49 Privacy 50

4 2 ASX CFDS JOIN THE ASX CFD REVOLUTION ASX Contracts for Difference (CFDs) are versatile and liquid financial tools for experienced traders that you can hold over a share, index, foreign currency pair or commodity. Trading ASX CFDs allows you to: Potentially profit from either a rising or falling market. Use leverage to diversify your portfolio. Hedge your existing portfolio. This Product Disclosure Statement (PDS) is designed to help you understand the ASX CFD market. It provides you with information about the benefits and risks of ASX CFDs, and other information to help you decide whether this financial product is suitable for you. WHAT IS AN ASX CFD? An ASX Contract for Difference (CFD) is a derivative designed for experienced traders. It enables buyers and sellers to exchange the difference in value between the entry and exit price of a contract. The contract gets its price from an underlying security or a financial instrument. However, unlike other derivatives such as Options and Futures, they will not expire. They also have different cashflows depending on the underlying security or financial instrument. You can trade ASX CFDs over approved Australian shares and selected global indices, foreign exchange rates and commodities. An ASX CFD allows you to make a profit or a loss from the fluctuations in the price of its underlying instrument or security on a daily basis, without you needing to own it. You will either be paid, or have to pay an amount of money, depending on the position you have taken on the ASX CFD and the movement in the price or value of the underlying instrument or security. You can enter into either a long position (to buy) or a short position (to sell). If you hold a long position, you will usually profit from a rise in the price of the underlying instrument or security. However, if the price falls, you will generally make a loss. If you enter into a short position, you will usually profit if the price of the underlying instrument or security falls. Conversely, if the price of the underlying instrument or security rises, you will normally make a loss. You may have already used Over-the-Counter (OTC) CFDs. The two products have some differences. With an OTC CFD, the contract is between you and the product issuer. However, with an ASX CFD, once the buyer and seller are brought together, the Exchange (in this case, ASX Clear (Futures)) becomes the counterparty to both the buyer and the seller. So your trades are protected by a regulated and transparent market.

5 PRODUCT DISCLOSURE STATEMENT 3 ASX CFDs are highly leveraged products. They allow you to make a greater return from a smaller initial investment than if you had invested directly in the underlying (for example, if you had bought shares). However, this can also work against you, leading to larger losses. ASX CFDs are only suitable for experienced, confident investors who feel comfortable with the risks associated with trading highly leveraged products. FEATURES OF ASX CFDS What are the underlying securities or instruments for ASX CFDs? What is the role of the ASX 24? What is the role of ASX Clear (Futures)? Who can trade CommSec ASX CFDs? ASX CFDs will initially include: The top 50 stocks listed on ASX Key global equity indices A range of major foreign currency exchange rates Selected commodities A list of ASX CFDs and Contract specifications are available at asx.com.au/cfds The ASX 24 is a trading platform operated by the ASX for the operations of the ASX CFD market. The ASX is responsible for setting the standards for the way ASX CFDs work. The ASX Clear (Futures) is responsible for the registration, clearing and processing of all trades executed on ASX 24, including ASX CFDs. In relation to ASX CFDs, ASX Clear (Futures): Confirms and registers all trades. Once a contract is registered, becomes the buyer to the seller, or the seller to the buyer. Sets and collects Margins. Monitors the size of each Clearing Participant s position in relation to the overall market. ASX CFDs are only suitable for experienced traders who are comfortable with the risks involved with trading highly leveraged products. It is vital to note that you may lose more than the amount of funds in your ASX CFD account. In order to trade ASX CFDs with CommSec, you will need to read and understand this PDS, sign a client agreement and pass a risk awareness and knowledge test over the phone.

6 4 ASX CFDS What are the trading hours? What is the minimum order size? What is the minimum initial deposit that I need to have in my trading account? When does my ASX CFD position expire? How do I pay amounts due? How does CommSec pay me? How do I withdraw money from my account? Trading hours vary for different ASX CFDs. Up-to-date trading hours are available on asx.com.au/cfds or you can call CommSec on The minimum order size with CommSec is: ASX Equity CFDs: AUD 500 ASX Index CFDs: 1 contract ASX FX CFDs: 100 contracts ASX Commodity CFDs: 1 contract AUD 5,000 ASX CFDs do not have an expiry. Positions will remain open until closed out by you, CommSec or ASX. See page 32 for more information on situations where CommSec can close out your positions, and page 34 for instances where the ASX may delist contracts. All amounts you owe to CommSec will be debited from your ASX CFD Trading Account. It will be your responsibility to ensure that there are enough cleared funds in your account to cover all payments when they are due. There can be more than one Currency Ledger in your ASX CFD Trading Account. You will need to have enough cleared funds in your Currency Ledger to open and maintain an ASX CFD position denominated in that currency. See page 18 for more information on currencies and conversion. You can also facilitate an online funds transfer request to fund your Australian dollar Currency Ledger. All amounts due to you from CommSec will be credited to the relevant Currency Ledger of your ASX CFD Trading Account. You can request a withdrawal online (from your Australian dollar currency ledger) or by contacting CommSec by telephone or in writing. It is at CommSec s discretion whether or not you will be able to withdraw money from your ASX CFD Trading Account. In order to withdraw money from your ASX CFD trading account, you will need to have sufficient Free Equity in your Australian dollar Currency Ledger (see page 14 for a further explanation of Free Equity).

7 PRODUCT DISCLOSURE STATEMENT 5 How much Margin do I need to contribute? How are contract values calculated? What costs will I incur from trading ASX CFDs? Do I have to pay interest? Do I receive interest? You start by paying an Initial Margin in the Contract Currency of the ASX CFD you are trading. For example, if you are trading Australian shares, the Contract Currency will be Australian dollars. However, if you are trading ASX CFDs over a foreign index, for example, the Contract Currency will be in the currency of that Index. At the end of each day, you pay or receive Variation Margin the realised (on closed positions) or unrealised profit or loss on your open position. See page 13. If the market moves rapidly against your open position, you may also be called on to pay Additional Margin (see page 14). The contract value of an ASX CFD is calculated by multiplying the price of the relevant ASX CFD by the number of contracts and the number of underlying units per contract. For more information about calculating various cashflows involved in trading ASX CFDs, see page 25. You will need to pay CommSec brokerage costs, and currency conversion spreads where relevant. Please see page 23 for the brokerage schedules and page 24 for currency conversion spreads. You will also have to pay an Open Interest Charge to the ASX Clear (Futures) (see page 28). You will have to pay interest under the following circumstances: When long positions are held overnight, you will need to pay Contract Interest (see page 26). When short positions are held overnight in ASX FX CFDs, you will pay a Yield cashflow (see page 31). On overdue payments, and when your ASX CFD account is in debit. You will receive interest under the following circumstances: When short positions are held overnight, you will receive Contract Interest (see page 26). When long positions are held overnight in ASX FX CFDs, you will receive a Yield cashflow (see page 31). On cleared funds held in your ASX CFD account.

8 6 ASX CFDS Do I receive dividends if I hold ASX CFDs over equities or indices? Can I exchange CommSec ASX CFDs position for physical assets? How will Corporate Actions be managed for ASX CFDs? What are the taxation implications of ASX CFDs? ASX Equity CFDs If you hold a long position in an ASX Equity CFD over an underlying security when the underlying becomes exdividend, you will receive a cash payment equal to the dividend amount. And in the same way, you may also receive a cashflow equivalent to franking credits. If you hold a short position in an ASX Equity CFD over an underlying security when the underlying becomes exdividend, you need to pay an amount equal to the dividend amount. You must pay a cash equivalent of franking credits as well. ASX Index CFDs If you hold a long position in a particular ASX Index CFD and a stock in that index goes ex-dividend, you will also receive a cash payment equal to the dividend amount determined by ASX Clear (Futures). If you hold a short position over an ASX Index CFD when a dividend is announced, you must pay a cash payment equal to the dividend amount determined by ASX Clear (Futures). Note that these dividend payments may not be announced see page 29 for more information. CommSec does not offer Exchange for Physical. That is, we don t allow you to swap your ASX CFD position for the underlying stock. All trades will be cash settled. Any position in an ASX Equity CFD over a security will be adjusted to reflect the same economic exposure as the underlying security on which the ASX Equity CFD is based. So at any time there is a Corporate Action (such as a share split, capital repayment, or takeover), as much as possible the same economic impact will be reflected back into the ASX Equity CFD position. All adjustments due to corporate actions will be communicated to the market by circular which is available on asx.com.au/ cfds. CommSec does not offer taxation advice. We strongly recommend you obtain advice from your accountant or taxation adviser. Please refer to page 34 for more information about tax treatment.

9 PRODUCT DISCLOSURE STATEMENT 7 THE BENEFITS OF TRADING ASX CFDS Short selling Hedging Leveraged exposure Trade without needing to own the underlying Diversification Central counterparty clearing No expiry date With ASX CFDs, you have the ability to easily enter into a short position that is, to sell a CFD over equities, an index, a foreign currency pair or commodities that you don t actually own. This allows you to potentially profit, even when the market is going down. You can use ASX CFDs to hedge your exposure to a position in the underlying instrument or security. For instance, if you own shares in a company, you could also hold a short position of the equivalent number of ASX CFDs over the same company. This way, the movement of the ASX CFDs offsets the movement of the shares that you own, protecting you against a fall in the share market. However, if the share price rises, you do not get a net benefit from any increase in the share market. Because ASX CFDs are so highly leveraged, you can have exposure to an underlying instrument or security using only a relatively small amount of your own money. This also means your percentage returns can be greater. ASX CFDs offer you the benefits of trading without having to own the underlying security or instrument. For instance, when you take a long position against an equity, you could enjoy cashflow from dividends, exposure to capital movement and, in some cases, a cash payment equivalent of franking credits. This is all while outlaying only a fraction of the cost of the shares. ASX CFDs may help to potentially diversify your portfolio risk. For instance, share traders can use ASX CFDs to increase their exposure to a variety of financial instruments such as indices, foreign exchange pairs or commodities. ASX CFDs are cleared by ASX Clear (Futures). After your trade is registered, ASX Clear (Futures) becomes the counterparty to each side of the contract. In other words, if you are the buyer, ASX Clear (Futures) becomes the seller, or if you are the seller, ASX Clear (Futures) becomes the buyer. So your trades are protected by strong financial backing, and transparent market regulation. ASX CFDs as compared to options and futures do not have an expiry. The position is closed when you trade the opposite side of the contract.

10 8 ASX CFDS THE POWER OF LEVERAGING One of the most attractive features of ASX CFDs is their potential to allow you to profit, using a comparatively small outlay of your own money. I CAN DO THAT 1. The strategy 2. How she did it 3. The result John and Alice both decided to invest in Woolworths shares. But, while John simply invested $25,000 of his own capital, Alice decided to use ASX CFD to leverage into the same position. Alice entered into a Woolworths Limited ASX CFD at a fraction of the opening Contract Value ($1,500 being Initial Margin at $1.50 per contract). After three days, John s investment had increased in value to $27,500, giving him a profit of $2,500, or 10% of his initial outlay. At the same time, Alice s investment also increased in value to $27,500, also giving her a profit of $2,500. That s % of her initial outlay, compared to John s 10%. Item John s shares Alice s ASX CFDs Opening Trade Buy Quantity 1,000 1,000 Price $25.00 $25.00 Contract Value $25,000 $25,000 Initial Outlay $25,000 $1,500 Closing Trade Sell Quantity 1,000 1,000 Price $27.50 $27.50 Contract Value $27,500 $27,500 Profit (Loss) $2,500 $2,500 Return on Outlay 10.00% % Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments. See page 23 for brokerage fees and other cashflows. However, just as leverage can potentially multiply your profits quickly, it can equally magnify your losses as we ll see next.

11 PRODUCT DISCLOSURE STATEMENT 9 THE RISKS OF TRADING ASX CFDS ASX CFDs are risky, as they are a highly leveraged class of financial product. Only experienced investors with a high tolerance for risk should use these products. You must read and fully consider this PDS. You will also need to complete a risk awareness and knowledge test over the telephone before you can trade ASX CFDs. Some of the risks may include: Losses magnified by leverage Unlimited losses Losses of Margins and Margin calls The high degrees of leverage involved in trading ASX CFDs can work against you as well as for you. Using leverage can lead to substantial losses as well as substantial gains. Holders of short positions in the event of adverse upward price movement can be exposed to theoretically unlimited losses. You could lose a great deal more than the Initial Margin needed to support an ASX CFD position (see page 13). Positions are marked to market that is, they are changed to reflect the current market position as prices move throughout the day. You will need to settle payments on a daily basis to account for market movements. If the market moves against your position, you may have to pay Variation Margin (see page 13) to maintain your position. This amount could be substantial. If you do not pay the Variation Margin in full by the requested time, CommSec has the right to close out your ASX CFD positions at a loss. You will then be responsible for any deficit in your account. As well as paying the Initial Margin and Variation Margin, you may have to pay an Additional Margin (see page 14) while you hold an ASX CFD. The Additional Margin, also known as a Margin call, must be paid to CommSec by 2 pm Sydney time the next day, or earlier if CommSec requires. Liquidity Close out There may be times in the market, such as periods of high market volatility or low turnover when it may be difficult or even impossible to buy or sell (close out) existing positions. CommSec can close out your ASX CFD in certain circumstances. See page 34 for more details.

12 10 ASX CFDS Conditional or Contingent Orders Unannounced dividend cashflow on indexes Operational risk Market risk Conditional Orders (sometimes known as Contingent Orders), can be used when trading ASX CFDs, but placement of an order on the market does not guarantee that the order will be filled (see page 11 for more information). If the ASX CFD security price moves suddenly and the market gaps that is, the price can move very quickly without trading occurring your order may not be filled, so you may not be able to trade at the price you nominated. As a result, you could suffer losses. Holders of short positions over ASX Index CFDs may have to make a payment if any stocks on that particular index announce a dividend. However, because of the potentially large number of dividends for each index, the ASX will not record which stocks within an index have announced dividends on any given day. So you may need to make this payment without any prior warning. Any interference or breaks in operational processes such as communications, computers, networks or other external events can lead to delays in the execution and settlement of a transaction. On top of other operational risks, each ASX CFD contract market closes at least once, and in some cases, twice a day. However, the underlying markets, such as the underlying foreign exchange and commodity markets, will continue to trade. You will not be able to trade during the times that the relevant ASX CFD market is closed. This could lead to losses. For more information about the individual ASX CFD contract specifications, go to asx.com.au/cfds ASX CFD transactions are subject to rules, procedures and practices of the ASX and ASX Clear (Futures). Under the ASX 24 Operating Rules, certain trading disputes between market participants may lead to the ASX cancelling or amending a trade. In these situations, your consent is not required for the cancellation of a trade. In some circumstances, trading in underlying instruments or securities may be halted, suspended from trading or have their quotations withdrawn from the exchange. These factors will directly affect an ASX CFD s value, and the ASX CFD market may also be closed. Financial markets can change very quickly. For example, interest rates can rise or fall, political events in a country or region can affect markets, or demand and supply for stocks and commodities may rise or fall suddenly. Other factors such as a company s performance can also influence the price of the underlying instruments and securities.

13 PRODUCT DISCLOSURE STATEMENT 11 Foreign exchange risk If you are trading foreign exchange rates, foreign indices or commodities, your payments, profits, losses, debits and credits are calculated in the relevant foreign currencies that are associated with the ASX CFD. This creates a risk, as foreign exchange markets can change quickly in a short amount of time and are affected by a number of factors, such as interest rates, political events and even suspension of currency exchange. As a result, your foreign currency ledgers could be affected by fluctuations in currency value. Fluctuations in the relevant foreign currency exchange rate may affect profit or loss made on an ASX CFD position in Australian dollars, between the time you convert to a particular currency to open your ASX CFD position, and the time you close it and request the balance to be converted back to Australian dollars. See page 18 for examples. Legal As Australia is a member state of the United Nations, we are obliged to implement United Nations Security Council sanctions. Consequently, CommSec may be prohibited from dealing with certain person or entities. This means that if it appears that you are, or act on behalf of, a proscribed person or entity, then CommSec may be required to suspend, cancel or refuse you services or close or terminate any arrangement with you. We may also be required to freeze assets of yours. You could incur significant costs as a result of these actions. EXAMPLE OF A LOSS 1. The decision 2. What happened 3. The result Rick expected ASX RIO Limited CFD to rise on the back of increased base metal prices. He bought 1,000 contracts of ASX RIO Limited CFD at $98.00 per contract, with an Initial Margin of $5 per contract or $5,000 in total. Unfortunately, after opening the position, prices of base metals fell due to profit-taking. Rick decided to close all ASX RIO Limited CFD positions at $94.00 before the situation deteriorated further. Rick s gross loss (excluding daily cashflows* and brokerage) was $4,000. His overall gross percentage loss was 80% of his initial outlay. Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments * See page 23 for information about brokerage and daily cashflows.

14 12 ASX CFDS PRACTICAL RISK MANAGEMENT One way of managing or limiting loss is to set up a Conditional order. This instructs CommSec to trade some or all of your ASX CFDs if the price of the ASX CFD moves to the level that you have set as your trigger. I CAN DO THAT 1. The decision 2. What happened 3. The result Deborah bought 1,000 contracts of ASX BHP Billiton Limited CFD at $31.00 per contract. After one day, the price increased to $35.00 per contract, giving Deborah an unrealised profit of $4.00 per contract. While Deborah didn t want to miss out on potential further gains, she was wary that the price of ASX BHP Billiton Limited CFD could fall again and she would lose what she had gained. To protect her investment, Deborah submitted a Conditional Order to sell the ASX BHP Billiton Limited CFD at not less than $ Deborah set her Fallingsell Trigger at $ This meant that if the price of ASX BHP Billiton Limited CFD dropped to $34.50, her sell order would be placed into the market. The price of ASX BHP Billiton Limited CFD dropped to $34.50, and Deborah s sell order was triggered. As there were enough buyers in the market, Deborah was able to sell her ASX CFDs at $ In this way, she was able to realise gains of $3.45 per contract a total profit of $3,450. (excluding daily cashflows* and brokerage). Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments. * See page 23 for information about brokerage and daily cashflows. It s important to note that Conditional orders are not guaranteed. There is a risk that your order will not be executed if the market is moving too fast for the limit order to be placed before your limit is reached. It s particularly important to be careful when setting Conditional orders on highly volatile stocks. This is because the stock may move enough to trigger a Conditional order, but then rebound quickly to its original price potentially causing loss or reduced profit. Before you can trade Conditional orders, CommSec requires that you meet certain conditions, including the completion of a short test. To find out about Conditional Trading, we recommend you read the CommSec Brochure Secure your position which can be downloaded from commsec.com.au or ordered by calling

15 PRODUCT DISCLOSURE STATEMENT 13 CALCULATING YOUR POSITION MARGINS If you enter into an ASX CFD, you will need to pay a Margin. That is you do not have to put up the full value of the contract. Instead you provide part of it called a Margin. Margins are designed to protect the financial security of the market. If you trade an ASX CFD, you have a potential obligation to the market because the position may move against you. A margin is an amount that is calculated to ensure that you can meet your obligations on that trading day. There are three Margin components that you may need to pay Initial Margin, Variation Margin and Additional Margin. Please note that all Margins will be debited or credited to the relevant Currency Ledger of your ASX CFD Trading Account (see page 22 for more information about currencies). Initial Margin The Initial Margin is the amount you pay to open an ASX CFD position. It is debited from the relevant Currency Ledger of your ASX CFD Trading Account and is held as security for your open positions. Initial Margins are generally returned or credited to your ASX CFD Trading Account when the contract is closed out. The Initial Margin is denominated in the Contract Currency. The amount of Margin required is determined by ASX Clear (Futures), based on a number of factors such as historical price volatility and liquidity of the underlying security and market. It is intended to ensure protection for a large single day price movement. CommSec also has the right to charge an extra amount on top of this Margin. If we do, we will list this as a separate amount (Buffer Margin) on your statement. Initial Margin is monitored and can be revised should market conditions change. You can find out the current ASX Clear (Futures) rates for the Initial Margin at asx.com.au/cfds. Variation Margin The Variation Margin represents the profit or loss on your ASX CFD position (open or closed). Each day, the prices of all ASX CFDs are re-evaluated, based on the closing price (Daily Settlement Price or DSP) of the underlying security or financial instrument. This system is known as Mark to Market. Variation Margin is denominated in the Contract Currency of the ASX CFD. The DSP for ASX CFDs is determined by the ASX. The price of most ASX CFDs will be equal to the closing price of the underlying market. ASX Oil CFDs are different to the above. The DSP is based on the West Texas Intermediate (WTI) Crude Oil assessment, which is carried out by Platts*, a leading global provider of energy and metals information. The ASX Oil CFD DSP is based on a weighted first and second month assessment which derives a smooth spot price, thereby avoiding * Platts is a Trademark of the McGraw-Hill Companies, and is used by the ASX under licence.

16 14 ASX CFDS any price jump as assessments move from one month to the next month. For more details on the formula used to create the DSP for the ASX Oil CFD, go to asx.com.au/cfds. The following matrix demonstrates how Variation Margin is determined: If the price of the underlying rises If the price of the underlying falls If you hold a long position You receive Variation Margin to reflect your unrealised gains You pay Variation Margin to cover your unrealised losses If you hold a short position You pay Variation Margin to cover your unrealised losses You receive Variation Margin to reflect your unrealised gains Variation Margin is calculated at the close of trading for the period that you hold a particular ASX CFD contract. It is debited or credited to the relevant Currency Ledgers of your ASX CFD Trading Account the next trading day. If you need to pay Variation Margin but do not have enough funds in your account to do so, you must pay this amount by 2pm Sydney time the next day (or a lesser time, if we determine). We have the right to close out your position if you fail to make this payment. Free Equity and Gross Liquidation Value If you closed out all your positions in a Contract Currency at the current market price (including existing transaction charges or other adjustments), the amount of money remaining in that Currency Ledger is known as your Gross Liquidation Value (GLV). Your GLV, less the Initial Margin is known as Free Equity. GLV, Initial Margin and Free Equity are calculated separately in respect of each currency (Currency Ledger) in your ASX CFD Trading Account. Free Equity can be used to enter into ASX CFD positions or withdrawn from your ASX CFD Trading Account. Free Equity in one Currency Ledger cannot be used to fund Initial Margins in another Contract Currency, nor does it contribute to the GLV of another Contract Currency. Additional Margin CommSec may require payment of Additional Margin (a Margin call) during the term of your ASX CFD positions, in addition to Initial Margin and Variation Margin. This happens if your ASX CFD Currency Ledger has Free Equity that is negative, and the absolute amount by which it is negative is more than 5% of Gross Liquidation Value (GLV). ASX Clear (Futures) may also conduct an intra-day Margin call during periods of extreme market volatility. Where this event happens, CommSec has the discretion to call for Additional Margins from you. If you receive a call for an Additional Margin, you must put money into your ASX CFD Currency Ledger to bring your Free Equity into a positive position in that currency. You will need to do this by 2 pm Sydney time the next day, or at an earlier time specified by CommSec. You will be notified of a Margin call by , phone, SMS or account balances

17 PRODUCT DISCLOSURE STATEMENT 15 on CommSec s trading platforms. It is important for you to keep CommSec notified of any changes in your contact details. You can fund your Margin call by the following means: Reduce your open positions in the default currency; or Confirm a currency conversion request to move excess funds from one currency to fund the default currency; or Call the CommSec CFD Desk on to organise a deposit of new funds. EXAMPLE OF A MARGIN CALL 1. The decision 2. What happened 3. The result Amanda believed that the FTSE (UK index) price was going to increase. So she bought 15 ASX FTSE CFD for 6,470. During that day, the FTSE declined significantly, to the point where Amanda then received a call for Additional Margin (a Margin call) from CommSec s ASX CFD desk. To limit losses, Amanda could either reduce her existing open contracts in ASX FTSE CFDs, or convert available funds in other currencies, in this case, (Australian dollars) into Sterling. Amanda provided 2,000 to create positive Free Equity in her account. In this way, she was able to keep her position open and continue to trade.

18 16 ASX CFDS Open Long Position Buy Quantity 15 Price 6,470 Contract Value 97, Initial Margin ( 4,800.00) Brokerage ( 53.38) Initial Outlay ( 4,853.38) Assumptions: 1. Initial Margin calculated at 320 per contract. 2. Brokerage is 0.055% x Contract Value, including GST. Amanda s GBP currency ledger goes into Margin call. That is, the absolute value of negative Free Equity ( ) is greater than 5% of the GLV ( 4,196.62). With the ASX FTSE CFD trading at 6,420, Amanda has a couple of options to bring Free Equity back into a positive situation. She could reduce the number of open contracts in ASX FTSE CFD. This will reduce her Initial Margin obligations. Alternatively, she could convert excess funds in other currencies into GBP. In this situation, she has Cash Balance and Free Equity balance of $7,500 in AUD, which can be utilised to cover the shortfall in GBP. Amanda wanted to maintain the open positions in ASX FTSE CFD, so she decided to convert AUD 5,000 into GBP to cover the Margin call in the latter currency, as shown on the following page. Below is a record of the entries that Amanda s ASX CFD account would have had during that day:

19 PRODUCT DISCLOSURE STATEMENT 17 AUD GBP Description Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Day 1 Deposit AUD on opening of account $20, $20, $20, $20, Foreign currency conversion request accepted (Buy 5,000. Sell AUD 12,500) ($12,500.00) $7, $ $7, , , , , Buy 15 ASX FTSE 6,470 ( 4,800.00) , ( 4,800.00) Brokerage ( 53.38) , ( 4,800.00) ASX FTSE 6,420 at 1.00 am EST 4,196.62* ( 4,800.00) ( ) Foreign currency conversion request accepted (Buy 2,000, Sell AUD 6.00 a.m. EST ($5,000.00) $2, $2, $2, , , , ( 4,800.00) 1, Assumptions: This example is hypothetical and for illustrative purposes only. * Gross Liquidation Value has dropped by to reflect the unrealised loss on Amanda s open positions.

20 18 ASX CFDS When CommSec will close out your ASX CFD It s important to realise that if your ASX CFD account breaches any of the following limits, CommSec can do either of the following to normalise the account: Effect a foreign currency transaction and transfer funds from one Currency Ledger to another, or Close you partially or fully out of an ASX CFD position Each limit is assessed and calculated separately in respect of each currency in your ASX CFD Trading Account. You have negative Free Equity and the amount by which it is negative is more than 50% of your Gross Liquidation Value (GLV); or Your GLV is less than AUD 1,000 equivalent of the Contract Currency; or Your GLV is 1% or less of the contract value; or Your GLV is 35% or less of Initial Margin (including buffer where applicable) or A default event occurs, as set out on page 32; or Where certain events in relation to the underlying instrument occur (see for example Trading Halts, Suspension and Delistings on page 34. TRADING WITH MULTI- CURRENCIES Before trading ASX CFDs with a Contract Currency other than Australian dollars, you must convert your funds into the appropriate foreign currency from your ASX CFD Trading Account. CommSec allows you to initiate currency conversion requests online or over the phone. HOW IT WORKS FOREIGN EXCHANGE TRANSFER CommSec uses the Commonwealth Bank of Australia (the Bank) to complete foreign currency conversions on your behalf. Conversions will be placed using a rate determined by us. Because of the volatile nature of foreign exchange, the rates quoted will be indicative only. The final rate won t be established until the Bank has accepted and confirmed your request as set out on page 22. Whenever CommSec converts any currency in your ASX CFD account to another currency, you will be charged a fee for this conversion in the form of a spread on the exchange rate. Physical settlement of the cash will occur the trading day following the conversion request, however once a conversion has been confirmed by the Bank you will receive credit to your available balance enabling you to trade immediately.

21 PRODUCT DISCLOSURE STATEMENT 19 Once your deal has been confirmed by the Bank, the amount of the bought currency will be credited to the relevant Currency Ledger of your ASX CFD Trading Account. You will then be able to place orders on any ASX CFDs denominated in the buy currency. Similarly, the opposing Currency Ledger balance in your ASX CFD Trading Account will be reduced by the sell amount. Each currency balance held in your ASX CFD Trading Account is operated as a separate currency ledger. Cashflows and Margins are debited and credited against the relevant currency ledger(s) from time to time. Margin call assessments are made for each currency ledger. Any foreign currency that you convert from your ASX CFD Trading Account can only be used for ASX CFD trading. So you won t be able to deposit or withdraw any foreign currency from this account. You may hold foreign currency balances in your ASX CFD account. Generally, the foreign currency conversion request will be confirmed, and the associated adjustments to your Currency Ledger balances in your ASX CFD Trading Account will take place immediately. You will be exposed to foreign exchange risks between the time the currency conversion is initiated and such time(s) that you wish to transfer into any currency agreed by CommSec, or converted back to Australian dollars. Please also see page 11 for more information about Foreign Exchange Risk. HOW IT WORKS TRADING ASX FOREIGN EXCHANGE CFDS ASX FX CFDs are based on two currencies, commonly called currency pairs. The second currency quoted in the currency pair is the Contract Currency. Margins, Contract Interest and Open Interest Charge are denominated in the Contract Currency. The first currency quoted is referred to as the Opposing Currency and is the currency in which Yield Cashflow is denominated. When buying an ASX FX CFD, you are buying (long) the first currency and selling (short) the second currency. Conversely, when selling an ASX FX CFD, you are selling (short) the first currency and buying (long) the second currency. For instance, if you went long an ASX AUD/USD CFD, you would be buying AUD (Opposing Currency) and selling USD (Contract Currency). It is also important to note that one ASX FX CFD is equivalent to 100 times of the underlying foreign currency exchange rate.

22 20 ASX CFDS I CAN DO THAT 1. The decision 2. What happened 3. The result Katie formed the view that the Australian dollar (AUD) would fall relative to the US dollar (USD) because of positive expectations about the US economy. She decided to use ASX CFDs to take a short position in the AUD/USD exchange rate and benefit from this view. Katie sold 1,000 ASX AUD/USD FX CFDs at US$ each. As there were a number of cashflows that would be paid in US dollars, she needed to convert some Australian dollars into US dollars. She would also need to keep some Australian dollars in her account to pay the Yield Cashflow. Katie had AUD 6,200 in her ASX CFD account, and requested a currency conversion online through her ASX CFD Trading Account, to convert AUD 3,000 into US$ 2, at a rate of The following day, as Katie predicted, the value of the AUD fell relative to the USD. So Katie closed her short position by buying 1,000 ASX AUD/USD FX CFDs at US$ per contract. After taking interest, brokerage, and GST into account, Katie made a profit of US$ % return on her initial investment of US$ Katie also had to pay Yield Cashflow of AUD from her Australian dollar currency ledger. Item Amount USD Currency conversion from AUD 2, Opening Trade Sell Quantity 1,000 Opening Price Contract Value 80, Initial Margin (Outlay) (800.00) 3 Brokerage (44.50) Closing Trade Buy Quantity 1,000 Closing Price Contract Value 80, Item Amount

23 PRODUCT DISCLOSURE STATEMENT 21 3 Brokerage (44.28) Variation Margin (Profit or Loss) Total Brokerage (88.78) 4 Open Interest Charge (3.36) 5 Contract Interest (11.78) Profit Final Balance Including profit 2, AUD Initial AUD balance 6, Currency conversion to US$ (3,000.00) 6 Yield Cashflow (17.12) Final Balance Including Yield Cashflow 3, Assumptions: This example is hypothetical and for illustrative purposes only. Assume position is held overnight with Daily Settlement Price of For ASX FX CFDs, each contract is worth 100 times of the underlying foreign currency exchange rate. 2. Initial Margin calculated at US$ 0.80 per contract. 3. Brokerage is 0.055% x Contract Value, including GST. 4. Open Interest charge is Open Interest Charge rate (1.50%) x Number of Days Contract is held (1 day) / Number of Days in the year (360 days) x Daily Settlement Price (0.8075) x Number of Contracts (1000) x Units per Contract (100). 5. Contract Interest is Federal Funds Rate (5.25%) x Number of Days Contract is held (1 day) / Number of Days in the year (360 days) x Daily Settlement Price (0.8075) x Number of Contracts (1000) x Units per Contract (100). 6. Yield is AUD Target RBA Cash Rate (6.25%) x Number of Days Contract is held (1 day) / Number of Days in year (365 days) x Number of Contracts (1000) x Units per Contract (100). Until a foreign currency balance is converted back to Australian dollars, movements in the relevant foreign exchange rate will affect the Australian dollar value and hence the profit or loss from ASX CFD positions. As Katie holds a balance in US dollars, she is exposed to foreign exchange risk on the amount of funds that she transferred plus the US dollar profit that she has made on her ASX AUD/USD CFD trade. Let s look at the impact on Katie s ASX CFD account if the AUD/USD exchange rate moves before she decides to convert her US dollars back to Australian dollars.

24 22 ASX CFDS AUD Account USD Account AUD/USD Exchange Rate Total (AUD Equivalent) AUD 3, US$ 2, AUD 6, Moves down to AUD 6, Moves up to AUD 6, Assumptions: This example is hypothetical and for illustrative purposes only. If the AUD/USD exchange rate moves downward from to , Katie will have lost the equivalent of AUD because she held her balance in US$. Conversely, if the AUD/USD exchange rate moves upward from to , she will have gained AUD CURRENCY CONVERSION AND PUBLIC HOLIDAYS Foreign currency conversion won t be available on Christmas Day, Boxing Day or New Years Day. Additionally, if there is a public holiday in the country of any currency which forms part of the currency pair you are requesting, or a cross-rate used to derive the price, rates may not be available, and you may not be able to place a foreign currency conversion request. For example, July 4th is Independence Day in the USA, so rates will not be available for any currencies against USD. Trading hours for currency conversions are between 8 am Monday (Sydney time) and 5 pm Friday (New York time). You won t be able to convert currency outside of these hours. AVAILABLE CURRENCIES The available currencies in which you can request a foreign currency conversion include: Australian dollar (AUD) US dollar (USD) Great Britain pound (GBP) Euro (EUR) New Zealand dollar (NZD) Japanese yen (JPY). The available currencies are updated from time to time by the Bank, and generally mirror the different contract currencies for ASX CFDs.

25 PRODUCT DISCLOSURE STATEMENT 23 WHAT WILL IT COST? BROKERAGE FEES When you open, and when you close, an ASX CFD position you will need to pay brokerage costs to CommSec. Brokerage and the Initial Margin together represent the cost of opening an ASX CFD position. When you close your ASX CFD position Initial Margin is released and brokerage is charged again. Brokerage is charged in the Contract Currency as listed below, and includes GST. ASX Australian Equity and Index CFDs Currency Minimum Percentage Internet trades AUD Telephone trades AUD Internet trades AUD/S&P/ ASX200 Telephone trades AUD/S&P/ ASX ASX Index CFDs Internet trades Telephone trades Index Currency Percentage Dow Jones USD Industrial Average NASDAQ USD FTSE UK GBP DAX EUR DJ Euro Stoxx EUR Dow Jones USD 0.11 Industrial Average NASDAQ USD 0.11 FTSE UK GBP 0.11 DAX EUR 0.11 DJ Euro Stoxx EUR 0.11

26 24 ASX CFDS ASX Commodity CFDs Commodities Currency Percentage Internet trades Gold USD Oil USD Telephone trades Gold USD 0.11 Oil USD 0.11 ASX FX CFDs Currency pair Currency Percentage Internet trades AUD/USD USD AUD/NZD NZD AUD/EUR EUR NZD/JPY JPY AUD/JPY JPY EUR/USD USD USD/JPY JPY NZD/USD USD Telephone trades AUD/USD USD 0.11 AUD/NZD NZD 0.11 AUD/EUR EUR 0.11 NZD/JPY JPY 0.11 AUD/JPY JPY 0.11 EUR/USD USD 0.11 USD/JPY JPY 0.11 NZD/USD USD 0.11 Referred ASX CFD Accounts Where your account application has been referred to us by a third party we may pay an ongoing referral fee based on CFD trades executed to that third party. Currency Conversions Spreads Whenever CommSec converts any currency in your ASX CFD account to another currency, you will be charged a fee for this conversion.

27 PRODUCT DISCLOSURE STATEMENT 25 The fee will be debited from your ASX CFD account and will be in the form of a spread on the exchange rate, known as a bid/offer spread. The bid/offer spread will not exceed 1.00% and typically will be lower. For example, if the published exchange rate from converting AUD to USD is USD/AUD , the Exchange Rate CommSec may quote you could be as low as USING COMMSECIRESS You can trade ASX CFDs through CommSecIRESS. Separate fees apply, see commsec.com. au for details CASHFLOW PAYMENTS When you trade ASX CFDs you will receive, or need to pay out, a variety of cashflows, depending on: What kind of ASX CFD you hold, and Whether you hold a long or short position. The following table illustrates who pays, or receives each cashflow. Cashflow ASX Equity CFD ASX Index CFD ASX FX CFD ASX Commodity CFD Long Party Short Party Long Party Short Party Long Party Short Party Long Party Short Party Contract Interest Pays Receives Pays Receives Pays Receives Pays Receives Open Interest Charge Pays Pays Pays Pays Pays Pays Pays Pays Dividend Receives Pays Receives Pays N/A N/A N/A N/A Franking Credit May receive Pays N/A N/A N/A N/A N/A N/A cash equivalent Yield N/A N/A N/A N/A Receives Pays N/A N/A These cashflows are calculated on the full contract value of your open ASX CFD position, not just on the portion held as Initial Margin.

28 26 ASX CFDS The following table illustrates when the cashflows are calculated and when it is paid or received. Cashflow Calculated Paid/received Contract Interest (CI) Daily on all open positions The next trading day held at the close of trade Open Interest Charge (OIC) Daily on all open positions The next trading day held at the close of trade Dividend (equities) On all open positions held at the close of trading on the day prior to the ex-dividend date of the underlying stock Ex-dividend date Dividend (Index) Franking Credit Cashflow (FCC) Yield Cashflow (FX) On all open positions held at the close of trading on the day prior to the ex-dividend date for the stock in the index On all open positions held at close of trading on the day prior to the ex-dividend date Daily on all open positions held at the close of trading day Ex-dividend date The day after the ex-dividend date The next trading day ASX CFDs have two kinds of payments for holders of open positions in an ASX CFD: The Contract Interest (CI) is paid by the buyer (the holder of the long open position) and received by the seller (the holder of the short open position), through ASX Clear (Futures). Long position Pay Pay CI OIC The Open Interest Charge (OIC) is a daily charge set by the ASX that is paid by both the buyer and the seller to ASX Clear (Futures). Receives Dividend Cashflow Pays Long position Receives After NSOP adjustment Franking Credit Cashflow Pays Short Position

29 PRODUCT DISCLOSURE STATEMENT 27 Contract interest The Contract Interest cashflow is calculated at close of trading day on all open positions. If you hold an open short position overnight, you will receive the Contract Interest on that ASX CFD, on the next trading day. If you hold an open long position overnight, you will pay Contract Interest on that ASX CFD on the following trading day. You will always pay or receive Contract Interest in the Contract Currency of the ASX CFD. The actual Contract Interest Rate is fixed to a benchmark rate of this currency, known as the Contract Interest Base Rate. For instance, if the Contract Currency of your ASX CFD is the Australian dollar, the Contract Interest Base Rate is the overnight cash rate of the Reserve Bank of Australia. The Contract Interest Rate changes whenever this benchmark changes. Contract Interest base rates can be viewed at asx.com.au/cfds. Calculating Contract Interest Contract Interest = I x SP x N/D x C x U where: I = The Contract Interest Base Rate SP = the ASX CFD Daily Settlement Price N = the number of days for which the contract interest is being calculated D = the number of days used in interest calculation (based on market convention)* C = the number of open contracts that you hold U = the number of units of the underlying per lot of the ASX CFD contract * The ASX will use the days of the year convention (which is 365 or 360 days) that corresponds to the Contract Currency of the ASX CFD. For example, if the Contract Currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days. So, for instance, if you held a long position over 1000 ASX BHP Limited CFDs for the weekend (Friday, Saturday and Sunday), your Contract Interest would be $21.58, and is calculated as follows: the Contract Interest Base Rate 6.25% p.a. Multiplied by the ASX BHP Limited CFD Daily Settlement Price $42.00 Multiplied by the number of days for which the Contract Interest is being 3 calculated Divided by the number of days used in interest calculation 365 Multiplied by the number of open contracts that you hold 1,000 Multiplied by the number of units of the underlying per lot of the ASX CFD 1 contract Assumptions: This example is hypothetical and for illustrative purposes only.

30 28 ASX CFDS Open Interest Charge (OIC) This is a separate charge set by the ASX and may vary according to product. It is paid to ASX Clear (Futures) by holders of both long and short positions. You will always pay Open Interest Charge in the Contract Currency of the ASX CFD. The ASX can vary the OIC rate, but it is expected they will change it infrequently. You can view current OIC rates and any upcoming changes to the rate at asx.com.au/cfds. If you are trading ASX Equity CFDs, the OIC rate may differ depending on whether you hold a long or short position. The OIC rate charged for all other ASX CFDs will be the same regardless of the position you hold. For example, if you hold a long position over an ASX Index CFD, you will pay the same OIC that you would if you held a short position over that Index. The OIC is calculated at the close of a trading day. It will be debited from the relevant Currency Ledgers of your ASX CFD Trading Account on the next trading day. If you hold an open position over non-trading days (for example, weekends or public holidays) you will still have to pay OIC for each night the position is open. Calculating Open Interest Charge OIC charge = OIC Rate x (N/D) x SP x C x U where: OIC Rate = Open Interest Charge Rate, which is decided by ASX Clear (Futures) and applied to open positions. (The OIC rate may differ, depending on whether the position is long or short.) N = The number of days for which the OIC is being calculated. D = The number of days in the year (according to market convention).* C = The number of open contracts that you hold. SP = The ASX CFD Daily Settlement Price. U = The number of units of the underlying per lot of the ASX CFD contract. * OIC is always charged in the Contract Currency of the ASX CFD. The ASX will use the days of the year convention (which is 365 or 360 days) that corresponds to the Contract Currency of the ASX CFD. For example, if the Contract Currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days. So, for instance, if you held a long position over 1,000 ASX Telstra Corporation Limited CFD for the weekend, your open interest charge would be $0.58, and is calculated as follows: The Open Interest Charge Rate 1.50% p.a. Multiplied by the ASX Telstra Corporation Limited CFD Daily Settlement Price $4.70 Multiplied by the number of days for which the OIC is being calculated 3 Divided by the number of days in the year (based on market convention) 365 Multiplied by the number of open contracts that you hold 1,000 The number of units of the underlying per lot of the ASX CFD contract 1 Assumptions: This example is hypothetical and for illustrative purposes only.

31 PRODUCT DISCLOSURE STATEMENT 29 Other interest cashflows You may receive interest from CommSec on Free Equity in your ASX CFD Trading Account. Interest can be calculated for each Currency Ledger in your ASX CFD Trading Account. In AUD, the rate is the RBA Target Overnight Cash Rate less a margin that is no more than 1.5%. In foreign currencies, the rate of interest is based on the prevailing foreign currency market interest rate and may be either positive or negative. The foreign currency market interest rate is adjusted by a Margin that reflects business costs (both fixed and variable), risks associated with the product and a profit Margin. The Margin may vary from time to time due to changed market conditions, the relative liquidity of the foreign currency held, and the timing of the transaction. If your ASX CFD Trading Account is in debit, or you don t pay any necessary payments on time, you will be charged interest, which is paid to CommSec. These rates are variable, and you can view them on commsec.com.au. Dividend Cashflow If you hold ASX Equity or Index CFDs and the underlying stock or stock in the index goes ex-dividend, you will need to pay, or will be paid a dividend cashflow. If you hold a long position you will receive the dividend cashflow. If you hold a short position you must pay the dividend cashflow. The amount you will pay or receive depends on the number of ASX CFDs you hold at the close of trade on the last cum-dividend date for a particular stock. The dividend cashflow will be paid in the ASX CFD s Contract Currency. Calculating Dividend Cashflow Dividend cashflow = Di x C x U where: Di = Dividend payment (excluding any franking credits) in dollars and cents of the currency in which the dividend is paid. C = The number of open contracts that you hold. U = The number of units of the underlying per lot of the ASX CFD contract. Calculating Index Dividend Cashflow Index dividend cashflow = Ei x C x U where: Ei = Weighted dividend amount in dollars as advised by Index Provider in the Index Currency. C = The number of open contracts that you hold. U = The number of units of the underlying per lot of the ASX CFD contract.

32 30 ASX CFDS Franking Credit Cashflow (FCC) This cashflow only concerns ASX CFDs held over Australian shares. The Franking Credit Cashflow (FCC) is a monetary equivalent of a franking credit. Unlike a franking credit though, it doesn t entitle you to a potential tax offset. It is calculated on all open positions held at close of trading on the last cum-dividend date of the underlying stock. The FCC for short positions is calculated differently from long positions. This is because of an incentive given to attract Designated Price Makers (DPM) (that is, large institutions who provide liquidity and competition in the ASX CFD market). Designated Price Makers are rebated the FCC on their net short positions. As a result, when the Designated Price Makers hold more short contracts than long contracts, holders of long positions will not receive the full value of the franking credit cashflow entitlement. The net short open position percentage of DPMs at the close of each trading day for each ASX Equity CFD is available at asx.com.au/cfds. If you hold a long position over an ASX Equity CFD the day before its underlying security becomes ex-dividend: You may receive all or part of the FCC. You will be paid the FCC the day after the ex-dividend date. The FCC is always charged and paid in the Contract Currency of the ASX CFD. If you hold a short position over the ASX Equity CFD the day before its underlying security becomes ex-dividend, you will have to pay a FCC. Calculating FCC long Long Franking Credit Cashflow = [Ts / (Ts + Ds)] x FL x CL x U where: FL = Long Franking credit per share as calculated by ASX. CL = The number of long open ASX CFD contracts that you hold. U = The number of units of the underlying per lot of the ASX CFD contract. Ds = Total net open short positions held by the Designated Price Makers in the ASX CFD contract after a mandatory close out is performed by ASX Clear (Futures). This involves clearing the long and short positions of the Designated Price Makers which can be offset against each other. Ts = Total open short positions held by all non-designated Price Makers (customers) in the ASX CFD contract.

33 PRODUCT DISCLOSURE STATEMENT 31 Calculating FCC short Short Franking Credit Cashflow = Fs x Cs x U where: Fs = Short Franking Credit per share as calculated by ASX. Cs = The number of open contracts that you hold. U = The number of units of the underlying security or instrument per lot of the ASX CFD contract. Yield Cashflow If you hold ASX Foreign Exchange (FX) CFDs you may also pay or receive a Yield Cashflow. ASX FX CFDs are traded in pairs, with one currency known as the Contract Currency and the other the opposing currency. A Yield Cashflow is calculated as interest, based on the official Cash Rate of the opposing currency. For example, if you are trading ASX AUD/EUR CFDs, the Contract Currency is EUR. Therefore, the Yield will be calculated based on the Reserve Bank of Australia (RBA) cash rate the official Cash Rate of the AUD. If you hold a long position you will receive the Yield Cashflow. Holders of short positions will pay the Yield Cashflow. Calculating Yield Cashflow Yield = I x N / D x C x U where: I = Yield interest rate for the contract. N = The number of days for which the Yield Cashflow is calculated. D = Number of days used in the Interest Calculation (based on market convention)*. C = The number of open contracts that you hold. U = The number of units of the underlying per lot of the ASX CFD contract. * The ASX will use the days of the year convention (which is 365 or 360 days) that corresponds to the opposing currency of the ASX FX CFD. For example, if the opposing currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days.

34 32 ASX CFDS OTHER THINGS YOU NEED TO KNOW WHERE TO FIND OUT MORE This PDS contains a summary of the risks and returns from trading in ASX CFDs. For further detailed information on ASX CFDs, the ASX has an educational booklet understanding ASX CFDs available at commsec.com.au. We strongly recommend you read this booklet before trading ASX CFDs. DEFAULT EVENTS According to the ASX CFD Client Agreement, we have the right to take action in the case of default events. A default event includes the following: You fail to pay any money you owe to CommSec or CBA under the ASX CFD Client Agreement or any other agreement, or on any account you hold with CommSec or CBA, when it is due. You don t carry out and observe in a timely manner any obligation under the ASX CFD Client Agreement or any other agreement you have with CommSec or CBA, or any obligation you have on any account you have with CommSec or CBA. You make a misleading or incorrect representation. You stop paying your debts. You enter into or propose to enter into any scheme of arrangement or compromise with your creditors, or call a meeting to discuss an intended scheme of arrangement or compromise. You become insolvent, or, if you are a corporate client, a receiver and a manager or an administrator is assigned to you or any of your assets. If you are a corporate client, a resolution is passed or a petition is presented or an order is made for your winding up or liquidation. You die or become unsound of mind, or a bankruptcy notice is issued against you. Any security created by any mortgage or charge binding upon you or your assets becomes enforceable and the mortgagee or chargee takes steps to enforce the security. Any guarantee of or security for your obligations is, without the consent of CommSec, withdrawn or becomes defective or insufficient. Any of your debts become immediately due and payable, or become capable of being declared due and payable, before their stated maturity, by reason of your or any other

35 PRODUCT DISCLOSURE STATEMENT 33 person s default. You are not contactable by telephone for 24 hours, or by 2pm Sydney time the following day, whichever is earlier, in order for CommSec to obtain instructions with respect to an ASX CFD and you do not make alternative arrangements. If a default relating to you occurs, CommSec has the right and power (but not the obligation) to take any one or more of the following steps without giving you prior notice: Terminating the ASX CFD. Closing out all or any of your ASX CFD positions. Treating all or any ASX CFDs as if you have closed them out. Terminating any other agreement between you and CommSec or any other CommSec account. Cancelling any outstanding orders so as to close your ASX CFD account or other accounts. Satisfying any obligation you have to CommSec out of any property, money or security belonging to you in CommSec s control or custody. Satisfying any obligation you have to CommSec by transferring funds from your other accounts with CommSec. Exercising any other power or right which CommSec may have under the ASX CFD Client Agreement or in law or in equity, or taking such other action as a reasonably prudent financial services licensee would take in the circumstances. In addition, if a default event occurs: CBA and/or CommSec may combine any account that you hold with either of them, or set off any amount that is or may become owing by them to you against, any amount owing by you to them. CBA and/or CommSec may severally enforce their security interest provided for under the ASX CFD Client Agreement. SECURITY INTEREST Under the ASX CFD Client Agreement you grant each of CBA and CommSec a separate first ranking security interest over: all of your interest in your ASX CFD Trading Account; all of your interest in respect of, or in connection with, any Margin, any Free Equity and any other amount whatsoever that is payable to you under the ASX CFD Client Agreement; and all of your rights and interest in the client segregated account referred to in clause 3(b) of the ASX CFD Client Agreement,

36 34 ASX CFDS to secure obligations owing by you under or in connection with the ASX CFD Client Agreement to CBA and CommSec. TRADING HALTS, SUSPENSIONS AND DELISTINGS An underlying instrument or security may be placed in a trading halt in certain circumstances. A security could also be suspended or de-listed in certain situations. If this happens, CommSec has the right to cancel any order for an ASX CFD which has not yet been opened. CommSec can also close any open ASX CFD, when the underlying instrument or security is the subject of a trade halt, suspension and delisting. SUSPENSION OF TRADES AND ALTERATION OF SETTLEMENT PRICES The exchange bodies the ASX and ASX Clear (Futures) have the right to suspend trading, put limits on positions, exercise limits or terminate open contracts. They may do this in order to keep markets orderly and fair, or to provide reasonable and efficient services. MARKET DISRUPTIONS All ASX CFDs are subject to the rules, procedures and practices of the ASX and ASX Clear (Futures). If there are trading disputes between market participants, the ASX may cancel or amend a trade. In these circumstances, we have the right to cancel a trade without your permission. CLIENT AGREEMENTS AND DOCUMENTS Before trading ASX CFDs, you must read the Client Agreement carefully. If you trade ASX CFDs through CommSec, you will need to sign a Client Agreement form with us. TERMINATION OF THE ASX CFD CLIENT AGREEMENT Either you or CommSec may terminate the ASX CFD Client Agreement by giving two Business Days notice. The ASX CFD Client Agreement will continue to apply in relation to any open ASX CFDs, but you must notify CommSec within five Business Days of the date of termination of the ASX CFD Client Agreement that you wish to close all existing ASX CFDs. If any ASX CFD is not closed out within five Business Days, CommSec may close out that ASX CFD as if a default event had occurred. TAXATION ASX CFDs may have tax implications. The main taxation consequences of ASX CFDs offered by CommSec are set out below.

37 PRODUCT DISCLOSURE STATEMENT 35 Tax considerations CommSec does not provide taxation advice. Taxation law is complex and this summary is necessarily general in nature and does not take into account the specific taxation circumstances of each individual investor. Potential investors should seek their own independent advice on the taxation implications relevant to their own circumstances before making any investment decisions. This section is based on the law in force and administrative practice as at 1 July However, you should be aware that the ultimate interpretation of the taxation law rests with the courts and that the law, and the way the Commissioner of Taxation (The Commissioner) administers the law, may change at any time. This section is a summary of the key Australian income tax consequences arising for an Australian resident investor who enters into an ASX CFD in the course of carrying on a business or otherwise with the intention of making a profit. The taxation consequences of investors who hold an ASX CFD as trading stock are not addressed in this summary. Gains or losses made on ASX CFDs Any gains derived or losses incurred from an ASX CFD should be assessable or deductible to investors. Interest, dividend adjustments, yield cashflow and other charges Various other amounts including dividend equivalent payments or receipts ( Dividend Cashflow ), including the value of franking credits ( Franking Credit Cashflow ), interest on open ASX CFD positions paid or received by investors ( Contract Interest ), Yield Cashflow payments or receipts, and the daily cost charged by ASX on open ASX CFD positions paid by investors ( Open Interest Charge ) should also be included in the net gain derived or loss incurred from the ASX CFD. Treatment of other expenses Where the gain or loss from a financial ASX CFD is assessable or deductible to an investor, any fees, charges or brokerage should be allowable as a deduction to the investor at the time they are incurred. Interest on an ASX CFD account Interest is receivable or payable by investors in respect of an ASX CFD account credit or debit balance. Interest received by an investor in respect of an ASX CFD account credit balance should be included in the investor s assessable income generally at the time the interest is credited to the ASX CFD account held with CommSec. Interest payable by an investor in respect of their ASX CFD account debit balance (including default interest) should be allowable as a deduction at the time it is debited against the ASX CFD account held with CommSec. Taxation Ruling

38 36 ASX CFDS The summary above is in accordance with the public ruling TR2005/15 issued by the Australian Taxation Office, which outlines its view on the taxation treatment of CFDs generally. A copy of this ruling is available at ato.gov.au. Taxation of Financial Arrangements We note that the legislation on the Taxation of Financial Arrangements (TOFA) was passed on 26 March Under the TOFA legislation, the treatment of the gains and losses resulting from ASX CFDs may be calculated according to the various timing methods in the TOFA rules. The calculation will be dependent on the elections made by a taxpayer. The TOFA legislation applies to all income years commencing on or after 1 July 2010 with taxpayers able to elect to apply the rules from 1 July Individuals with assets of less than AUD100 million and entities with financial assets or turnover of less than $100 million or total assets of less than $300 million, are excluded from the proposed TOFA rules unless they elect to have the regime apply to them. Investors should seek independent advice from their tax adviser on how the enacted TOFA rules will apply to their circumstances. Foreign Exchange gains and losses Investors may derive foreign exchange gains or losses, particularly in relation to securities which are denominated in currencies other than Australian dollars. Generally, these gains and losses should be treated as assessable income and allowable deductions at the time of a realisation event under the foreign exchange rules. An example of a realisation event is where you have a foreign currency account ( Currency Ledger ) and the exchange rate varies over time so that you would receive a greater or lesser Australian dollar amount, any such gain or loss will be assessable or deductible to you when you cease to have the right to receive the foreign currency. This would usually occur when you withdraw the funds or the funds are applied for some other purpose such as entering into further transactions. However, these rules are complex and a variety of elections are available. Therefore, investors should ensure they receive their own advice in relation to foreign exchange gains and losses. Foreign currency considerations on interest, dividends and other income and expenses Payments of interest, dividends, income or expenses received or incurred by the investor will need to be translated to Australian dollars at the exchange rate on the day of payment. Tax File Number (TFN) Interest Withholding Tax Where an investor does not provide their tax file number to CommSec, any interest payments should be subject to 46.5% withholding tax. CommSec will withhold this amount from the payment made to the investor and remit the amount to the Australian Taxation Office. The investor should obtain a credit for the amount when they lodge their Australian tax return.

39 PRODUCT DISCLOSURE STATEMENT 37 Goods and Services Tax (GST) With the exception of brokerage fees, fees and charges relating to ASX CFDs are not subject to GST. RIGHTS OF COMMSEC CommSec has the right to use all or part of the money that you have in your ASX CFD Trading Account to cover any of your obligations under the terms of the ASX CFD Client Agreement. We have the right to do this without giving you advance notice. CommSec also has the right to combine or consolidate all or any of your accounts held with us. We may also convert any currency that you hold into another currency in order to settle any late payments you have in that latter currency. CommSec has the right to disallow the entry into ASX CFDs over one or more underlying financial instruments or securities at our own discretion. RESOLVING DISPUTES If you have any issues regarding ASX CFDs, please call after making sure that you have done the following: Gathered all supporting documents concerning your complaint, with particular regard to dates and times of occurrence. Obtained the names of any CommSec or Commonwealth Bank staff (if any) who were involved. Clarified what you would like CommSec to do to resolve the issue. If your issue is not resolved after contacting us, you may contact our Client Relations Department: Phone Fax (02) Mail Client Relations Locked Bag 22 Australia Square NSW 1215 You can view CommSec s internal dispute resolution and contact details in our Financial Services Guide. While most issues are resolved as quickly as possible, under the rules governing complaints handling, we have up to 45 days to deal with any complaint you may have. You ll be informed of our progress in these matters if they take longer than 45 days to resolve.

40 38 ASX CFDS EXTERNAL DISPUTE RESOLUTION If your dispute is not satisfactorily resolved after 45 days, you can take the matter to the Financial Ombudsman Service (FOS), a body recognised by the Australian Securities and Investment Commission. For further information please contact FOS at: Phone Fax (03) [email protected] Internet Mail GPO Box 3 Melbourne Victoria 3001

41 PRODUCT DISCLOSURE STATEMENT 39 AN ASX CFD IN ACTION The following case studies show how an ASX CFD may work in action. As you will see from these examples, the opportunity to realise both substantial profits and losses are great. We strongly recommend you consider the risks associated with this product as outlined on page 9, as well as seeking financial, legal, taxation or other professional advice, before entering into an ASX CFD. LONG POSITION A PROFIT Sean expects gold prices to rise, and buys 100 Gold ASX CFDs at US$ He holds his position for three days, closing it on the fourth day. Sean s expectations were correct. On the fourth day, the price of ASX Gold CFD has risen by US$17.00 to US$ He makes a profit of US$ 1,590.93, giving him a return of 47.34% (Profit divided by Initial outlay, being Initial Margin plus brokerage).

42 40 ASX CFDS AUD USD Description Notes Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Deposit of AUD on opening of account $10, $10, $10, $10, FX conversion request accepted (Buy USD 4,000, Sell AUD 5000) 1 ($5,000.00) $5, $5, $5, $4, $4, $4, $4, Buy 100 Gold ASX $5, $5, $5, ($3,325.00) $ $4, ($3,325.00) $ Brokerage incl. GST (0.055%) 3 $5, $5, $5, ($35.64) $ $3, ($3,325.00) $ Variation Margin based on End of Day Settlement $5, $5, $5, $ $1, $4, ($3,325.00) $1, Contract 5.25% pa 5 $5, $5, $5, ($9.55) $1, $4, ($3,325.00) $1, Open Interest 1.50% pa 6 $5, $5, $5, ($2.73) $1, $4, ($3,325.00) $1, Day 2 Variation Margin End of Day Settlement $5, $5, $5, ($300.00) $1, $4, ($3,325.00) $1, Contract 5.25% pa 5 $5, $5, $5, ($9.51) $1, $4, ($3,325.00) $1, Open Interest 1.50% pa 6 $5, $5, $5, ($2.72) $1, $4, ($3,325.00) $1,014.85

43 PRODUCT DISCLOSURE STATEMENT 41 AUD USD Description Notes Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Day 3 Variation Margin based on End of Day Settlement $5, $5, $5, $ $1, $4, ($3,325.00) $1, Contract 5.25% pa 5 $5, $5, $5, ($9.60) $1, $4, ($3,325.00) $1, Open Interest 1.50% pa 6 $5, $5, $5, ($2.74) $1, $4, ($3,325.00) $1, Day 4 Position closed fully. Sell 100 Gold ASX $5, $5, $5, $4, $5, $5, $5, Brokerage incl. GST (0.055%) 3 $5, $5, $5, ($36.58) $5, $5, $5, Assumptions: This example is hypothetical and for illustrative purposes only. The example has not taken into account the potential foreign currency gain or loss from converting the USD amounts back to AUD or another currency Foreign currency conversion request accepted at AUD/USD Initial Margin is calculated at US$33.25 per contract. Brokerage including GST is calculated at 0.055% of Contract Value. As contract is opened during the trading day, Daily Variation Margin is difference between End of Day Contract Value (Number of Contracts x Daily Settlement Price x Units per Contract) and Opening Contract Value (Number of Contracts x Trade Price x Units per Contract). Contract Interest is calculated at 5.25% p.a. (Contract Interest Rate) of end of day Contract Value. Number of days in year is 360 days based on U.S. market convention. Open Interest Charge is calculated at 1.50% p.a. (Open Interest Charge Rate) of end of day Contract Value. Number of days in year is 360 days based on U.S. market convention. Daily Variation Margin is the difference between the current End of Day Contract Value and previous end of day Contract Value. If the price has risen from the previous day, client will receive Variation Margin. If the price has dropped, client will have to pay Variation Margin. As position is closed during the trading day, Variation Margin (profit of $700.00) is difference between Closing Contract Value (US$66,500.00) and previous end of day Contract Value (US$65,800.00). Initial Margin of $3, is credited back to client account.

44 42 ASX CFDS SHORT POSITION A LOSS This time, Sean sells 300 ASX EUR/USD CFD at Sean holds his position for three days, closing it on the fourth day. By the fourth day, the closing price of ASX EUR/USD CFD has risen by to So Sean makes a loss of US$ or 19.89% (Loss divided by Initial outlay, being Initial Margin plus brokerage). Sean also has to pay a total Yield amount of 9.51.

45 PRODUCT DISCLOSURE STATEMENT 43 AUD USD EUR Description Notes Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Deposit of AUD on opening of account $10, $10, $10, $10, FX conversion request accepted (Buy USD 4,000, Sell AUD 5,000) 1 ($5,000.00) $5, $5, $5, $4, $4, $4, $4, FX conversion request accepted (Buy EUR 1,200, Sell AUD 2,000) 2 ($2,000.00) $3, $3, $3, $4, $4, $4, , , , , Sell 300 ASX EUR/ USD $3, $3, $3, ($2,100.00) $1, $4, ($2,100.00) $1, , , , Brokerage incl. GST (0.055%) 4 $3, $3, $3, ($22.36) $1, $3, ($2,100.00) $1, , , , Variation Margin based on End of Day Settlement $3, $3, $3, ($60.00) $1, $3, ($2,100.00) $1, , , , Contract 5.25% pa 6 $3, $3, $3, $5.94 $1, $3, ($2,100.00) $1, , , , Open Interest 1.50% pa 7 $3, $3, $3, ($1.70) $1, $3, ($2,100.00) $1, , , ,200.00

46 44 ASX CFDS AUD USD EUR Description Notes Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity 3.80% pa 8 $3, $3, $3, $1, $3, ($2,100.00) $1, ( 3.17) 1, , , Day 2 Variation Margin based on End of Day Settlement $3, $3, $3, ($90.00) $1, $3, ($2,100.00) $1, , , , Contract 5.25% pa 6 $3, $3, $3, $5.95 $1, $3, ($2,100.00) $1, , , , Open Interest 1.50% pa 7 $3, $3, $3, ($1.70) $1, $3, ($2,100.00) $1, , , , % pa 8 $3, $3, $3, $1, $3, ($2,100.00) $1, ( 3.17) 1, , , Day 3 Variation Margin based on End of Day Settlement $3, $3, $3, ($150.00) $1, $3, ($2,100.00) $1, , , , Contract 5.25% pa 6 $3, $3, $3, $5.97 $1, $3, ($2,100.00) $1, , , , Open Interest 1.50% pa 7 $3, $3, $3, ($1.71) $1, $3, ($2,100.00) $1, , , ,193.66

47 PRODUCT DISCLOSURE STATEMENT 45 AUD USD EUR Description Notes Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity Cash Movement Cash Balance Gross Liquidation Value Initial Margin Free Equity 3.80% pa 8 $3, $3, $3, $1, $3, ($2,100.00) $1, ( 3.17) 1, , , Day 4 Position closed fully. Buy 300 ASX EUR/USD $3, $3, $3, $2, $3, $3, $3, , , , Brokerage incl. GST (0.055%) 4 $3, $3, $3, ($22.57) $3, $3, $3, , , , Assumptions: This example is hypothetical and for illustrative purposes only. The example has not taken into account the potential foreign currency gain or loss from converting the USD and EUR amounts back to AUD or another currency. 1. Foreign currency conversion request accepted at AUD/USD Foreign currency conversion request accepted at AUD/EUR Initial Margin is calculated at US$7.00 per contract. 4. Brokerage including GST is calculated at 0.055% of Contract Value. 5. As contract is opened during the trading day, Daily Variation Margin is the difference between end of day Contract Value (Number of Contracts x Daily Settlement Price x Units per Contract) and Opening Contract Value (Number of Contracts x Trade Price x Units per Contract). 6. Contract Interest is calculated at 5.25% p.a. (Contract Interest Rate) of end of day Contract Value. 7. Open Interest Charge is calculated at 1.50% p.a. (Open Interest Charge Rate) of end of day Contract Value. 8. Yield is calculated at 3.80% p.a. (Yield Rate) of end of day Contract Value. 9. Daily Variation Margin is the difference between current end of day Contract Value and previous end of day Contract Value. 10. As position is closed during the trading day, Variation Margin (loss of US$90) is the difference between Closing Contract Value (US$41,040) and previous end of day Contract Value (US$40,950). Initial Margin of USD 2, is credited back to client account.

48 46 ASX CFDS GLOSSARY Additional Margin is the amount you need to pay during the term of the ASX CFD, where any one of your ASX CFD Currency Ledgers has Free Equity that is negative and the absolute amount by which it is negative is more than 5% of Gross Liquidation Value (GLV). It also refers to instances where ASX Clear (Futures) has requested intra-day Margin calls. Calls for Additional Margin (also known as a Margin call) must be met in the currency concerned by 2 pm Sydney time the next day or in a lesser time that CommSec may require (for instance, during a time of unusual volatility). ASX CFD Trading Account is your account in total, comprising the balance of the Currency Ledger in your account, or the total of the balances of the Currency Ledgers in your account, where there is more than one. ASX Clear (Futures) is responsible for the registration, clearing and processing of all trades executed on ASX 24. Available Funds represents cleared funds in the Currency Ledger balance of your ASX CFD Trading Account. Buyer is the purchaser of a contract from a Seller. CBA means Commonwealth Bank of Australia ABN CFD is the acronym for Contract for Difference. Clearing is the process where an organisation acts as a go-between for buyers and sellers, in order to bring together trades between both parties. Closing Value means the Closing Price multiplied by the Contract Quantity multiplied by Units per lot. CommSec means Commonwealth Securities Limited. Contract Currency is the currency in which an ASX CFD is denominated. It is also the second currency in an ASX FX CFD currency pair. Contract Interest is interest calculated each day that is paid by long position holders and received by short position holders, daily. Currency Ledger refers to each currency balance held in your ASX CFD Trading Account. All cashflows associated with your ASX CFD trading are debited from or credited to the relevant Currency Ledgers. Margin call and close out are assessed and calculated separately in respect of each Currency Ledger in your ASX CFD Trading Account. Daily Settlement Price (DSP) is the price that the ASX Clear (Futures) uses in marking open positions to market, to calculate Variation Margins for open ASX CFD positions. Designated Price Maker is a market-maker who provides liquidity in the ASX CFD market. Dividend Cashflow refers to payments that are equivalent to dividends related to the underlying. Dividend Cashflow applies to ASX Equity CFDs held over stocks that declare

49 PRODUCT DISCLOSURE STATEMENT 47 dividends, and ASX Index CFDs that contain a stock that pays out a dividend. Holders of Long positions receive Dividend Cashflow; holders of Short positions pay Dividend Cashflow. The Dividend Cashflow is paid in the Contract Currency of the ASX CFD. Exchange for Physical is when a derivatives position can be changed for an offsetting stock position. CommSec does not offer Exchange for Physical with ASX CFDs. Franking Credit Cashflow (FCC) is a cash payment equivalent to a franking credit that applies only to ASX Equity CFDs. If you hold a long position traded the day before the underlying security goes ex-dividend you may receive all or part the Franking Credit Cashflow. If you hold a short position the day before the underlying security goes ex-dividend, you will pay the Franking Credit Cashflow. You pay, or will be paid the FCC the day after the ex-dividend date. Free Equity is the Gross Liquidation Value (GLV) in each of your CommSec CFD Currency Ledgers less any Margin. It does not include any intra-day brokerage or fees that may be payable. It is calculated separately for each Currency Ledger. Gross Liquidation Value (GLV) is the amount of money that would remain in each of your CFD Currency Ledgers if all your positions in that Contract Currency were closed out at the current market price. It does not include brokerage or other transaction fees incurred when closing the positions. It is calculated separately for each Currency Ledger. Initial Margin is the payment, similar to a deposit, put up by buyers and sellers of ASX CFDs. The Initial Margin protects the Clearing House and the Participant against nonpayment of losses by any customer. The amount varies according to the price volatility of the underlying. Long party is a party that holds bought contract positions. Margin Call is the same as Additional Margin. Margin means Additional Margin, Initial Margin, Variation Margin or any of them. Mark to Market is the update of the value of a security to reflect its current market price. Open Interest Charge (OIC) is the charge paid on both long and short positions, at a rate decided by the ASX. The rate of the OIC depends on the underlying security or instrument. For ASX Equity CFDs the rate of the OIC may also depend on whether you hold a short or long position. Opposing Currency is the first currency in a currency pair. It is the currency in which Yield Cashflow for an ASX FX CFD is denominated. Participants are members of the ASX and are divided into two kinds Trading Participants and Clearing Participants. A Trading Participant is any person or company that places orders and trades, on products listed by ASX. The Clearing Participants have the job of allocating and settling trades. For ASX CFDs, the Clearing Participant for CommSec is Deutsche Bank.

50 48 ASX CFDS Seller A seller of a contract to a Buyer. Short party is a party that holds sold contract positions. Trading Day is the day on which the ASX CFDs are or will be open for trading. Underlying is a reference to the asset or instrument (such as an Index or Foreign Currency) that the ASX CFD is based on. Units per lot are the equivalent number of underlying units for each ASX CFD contract, currently as follows: ASX Equity CFDs: one of the underlying share = one ASX CFD. ASX Index CFDs: index level = one ASX CFD. ASX Foreign exchange CFDs: 100 times of the underlying foreign currency exchange rate = one ASX CFD. Commodity ASX CFDs: An agreed measurement of the underlying commodity (for example, one ounce of gold or one barrel of oil) = one ASX CFD. Variation Margin is the daily payment of profits or losses after an ASX CFD contract has been marked to market. Yield Cashflow is an income stream that only applies to ASX Foreign Exchange CFDs. It is based on the official Cash Rate of the opposing currency in the FX currency pair. Holders of long positions receive this payment, while holders of short positions pay it.

51 PRODUCT DISCLOSURE STATEMENT 49 TIME TO GET STARTED OPEN AN ASX CFD TRADING ACCOUNT You must open an ASX CFD Trading Account before you can trade ASX CFDs. Apply online at commsec.com.au or call STEP1 Consider the risks and benefits Carefully consider all the information in this PDS, and read the Client Agreement including the Terms and Conditions and the Risk Disclosure Statement. Read the ASX booklet to ensure you have a full understanding of the product. You can obtain a copy from commsec.com.au/cfds or by calling CommSec on Apply Complete the Client Agreement form. Return the form to: STEP2 Commonwealth Securities Limited Locked Bag 34 Australia Square NSW 1214 STEP3 Be ready CommSec will contact you by phone and ask you several questions to confirm your understanding of the risks involved in ASX CFDs.

52 50 ASX CFDS PRIVACY Customer information and privacy Customer information and privacy Collection and verification of customer information Customer information is information about a customer. It includes personal information. The law requires us to identify our customers. We do this by collecting and verifying information about you. We may also collect and verify information about persons who act on your behalf. The collection and verification of information helps to protect against identity theft, money-laundering and other illegal activities. We use your customer information to manage our relationship with you, provide you with the products and services you request and also tell you about the products and services offered by the Commonwealth Bank Group ( Group ), affiliated providers and external providers for whom we act as agent. If you have given us your electronic contact details, we may provide marketing information to you electronically. The collection and verification of customer information may be carried out in different ways and we will advise you of the most acceptable methods of doing this. We may disclose your customer information in carrying out verification e.g. we may refer to public records to verify information and documentation, or we may verify with an employer that the information you have given us is accurate. Depending on whether you are an individual or an organisation, the information we collect will vary. For instance, if you are an individual, the type of information we may collect and verify includes your full name, date of birth and residential address. If you are commonly known by 2 or more different names, you must give us full details of your other name or names. For instance, if you are a company, we may collect and verify information, including company incorporation and registration details, as well as details of the company s officers and its major shareholders. If you are acting as a trustee, we may ask you for, amongst other things, information on the beneficiaries of the trust and evidence of the existence of the trust. If you are a partnership, we may require information including evidence of the fact that the partnership exists, as well as the full name of the partnership, the names of the partners and any business name owned by the partnership. For other organisations, the kind of information we collect and verify will depend on the type of organisation you are. In addition, during your relationship with us, we may also ask for and collect further information about you and about your dealings with us. You must provide us with accurate and complete information. If you do not, you may be in breach of the law and also we may not be able to provide you with products and

53 PRODUCT DISCLOSURE STATEMENT 51 services that best suit your needs. Protecting customer information We comply with the National Privacy Principles as incorporated into the Privacy Act 1988 (Cth). We disclose customer information to other members of the Group (including overseas members), so that the Group may have an integrated view of its customers and to facilitate the integrated treatment of its customers. It also enables other members of the Group to provide you with information on their products and services. Other disclosures At common law, banks are permitted to disclose customer information in the following circumstances:- (a) where disclosure is compelled by law; or (b) where there is a duty to the public to disclose; or (c) where our interests require disclosure; or (d) where disclosure is made with your express or implied consent. So that we can manage our relationships, customer information may be disclosed to: brokers and agents who refer your business to us; any person acting on your behalf, including your financial adviser, solicitor, settlement agent, accountant, executor, administrator, trustee, guardian or attorney; financial institutions who request information from us if you seek credit from them; if you have borrowed from the Bank to purchase property valuers and insurers (so that the Bank can obtain a valuation of your property, and confirm that it is insured); if your have insurance: medical practitioners (to verify or clarify, if necessary, any health information you may provide), claims investigators and reinsurers (so that any claim you make can be assessed and managed), insurance reference agencies (where the Bank is considering whether to accept a proposal of insurance from you and, if so, on what terms); and organisations to whom we may outsource certain functions. In all circumstances where the Bank s contractors, agents and outsourced service providers become aware of customer information, confidentiality arrangements apply. Customer information may only be used by the Bank s agents, contractors and outsourced service providers for our purposes. We may be required to disclose customer information by law, e.g. under Court Orders or Statutory Notices pursuant to taxation or social security laws or under laws relating to sanctions, anti-money laundering or counter terrorism financing.

54 52 ASX CFDS We may send customer information overseas if: that is necessary to complete a transaction, or we outsource certain functions overseas. We may also be permitted, as distinct from required, to disclose information in other circumstances. For more information, please refer to our Privacy Policy. Access to your personal information The law allows you (subject to permitted exceptions) to access your personal information. You can do this by contacting: Customer Relations CommSec Reply Paid 41 Sydney NSW 2001 We may charge you for providing access. Further information For further information on the Bank s privacy and information handling practices, please refer to the Bank s Privacy Policy, which is available at commbank.com.au or upon request from any branch of the Bank.

55 PRODUCT DISCLOSURE STATEMENT 53 WE RE HERE TO HELP To find out more, call us on , 8am to 6pm (Sydney time), Monday to Friday, or visit our website at commsec.com.au

56 MKTG434 (07/13) commsec.com.au