MARGIN FOREIGN EXCHANGE

Transcription

1 PRODUCT DISCLOSURE STATEMENT MARGIN FOREIGN EXCHANGE Halifax Investment Services Pty Ltd Australian Financial Services Licence No Date 28 July 2016 HALIFAX Product Disclosure Statement 1

2 IMPORTANT INFORMATION AND DISCLAIMER In addition to reading, understanding and acknowledging this PDS you must complete a Client Foreign Exchange (FX) Suitability Test. As an issuer of over-the-counter ( OTC ) derivatives (which includes Margin FX and FX Option products), Halifax is required to meet the disclosure benchmarks outlined in ASIC Regulatory Guide 227: Overthe-counter contracts for difference: Improving disclosure for retail investors. These benchmarks are not mandatory, however if they are not satisfied ASIC expects issuers will disclose on an if not, why not basis the reasons why a benchmark is not met and what they are doing to address the issue. MEETING THE DISCLOSURE BENCHMARK CLIENT QUALIFICATION Trading in Margin FX products and FX Options products is not suitable for all investors because of the significant risks involved. As many investors do not receive advice about whether or not Margin FX and FX Option products are appropriate for their objectives, financial situation and needs, ASIC expects issuers to play a role in ensuring that only investors with a sound understanding of the features and risks of Margin FX and FX Option products can open an Account and trade. This is as ASIC believes that investors who thoroughly understand the features and risks of the product will be able to determine whether Margin FX and FX Option products are an appropriate investment for them and to manage the risks associated with trading on an ongoing basis. We have established a client qualification policy which includes a client suitability test. The client suitability test includes questions which both test the investor s knowledge and also act to reiterate some aspects of the disclosure requirements for OTC Derivatives. For example, a number of questions are designed so that the correct answer will ensure that the investor recognises or appreciates risks inherent in OTC Foreign Exchange. It should be remembered that testing client knowledge is the primary aim of the client suitability test reinforcing the disclosure requirements is merely a convenient way to enhance investor understanding. You must complete your Suitability Test before you will be able to trade on an Account with Halifax. To find out more, please contact Halifax Accounts on (overseas ) after Account Opening. Decisions to invest in ( Margin FX ) and Foreign Exchange Options ( FX Options ) products carry significant risks and consequences. Margin FX products and FX Options are highly leveraged and carry a high degree of risk. Potential investors should be experienced in Margin FX and FX Option products and/or other derivative products, and understand and accept the risks of investing in such products. Refer to section 12 for more information about significant risks in trading Margin FX products. In preparing this PDS, we have not considered your personal circumstances. This document provides features and risks of Margin FX and FX Option products. Before trading in Margin FX and FX Option products, you need to be satisfied that these financial products are appropriate to your financial objectives, situation and needs. You must read and acknowledge that before opening an Account and beginning to trade you have read this PDS in its entirety and that you understand it. It is your responsibility to ensure that you fully understand the products, how they are traded and the risks involved. Halifax also recommends that you consider seeking financial, legal, taxation and other professional advice to ensure that you fully understand Margin FX and FX Option products and that they are appropriate for you before you begin trading in these products. To the extent permitted by law, neither Halifax nor its affiliates accepts any responsibility for errors or misstatements, negligent or otherwise, nor for any direct, indirect, consequential or other loss arising from any use of these documents and/or further communication in relation to them. 2 HALIFAX Product Disclosure Statement

3 DO YOU HAVE ALL THE RELEVANT DOCUMENTS? This PDS is subject to the detailed provisions of the Client Services Agreement and Financial Services Guide ( FSG ). You must ensure you have read and fully understand the Client Services Agreement, the FSG and this PDS. Index 1. Introduction Terms and Conditions The Purpose of this PDS Changes to this PDS The Financial Products this PDS Covers... 5 BEFORE YOU TRADE IN MARGIN FX AND FX OPTIONS, YOU MUST CAREFULLY CONSIDER WHICH TRADING PLATFORM BEST SUITS YOUR NEEDS It is very important for you to understand the Trading Platforms and, where relevant, our arrangements with our Platform Counterparties, as they can affect key terms of the Margin FX and FX Option Transactions you enter into and can fundamentally change the nature of your legal rights in respect of a Margin FX and FX Option and your Account in general. Your choice of Trading Platform for a Margin FX and FX Option Transaction can significantly impact: the credit risk you take in respect of your Trading Platform including the extent to which your credit risk to us is supported by positions we take with third party Platform Counterparties; the fees and costs you are charged for your Margin FX and FX Option Transactions; and the range of Margin FX and FX Option Transactions you are able to enter into. In order to enter into a Margin FX or FX Option Transaction, you must select a Trading Platform However, in some limited circumstances, we may allow you to enter into a Margin FX or FX Option Transaction without choosing a Trading Platform. 6. About Halifax Purpose of Margin FX products RG227 Disclosure Benchmarks Key Features of Margin FX Key Features of FX Option Contracts Key Benefits Significant risks Margin obligations Opening and Closing Out a Margin FX Position Trading Platforms Trading hours Trading examples Charges, fees and other amounts payable for Margin FX Charges, fees and other amounts payable for FX Option Contracts Confirmation of transactions Market information No cooling off arrangements Taxation implications Dispute resolution Privacy Glossary of terms Annexure A: Orders types you can place with Halifax Schedule A Schedule B Schedule C Schedule D Schedule E HALIFAX Product Disclosure Statement 3

4 1. Introduction This PDS is dated 28 July 2016 and is issued by Halifax Investment Services Pty Ltd ( Halifax ). Halifax is an unlisted Australian company (ABN ), that holds an Australian financial services licence issued by the Australian Securities and Investments Commission ( ASIC ) (AFS Licence number ). This PDS has been prepared by Halifax as the issuer of Margin FX and FX Option products. All of the Margin FX and FX Option products offered by Halifax under this PDS are over the counter ( OTC ) derivative products. While this PDS is designed to assist you in making an informed decision regarding opening an Account and trading Margin FX and FX Option products, the information in it is general information only and does not take into account your personal objectives, financial situation and needs. We also refer you to the detailed provisions of the Client Services Agreement and the FSG. Before making a decision to acquire the financial products described in this PDS you should read this PDS, the FSG and Client Services Agreement and be satisfied that any trading you undertake in relation to the Margin FX and FX Option products described in this PDS is appropriate in view of your objectives, financial situation and needs. You can access the FSG and the Client Services Agreement from our website or, by calling Halifax and requesting that a paper copy be provided to you free of charge. Refer to the glossary of terms in section 26 for definitions we use in this PDS. 2. Terms and Conditions This PDS and the FSG set out important information about the financial products and services Halifax offers and about Halifax itself. Additional legal terms governing your dealing with us are set out in: your Client Services Agreement with us; any supplementary terms for particular financial products; and any supplementary terms for any electronic Trading Platform which you use. You will need to enter into a Client Services Agreement by completing the application form and submitting it to us. The Client Services Agreement sets out the general legal terms of your dealings with us for the products covered by this PDS and also for dealings not covered by this PDS (such as trading in other financial products we offer). By completing an application form and submitting it to us you agree to the terms of the Client Services Agreement and this PDS. To the extent of any inconsistency between your Client Service Agreement and this PDS, unless expressly agreed otherwise, this PDS shall prevail. 3. The Purpose of this PDS Under the Corporations Act, a retail client must generally receive a PDS before acquiring a financial product. The PDS is the document that sets out the significant features of a financial product, including its risks, benefits, costs and fees and other related information. The purpose of this PDS is to provide you with sufficient information to make an informed decision in relation to the acquisition of our financial products. You may also use this PDS to compare the financial products described with similar financial products offered by other issuers i.e. other Margin FX and FX Options providers. This PDS seeks to explain to you about our financial products in a clear, concise and effective manner. When we use the terms Halifax, we, our or us in this PDS, the reference is to Halifax, the issuer of the Margin FX and FX Option products described in this PDS. When we use the term you we mean you as the applicant for or holder of financial products issued by us. When we refer to client we mean you or another applicant for or holder of Margin FX or FX Option products issued by us. This PDS is an important document and provides you with key information about certain financial products that we offer. Margin FX and FX Option products can be highly leveraged and speculative with a high degree of risk. Potential investors should understand the risks of investing in Margin FX and FX Option before making any decision to invest. Before trading in the Margin FX and FX Option products referred to in this PDS you should give consideration to your objectives, financial situation and needs. We recommend that you take all reasonable steps to fully understand the possible outcomes of trades and strategies in relation to the Margin FX and FX Option products offered. You should also be aware of the risks involved and be satisfied that trading in these products is suitable for you in view of your financial circumstances. If you have any questions in relation to this PDS, please do not hesitate to contact us (our contact details are in section 6). We are required to give you this PDS because we are the issuer of the financial products described in it. 4 HALIFAX Product Disclosure Statement

5 Other jurisdictions The distribution of this PDS in jurisdictions outside Australia may be subject to legal restrictions. Any person who resides outside Australia who gains access to this PDS should comply with any such restrictions as failure to do so may constitute a violation of financial services laws. This PDS does not constitute an offer or invitation in relation to a financial product to any US persons or in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. 5. The Financial Products this PDS Covers The Margin FX and FX Option products offered under this PDS are OTC derivative contracts. A derivative contract is a contract that derives its value by reference to one or more assets (called the Underlying Instrument ) and an OTC derivative is a derivative that is traded off-market rather than on an exchange such as a stock exchange or futures exchange. When you transact in Margin FX and FX Options, you will transact with Halifax (acting in a principal capacity). The Application of this PDS We have recently made a number of fundamental changes to the terms of the Margin FX and FX Option products which are reflected in this PDS. This PDS relates to Accounts opened, or for which a Trading Platform is changed, after the date of this PDS. If you are one of our existing clients and you have entered into a Client Services Agreement before the date of this PDS, your Transactions will continue to be governed by your existing Client Services Agreement and the PDS under which you invested until 31 December 2016 or, if earlier, the date the Trading Platform for your Account is changed. After that date all your Transactions (including those opened on or before that date) will become governed by this PDS. Our existing clients can elect to transition to the terms of the Margin FX and FX Option products under this PDS earlier than 1 January 2017 by contacting us and agreeing to vary the terms of your Client Services Agreement. You must make this election before you will be permitted to trade on the Halifax Pro or the Halifax Plus Trading Platforms. 4. Changes to this PDS This PDS is subject to change from time to time and may be updated on our website A copy can be downloaded from our website or, by calling us and requesting that a paper copy be provided to you free of charge. If any new information is materially adverse information, we will issue a new or supplementary PDS with the new information. If the new information is not materially adverse, we may not issue a new PDS or supplementary PDS but you will be able to find the updated information on our website at or by contacting us. Our contact details are set out in section 6. Margin FX Margin FX products are financial products which are agreements between you and Halifax to trade the difference arising from movements in the level of an Underlying Instrument that is an Exchange Rate for two currencies or for a limited number of precious metals (referred to as the Underlying Exchange Rate ). Margin FX products have no fixed expiry dates, are not standardised contracts and have no fixed contract size. As a party to a Margin FX Transaction, you can, on Closing Out the Transaction, be paid an amount (representing a gross profit) or be required to pay an amount (representing a gross loss) arising from movements in the Underlying Exchange Rate. The Underlying Instrument for a Margin FX Transaction is referred to as the Exchange Rate. The Exchange Rate can be either the price of one currency expressed in the terms of another currency ( FX Transactions ) or the price of a precious metal expressed in a specified currency or precious metal ( Metal Transactions ): For FX Transactions: the Exchange Rate is the price of one currency in terms of another currency (called a Currency Pair ). For example, the Exchange Rate might be the price of the Australian dollar (AUD) in terms of the United States dollar (USD). If the current Exchange Rate for the AUD against the USD (AUD/USD) is , this means that one AUD dollar equates to, or can be exchanged for, USD or 90 US cents. For Metal Transactions: the Exchange Rate is the price of one precious metal (limited to either gold or silver) in terms of a specified currency or precious metal (called a Metal Pair ). For example, the Exchange Rate might be the price of the spot gold (XAU) in terms of USD. If the current Exchange Rate for gold as against the USD (XAU/USD) is , this means that 1 ounce of spot gold equates to, or can be exchanged for, USD 1, HALIFAX Product Disclosure Statement 5

6 All Margin FX Transactions remain open until they are Closed Out. This occurs where the client enters into an equal and opposite Transaction and the two positions are offset against each other. Importantly, trading Margin FX does not result in the ownership by you of any actual currency or precious metal to which the Margin FX Transaction relates. Margin FX Transactions do not result in the physical delivery of the relevant foreign currency or precious metal, but instead are cash settled. FX Options Option contracts traded over Margin FX products are referred to as FX Option Contracts. The buyer of an FX Option Contract pays a Premium in exchange for the right, but not the obligation, to enter into a Margin FX Transaction with the seller at a predetermined Exchange Rate (called the Exercise Rate ) on the Expiry Date. From the seller s viewpoint, the seller has no right other than a right to the Premium. The seller will be under an obligation to enter into a Margin FX Transaction at the Exercise Rate of the FX Option Contract if the FX Option Contract is validly exercised by the buyer. If the FX Option Contract is exercised at the Expiry Date, this will result either in a Cash Settlement or the establishment of a Margin FX Transaction between the buyer and the seller. Refer to section 10 for further details on FX Options. You can terminate your exposure under an FX Option Contract before the Expiry Date by: where you are the buyer of the FX Option, selling to Halifax a corresponding FX Option; or where you are the seller of the FX Option, buying from Halifax a corresponding FX Option. What are the Trading Platforms and how do they affect my Margin FX and FX Options? To enter a Transaction with us, generally you must select one of the Trading Platforms through which to do so. Each Trading Platform has a separate online interface and so you must arrange through us for access to each Trading Platform you want to use. Each individual Transaction will be through a specific Trading Platform and you cannot transfer open positions from one Trading Platform to another. There are two ways in which we can we can issue Margin FX and FX Option product to you in a Transaction. 1. As a straight through processor, which means that we essentially hedge 100% of our exposure to you under the Transaction by entering into an equivalent matching transaction with the relevant Platform Counterparty (referred to as the Hedge Transaction ). 2. Alternatively, we can elect not to hedge, or to hedge less than 100% of, our exposure to you under the Transaction. If you enter into a Transaction with us using any Trading Platform other than Halifax Pro or Halifax Plus, we will only issue the Margin FX or FX Option product to you as a straight through processor and, therefore, essentially 100% of our exposure to you will be hedged with the relevant Platform Counterparty. If you enter into a Transaction with us using the Halifax Pro or Halifax Plus Trading Platforms, we will decide at our discretion whether we hedge our exposure to you with the Platform Counterparty and, if we do decide to hedge our exposure, how much of the exposure we hedge. Further, we may decide to alter our hedging arrangements during the time any Margin FX or FX Option product we issue to you remains open. In making these decisions, we will be guided by our market risk policy (see Benchmark 3 in Section 8 for further detail). It is very important for you to understand whether we enter into hedging arrangements with our Platform Counterparties and the nature of those arrangements as they can affect a number of features of your Margin FX or FX Option product and fundamentally change the nature of your legal rights in respect of a Transaction and your Account in general. In particular, your choice of Trading Platform for a Transaction and the Trading Platforms we offer clients generally (regardless of whether you use all of them) has the following impacts. Whether, and the extent to which, we hedge our exposure as issuer of Margin FX or FX Option products. If we decide not to hedge 100% of our exposure to Margin FX or FX Option products we issue through the Halifax Pro or Halifax Plus Trading Platforms, we will only be able to rely on our own financial resources to meet any unhedged exposures. As our exposure to Margin FX or FX Option products are not segregated between Trading Platforms, this reliance and the credit risk associated with it are relevant to all our clients, not just those who trade through the Halifax Pro or Halifax Plus Trading Platforms. The credit risk you take on the Platform Counterparty for your Trading Platform. 6 HALIFAX Product Disclosure Statement

7 The fees and costs you are charged for the relevant Transaction. The range of Margin FX or FX Options Transactions you are able to enter into. Transaction, you transact with us in a principal capacity. That is, your contractual relationship is with us only, and you have no rights of recourse to the relevant Platform Counterparty, or to any other person. What is the difference between a Trust Account Platform and a Non Trust Account Platform? There is a fundamental difference in the way financial services providers treat the balance of your Account depending on whether you use a Trust Account Platform or a Non Trust Account Platform. For Accounts opened, or for which a Trading Platform is changed, after the date of this PDS, all Trading Platforms are Non Trust Account Platforms. For Accounts opened on or before the date of this PDS, some Trading Platforms will continue to be Trust Account Platforms until the Account transitions to this PDS in accordance with section 3. See the PDS under which you invested for details. How we treat your money under Trust Account Platforms In contrast to Non Trust Account Platforms, for the Trust Account Platforms (which we do not offer under this PDS), amounts paid to the relevant financial services provider are deposited into a client trust account maintained by that provider. This means that client funds (and property) are segregated from the provider s own funds (or property). How we treat your money For Non Trust Account Platforms, all amounts you pay to us will be absolutely owned by us from the time of receipt and will be paid into our account. There will be no segregation of this money or property. This means that those funds are available to pay our general creditors if we become insolvent. In brief, this means that those funds are not available to pay the provider s general creditors if it becomes insolvent. How do I take credit risk on the Platform Counterparty for my Trading Platform? For each Margin FX and FX Options Transaction you enter into, we will (or, in the case of Margin FX and FX Options Transactions you enter into through Halifax Pro or Halifax Plus, may) hedge our exposure to you by entering into an equivalent transaction with the relevant Platform Counterparty. However, when you enter into a However, you still take credit exposure on the Platform Counterparty because, under the terms of your Transaction, our obligations to you are linked to the performance by the Platform Counterparty of its obligations under the Hedge Transaction. That is, to the extent the relevant Platform Counterparty fails to perform its obligations under the Hedge Transaction for your Transaction, our obligations to you in respect of your Transaction will be reduced accordingly. This means that if the relevant Platform Counterparty becomes insolvent, you might lose some or all of the balance of your Account in that Trading Platform (even though we might continue to be solvent). In addition, you might face considerable delays before you are able to access the amount (if any) that is able to be recovered from the Platform Counterparty. Do I also take credit risk on Halifax? Yes. Your rights against us in respect of your Account are unsecured contractual rights. Our establishment in January 2016 of the Halifax Pro Trading Platform and of Halifax Plus Trading Platform in July 2016 has resulted in a change to our approach to the hedging of our exposure to Transactions we enter into. Traditionally, we have operated as a straight through processor, which means that we essentially hedge 100% of our exposure to the Transactions we enter into. While we will continue this approach for Transactions we enter into through our existing Trading Platforms, we may decide not to hedge, or to hedge less than 100% of, our exposure to Transactions we enter into through the Halifax Pro or Halifax Plus Trading Platforms. In making these decisions, we will be guided by our market risk policy (see the explanation under Benchmark 3 in section 8 for further detail). The fact that we may now decide not to hedge, or to hedge less than 100% of, our exposure to some Transactions is relevant to, and likely to increase, our credit risk because we will only be able to rely on our own financial resources to meet any unhedged exposures which crystalize. As our exposure to Transactions are not segregated between Trading Platforms, this is relevant for all our clients, including those who do not trade through the Halifax Pro or Halifax Plus Trading Platforms. HALIFAX Product Disclosure Statement 7

8 How does my choice of Trading Platform affect the fees and costs I am charged? The fees and costs you are charged will differ depending on your choice of Trading Platform. This is because the fees we charge you reflect the fees that we are charged under the Hedge Transaction and/ or in the case of Transactions entered into through the Halifax Pro or the Halifax Plus Trading Platforms, and compensation for any exposure we decide not to hedge (plus various spreads or margins we apply for our profit). The fees and costs charged in respect of each Trading Platform are described in section 18 and 19 and in the tables in Schedules A-B. There can be considerable differences in the fees charged in respect of each Trading Platform, so it is very important that you understand the various fee options so that you can choose which Trading Platform best suits your needs. 6. About Halifax We are the issuer of this PDS and the issuer of the Margin FX and FX Option products referred to in this PDS. In accordance with our AFS Licence, we are authorised by ASIC to advise, deal and make a market to both retail and wholesale clients in derivatives. Margin FX and FX Option products are derivatives. Pursuant to our AFS Licence, among other things, we are also authorised to provide general and/or personal financial product advice in relation to, and to deal in, the following products for both retail and wholesale clients: (i) deposit and payment products limited to basic deposits; (ii) interests in managed investment schemes excluding investor directed portfolio services; (iii) foreign exchange contracts (and make a market); (iv) securities; and (v) miscellaneous financial investment products (limited to managed investment warrants). All enquiries to us should be made during business hours to the Operations Manager. Our contact details are: The Operations Manager Halifax Investment Services Pty Ltd Governor Phillip Tower Level 49, 1 Farrer Place Sydney NSW 2000 Phone: ( ) Facsimile: operations@halifaxonline.com.au Website: 7. Purpose of Margin FX and FX Option products Margin FX and FX Option products are generally used for one of two purposes hedging or speculating: Margin FX and FX Option products can provide people with a facility for managing the risks associated with changing prices for certain investments. This strategy is known as hedging. Margin FX and FX Option products are also traded by speculators, who trade in the anticipation of profiting purely from changing prices in the Underlying Instrument. Generally, trading Margin FX and FX Option products allows you to leverage your positions to take a much greater exposure than if you were to transact directly in the relevant currency or precious metal. Trading in Margin FX and FX Option products does, however, involve significant risk. Transactions should only be entered into by traders and investors who understand the nature and extent of their rights, obligations and risks (for more information on risks refer to section 12). 8 HALIFAX Product Disclosure Statement

9 8. RG227 Disclosure Benchmarks ASIC Regulatory Guide 227 requires issuers of over-the-counter (OTC) derivatives to publish certain information addressing a range of disclosure benchmarks. These benchmarks are required to be addressed on an if not, why not basis, and are intended to assist retail investors to properly understand the complexity and risks of trading in OTC derivative products, particularly with regard to leverage. There are 7 disclosure benchmarks required to be addressed, our compliance with each benchmark is addressed in the following table. Benchmark Description Explanation Further Information Benchmark 1: Client qualification An issuer should maintain and apply a written client qualification policy that: (a) sets out the minimum qualification criteria that prospective investors will need to demonstrate they meet before the issuer will agree to open a new account on their behalf; (b) outlines the processes the issuer has in place to ensure that prospective investors who do not meet the qualification criteria are not able to open an account and trade in Margin FX or FX Option products; and (c) requires the issuer to keep written records of client assessments. Trading in Margin FX and FX Option products is not suitable for all investors because of the significant risks involved. We do not provide clients with personal advice about whether Margin FX and FX Option products are appropriate for them. However, we maintain and apply a client qualification policy to help us assess whether clients have a sound understanding of the features and risks of Margin FX and FX Option products. Our policy requires us to assess prospective clients against minimum qualification criteria for this purpose. Our assessment involves administering a client Margin FX suitability test which includes questions designed to inform us about such matters as: your previous trading experience in financial products generally, and Margin FX and FX Option products in particular; your understanding of leverage, margins and volatility; your understanding of the key features of Margin FX and FX Option products; your understanding the trading process and relevant technology associated with the Trading Platforms; your ability to monitor and manage the risks of trading; and your understanding that only risk capital should be traded. We then assess your test answers against a grading scheme to determine whether you meet the minimum qualification threshold. Currently, our policy requires us to maintain a written record of your assessment for the duration of the period you have an Account and for at least seven years thereafter. Our practice differs from the benchmark in that we may permit you to open an Account before we complete our assessment. However, you will not be able to enter into any Transactions through your Account until we complete our assessment and, through it, you demonstrate to us that you satisfy the minimum qualification criteria. Page 2. 9 HALIFAX Product Disclosure Statement

10 Benchmark Description Explanation Further Information Benchmark 2: Opening collateral An issuer should generally only accept cash or cash equivalents from investors as opening collateral when establishing an account to trade in Margin FX and FX Option products. If credit cards are used to open accounts, an issuer should accept no more than $1000 via credit card to fund the account. We only permit clients to open an Account and commence trading with cleared funds deposited into the bank account we nominate. Typically, this will require you to make a cash deposit or electronic fund transfer to a bank account nominated by us or to authorise us to charge an amount to a credit card (but only to certain amounts on credit card). We may accept bank and other cheque deposits but will require clearance of funds before trading can commence. Our practice differs from the benchmark in that we may decide to accept an authorisation to charge more than AU$1,000 to a credit card. This is because we have a process in place to address the suitability of credit card deposits as opening collateral. We utilise a tiered range of internal limits established with our payment processor, based on an individual client s annual income, and accordingly may accept higher amounts as an initial deposit depending on the size of your annual income. If you are considering funding Account collateral with borrowed funds (including by charging a credit card), you should consider how you will fund their repayment and any financing charges, particularly if you suffer trading losses. Along with all investors in Margin FX and FX Option products, you should also consider whether you have access to sufficient financial resources to fund Margin Calls as and when they may arise. Halifax will only act on funds that have cleared, so we recommend that you maintain sufficient Margin in your Account at all times to maintain your open positions. No financial products or other assets will be accepted as collateral to open an Account, although we may accept certain financial products as collateral to meet Margin Calls in special agreed circumstances. Trading in OTC derivative products carries a high level of risk and returns are volatile. The risk of loss in trading can be substantial, and you can incur losses in excess of the capital you have invested. Accordingly, you should only trade with risk capital i.e. money you can afford to lose, and which is excess to your financial needs/obligations. Sections 11 and HALIFAX Product Disclosure Statement

11 Benchmark Description Explanation Further Information Benchmark 3: Counterparty risk Hedging An issuer should maintain and apply a written policy to manage its exposure to market risk from client positions, which: (a) includes the factors it takes into account when determining if hedging counterparties are of sufficient financial standing; and (b) sets out the names of those hedging counterparties (as they stand from time to time). Policies should be displayed in an up-to-date form on the issuer s website. We maintain and apply a market risk policy the purposes of which include to: manage our exposure to market risk from the Transactions we enter into with our clients, including by determining whether, and the extent to which, we enter into Hedge Transactions with Platform Counterparties; and initially assess and thereafter monitor Platform Counterparties by applying risk assessment criteria to determine that they are of sufficient financial standing, are licensed by a comparable regulator and are of sound reputation. Our market risk policy is a component of our financial risk management strategy. The policy requires that we essentially hedge 100% of our exposure to Transactions we enter into through a Trading Platform (other than Halifax Pro or Halifax Plus) by entering into an equivalent Hedge Transaction with the relevant Platform Counterparty. As a consequence, it is likely that we will elect not to accept an order if we cannot enter into an equivalent cost-effective Hedge Transaction. Also, we may elect to not to accept an order (or Close Out an open position) if we have concerns about the creditworthiness or good standing of the relevant Platform Counterparty. It is important to note that these are just two examples of when we may elect not to accept an order or to Close Out an open position we may take these actions, in our absolute discretion, for any other reason. In the case of Transactions we enter into through the Halifax Pro or the Halifax Plus Trading Platforms, the policy permits us to take on market risk to facilitate prompt execution of Transactions. This will occur when we agree to enter into a Transaction ahead of entering into an equivalent Hedge Transaction. From time to time, this is likely to result in us maintaining exposures beyond the shortterm because we have not been able to enter into a cost-effective equivalent Hedge Transaction. In other cases, we may decide to not enter into an equivalent Hedge Transaction at all or to enter into one for less than 100% of our exposure to the Transaction. The policy permits us to do this, within set exposure limits, if: as a result of our clients overall market positions, we determine that we have a natural hedge of our exposure to the Transaction; or otherwise, within conservative exposure limits based on our clients overall market positions and their historical trading patterns. The policy prohibits us from taking proprietary positions based on expected movements in the value of Underlying Instrument. The policy includes methodology for setting exposure limits that reflect a conservative risk appetite, the extent of our financial resources and the nature and extent of any other financial risks we are exposed to, and the expected liquidity and volatility of Underlying Instruments (and equivalent financial products). The policy requires real-time monitoring of our exposures against these limits and sets out the steps that are required to be taken if they are exceeded. Sections 5, 6 and HALIFAX Product Disclosure Statement

12 Benchmark Description Explanation Further Information Benchmark 4: Counterparty risk Financial resources An issuer should maintain and apply a written policy to maintain adequate financial resources, which details how the issuer: (a) monitors its compliance with its Australian financial services (AFS) licence financial requirements; and (b) conducts stress testing to ensure it holds sufficient liquid funds to withstand significant adverse market movements. You have no rights of recourse against a relevant Platform Counterparty in respect of any Transaction you enter into because we transact with each Platform Counterparty in respect of our Hedge Transactions solely as principal. However, you still take credit risk on the Platform Counterparty (in addition to taking credit risk on us). This is because our obligations to you are subject to the performance by the Platform Counterparty of its obligations to us under the corresponding Hedge Transaction: a failure of a Platform Counterparty to perform its obligations under a Hedge Transaction will result in our obligations to the relevant client under the corresponding Transaction being reduced accordingly. Therefore, if an insolvency event occurs in respect of the Platform Counterparty for your Trading Platform, you might lose some or all of the balance of your Account in that Trading Platform (even though we might continue to be solvent). In addition, you might face considerable delays before you are able to access the amount (if any) that is able to be recovered from the Platform Counterparty. The relevant Platform Counterparty for each Trading Platform, as at the date of this PDS, is set out in section 15. Any changes will be disclosed in our market risk policy, a copy of which is available from our website: We maintain and apply a financial adequacy policy to ensure the ongoing maintenance of adequate financial resources. The policy reflects the financial requirements imposed on us as conditions under our AFSL. As a retail OTC derivative issuer and AFSL holder, these requirements include: base level financial requirements of solvency and positive net assets; tailored cash needs requirement involving quarterly rolling cash flow projections of our anticipated cash flow expenses and NTA requirements; tailored audit reporting requirement; and NTA requirement which requires that we maintain net tangible assets of $1 million or 10% of our average revenue (whichever is greater) at all times and comply with reporting triggers if our net tangible assets fall below 110% of this amount. Pursuant to the policy, we have in place a system for monitoring our compliance with these requirements. The monitoring system involves: real-time monitoring of, and daily reporting on, our market exposures; weekly reconciliation of, and reporting on, all trading activities; monthly review of, and reporting on, all trading activities by an external advisor as part of its preparation of monthly management accounts; quarterly review of cash flow projections in conjunction an external advisor; and annual financial and compliance reporting and the external audit of those reports. Section HALIFAX Product Disclosure Statement

13 Benchmark Description Explanation Further Information A copy of our most recent audited financial statements are available from our website: Following the launch of the Halifax Pro amd Halifax Plus Trading Platforms, we have updated the policy to require quarterly stress testing of our market exposures, the purpose of which is to ensure that, if there was a significant adverse market movement to which we had exposure, we would continue to have sufficient liquid resources to meet our obligations to clients without needing to have recourse to client money to do so. Benchmark 5: Client money An issuer should maintain and apply a clear policy on its use of client money, including whether it uses money deposited by one investor to meet the margin or settlement requirements of another. There is a fundamental difference in the way financial services providers may treat the balance of accounts you open with them depending on whether they offer Trust Account Platforms or Non Trust Account Platforms. Non Trust Account Platforms We only offer Non Trust Account Platforms under this PDS. This means amounts you pay to us will be treated as amounts paid to purchase a financial product from us (or an increased interest in a financial product) and will be paid into our account and will be absolutely owned by us from the time of receipt. There will be no segregation of your money or property. In brief, this means that those funds are available to pay general creditors if we become insolvent. In that scenario, you may lose some or all of your client money and/or experience long delays before it is refunded to you. Trust Account Platforms For Trust Account Platforms (which we do not offer under this PDS), funds you transfer to the relevant financial services provider are paid into a client trust account that provider maintains in accordance with the Corporations Act. Although funds standing to the credit of a client trust account maintained by a financial services provider will not be available to pay general creditors if the provider becomes insolvent, a client of that provider may be nevertheless exposed to some counterparty risk with respect to its funds (i.e. the client may not receive all of its money back) if, for example, those funds are used to meet obligations incurred by the provider in connection with dealings in financial products, including dealings on behalf of other clients. Sections 11.1 and HALIFAX Product Disclosure Statement

14 Benchmark Description Explanation Further Information Benchmark 6: Suspended or halted underlying assets An issuer should not allow new Margin FX and FX Options positions to be opened when there is a trading halt over the underlying asset, or trading in the underlying asset has otherwise been suspended, in accordance with the rules of the relevant market. Benchmark 7: Margin calls An issuer should maintain and apply a written policy about its margining practices, which details: (a) how the issuer will monitor client accounts, to ensure that it receives early notice of accounts likely to enter into margin call; (b) what rights the issuer may exercise in relation to client accounts, including the right to make a margin call or close out positions; and (c) when the issuer will exercise these rights, and what factors it will take into account in deciding whether to do so. Regardless of the issuer s other margining practices, the policy should require the issuer to take reasonable steps to notify investors before closing out positions. By reasonable steps we mean giving notice to investors, according to a pre-agreed method (e.g. telephone message, , SMS), that a position will shortly be closed out. If an issuer has a default method of communication, rather than agreeing this with each investor, this should be clearly explained in the PDS. An Underlying Instrument may be placed in a trading halt on the relevant exchange in various circumstances. Additionally, it may be suspended or delisted in certain circumstances. We will not enter into a Transaction with you if the Underlying Instrument is subject to trading halt or suspension or has been delisted your order will remain pending until such time as trading in the Underlying Instrument resumes. However, we may in our discretion cancel the order. You should also note that we may, in our discretion, Close Out any open Margin FX or FX Option product if the Underlying Instrument becomes the subject of a trading halt or suspension or is delisted. Alternatively, we may, in our discretion, increase the Margin Requirements or re-price the Transaction. We maintain and apply a written policy detailing our margining practices. This details our rights to make Margin Calls and closing out of positions when such calls are not met in a timely manner, and what factors we consider when exercising such Close-Out rights. Clients are required to monitor all open positions themselves on a real-time basis intraday, to ensure changing Margin Requirements are identified and actioned in a timely manner. Please note that certain market conditions or events may trigger extreme volatility, requiring urgent funds to be applied to retain your open positions. If we decide to make a Margin Call, we will generally do so through pop-up screens or screen alerts on the Trading Platform. You will only have access to these when you are logged-on to the relevant Trading Platform. Our practice may differ from the benchmark in that we do not warranty that we will make a Margin Call before Closing Out an open position or that any steps we take to communicate a Margin Call will be reasonable it is your responsibility to monitor your Account for changing Margin Requirements. We have adopted this practice because you have direct access to your Trading Platforms from which you can monitor your Account. If you are unable to access a Trading Platform through which you have open positions for any reason, you should contact us urgently to discuss the matter. If your inability to access a Trading Platform is likely to persist, you should consider closing all your open positions. We do not accept any responsibility for your inability to access a Trading Platform. Sections 12.1 and Sections 12.1 and HALIFAX Product Disclosure Statement

15 9. Key Features of Margin FX Margin FX products are a speculative investment and involves a high degree of risk. It is not suitable for all investors. You should not transact in Margin FX unless you are experienced in derivatives, leveraged products and foreign exchange contracts, and you understand the risks of transacting in Margin FX. You are responsible for the selection of the Currency Pair or Metal Pair for each Transaction. The performance of a Margin FX Transaction will depend on movements in the Underlying Instrument for the Currency Pair or Metal Pair you select and on your trading strategy. The value of an investment in Margin FX can change rapidly and by significant amounts at any time Differences between FX Transactions and Metal Transactions As noted in section 5 above, Margin FX Transactions can be either FX Transactions or Metal Transactions. FX Transactions FX Transactions are derivative products on which you can make a profit or incur a loss if the value of one currency appreciates or depreciates (depending on the direction of the trade) when compared against another currency, without having to transact in the actual currencies itself. FX Transactions are available in most widely traded currencies. In order to enter into an FX Transaction, you must select two currencies (called a Currency Pair). The Underlying Instrument for an FX Transaction is the Exchange Rate of the Currency Pair (called the Underlying Exchange Rate). For example, AUD/USD is the Exchange Rate of the AUD in terms of the USD. If the AUD/USD is , this means that one Australian dollar can be exchanged for 95 US cents. All FX quotations are made up of two currencies: the Base Currency and the Terms Currency. The Base Currency can be identified as being the first currency in the Currency Pair. The second currency in your Currency Pair is referred to as your Terms Currency. So, for an FX Transaction where the Underlying Exchange Rate is AUD/USD, AUD will be the Base Currency and USD will be the Terms Currency. Unlike contracts traded on an exchange, OTC products are not standardised. The terms of an FX Transaction are individually tailored to the particular requirements of the parties involved in the contract i.e. us and the client. The terms involved in the negotiation of FX Transactions are: (a) the Currency Pair; (b) the amount of the Base Currency to which the Transaction relates (called the Notional Value ); (c) the Exchange Rate at which such currencies are to be exchanged; and (d) the Value Date for the Transaction (see section 9.7). FX Transactions are OTC derivative products with Halifax acting as counterparty (and principal) in its dealings with you. It is a transaction between you and us and can only be entered into with us and Closed Out with us. It is not possible to Close Out the FX Transactions with any other party. FX Transactions are subject to Margin Requirements and marked to market on at least a daily basis (for more information refer to section 13). Metal Transactions Metal Transactions are the same as FX Transactions, except that: Under Metal Transactions you make a profit or incur a loss if the value of a precious metal (limited to gold or silver) appreciates or depreciates (depending on the direction of the trade) when compared against a currency or precious metal (as compared to two currencies under FX Transactions). In order to enter into a Metal Transaction, you must select the relevant precious metals or precious metal and currency (called a Metal Pair). The only precious metals that are available to form part of the Metal Pair are gold and silver and are always considered the Base Currency. However, most widely traded currencies are available to make up the Terms Currency of the Metal Pair along with either gold or silver. For example, if the Underlying Exchange Rate for a Metal Transaction is XAU/USD which is spot gold in terms of US dollar, then gold will be the Base Currency and USD will be the Terms Currency. The Underlying Exchange Rate for Metal Transactions is the price of the precious metal in your Metal Pair in terms of the specified currency in your Metal Pair. For example, XAU/USD is the Exchange Rate of the gold in terms of the USD. If the XAU/USD is , this means that one ounce of gold can be exchanged for US$1, Quotes A quote for a Margin FX product represents the bid/ask spread for the Underlying Exchange Rate. For example, for a Margin FX Transaction where the Underlying Exchange Rate is the Exchange Rate for AUD/USD, the Margin FX may be quoted as / HALIFAX Product Disclosure Statement 15