Futures Supplementary Product Disclosure Statement

Transcription

1 Futures Supplementary Product Disclosure Statement Issued by Macquarie Equities Limited (ABN Australian Financial Services Licence No ) Date of issue 27 June 2014

2 Macquarie Private Wealth is a division of Macquarie Equities Limited (ABN ) (MEL) participant of Australian Securities Exchange Group, Australian Financial Services Licence No , 1 Shelley Street, Sydney NSW Any reference to Macquarie Private Wealth should be read as a reference to MEL. References to we, us or our in this Supplementary Product Disclosure Statement (SPDS) are references to MEL. The information contained within this SPDS is general information only and does not take into account your individual objectives, financial situation or needs. Before trading in the products referred to in this SPDS you should read the Product Disclosure Statement for Futures dated 1 May 2008 (PDS) and this SPDS and be satisfied that any trading you undertake in relation to those products is appropriate in view of your objectives, financial situation and needs. MEL is not an authorised deposit-taking institution for the purpose of the Banking Act (Cth)1959, and MEL s obligations do not represent deposits or other liabilities of Macquarie Bank Limited (ABN ) (MBL). MBL does not guarantee or provide assurance in respect of the obligations of MEL.

3 Table of Contents Name Changes 02 Section 2 Issuer Details 02 New Section 5A Execution of orders and treatment of client money 03 Section 7 Significant risks explained 06 Section 8 Fees and Charges 08 New Section 9 Privacy 09 New Section 9A Foreign currency exchange transactions 10 New Section 9B Foreign Account Tax Compliance Act (FATCA) 11 Section 10 Dispute Resolution 12 1

4 Futures Supplementary Product Disclosure Statement This Supplementary Product Disclosure Statement (SPDS) is issued by Macquarie Equities Limited (ABN ) (MEL) as issuer of Macquarie Private Wealth Futures. Macquarie Private Wealth is a division of MEL and any references to Macquarie Private Wealth should be read as a reference to MEL. MEL holds Australian Financial Service Licence No This SPDS supplements the Product Disclosure Statement for Futures dated 1 May 2008 (PDS). This SPDS must be read together with the PDS. Unless otherwise indicated, terms defined in the PDS have the same meaning in this SPDS. Investors should consider the PDS, this SPDS and all updates available on the website macquarie.com.au/personal before trading in Futures through MEL. MEL is amending the terms of the agreement pursuant to which you appoint MEL to trade Futures on your behalf ( Futures Trading Agreement ) to better reflect the processes followed in executing orders for your Futures and to address certain regulatory matters. MEL wishes to update the disclosure made in the PDS to reflect these changes. 2

5 Name changes The Sydney Futures Exchange (SFE) is now known as ASX24. Accordingly all references in the PDS to the SFE should be read as a reference to the ASX24. ASX is now operated by ASX Limited (ABN ). All references to ASX in the PDS should be read as references to the derivatives market operated by the ASX Limited (ABN ). The Clearing House for Futures traded on ASX24 is now known as ASX Clear (Futures) Pty Limited (ABN ) and the Clearing House for Futures traded on ASX is now known as ASX Clear Pty Limited (ABN ). Section 2 - Issuer Details The new contact details for MEL are: 1 Shelley Street Sydney NSW 2000 Toll free: Phone: (02) [email protected] Web: 3

6 Section 5A Execution of orders and treatment of client money Insert the following as new Section 5A following Section 5. 5A.1 Placing Orders You can open a Futures contract: through your Futures broker by placing orders either: over the phone; via ; or by placing an order online through an online platform made available by MEL. Phone and Orders MEL offers the Macquarie Private Wealth Futures desk which allows you to place an order to open or close-out Futures contracts with your Futures broker, either over the phone or via . Please note that where you place an order by , your order is not accepted until it has been acknowledged by MEL. You can contact the Macquarie Private Wealth Futures desk 8:00am Monday to 7:15am Saturday AEST by calling or by ing privateclient.futures@macquarie. com. MEL Provided Online Platform Alternatively, you can open a Futures contract by placing an order online through an online platform made available by MEL. MEL can provide you access to trading platforms and software packages for market data, trading and execution. These platforms ( MEL Provided Online Platforms ) are developed and maintained by external companies that specialise in market data and trading software and connect to MEL s infrastructure and allow you to place orders under your Futures account electronically. Please see clause 21 of the Futures Trading Agreement for the terms upon which MEL will make MEL Provided Online Platforms available to you. You may also contact us on the details provided in Section 2 above for further details about trading Futures through a MEL Provided Online Platform. No personal advice Please note that where you place orders through a Macquarie Private Wealth Futures broker, your broker will only provide general advice or factual information in relation to your Futures account and will not consider your financial circumstances, needs or objectives in connection with trading Futures. As an example, general advice can include information about the underlying financial markets or economic outlook. These updates, sales commentary, research reports and/or technical analysis do not constitute personal advice. Accordingly, as no personal advice is being provided, you will not receive a statement of advice from your Futures broker. Neither the PDS nor this SPDS constitute a recommendation or opinion that trading in Futures is appropriate for you. Before applying to deal in Futures you must consider your objectives, financial situation, risk appetite and the significant risks of loss associated with trading Futures. You must decide whether trading in Futures is suitable for your purposes. 5A.2 Executing Orders Pursuant to the terms of the Futures Trading Agreement you appoint MEL as your agent for the purpose of executing Futures contracts. MEL is not a Market Participant or Clearing Participant of any Derivatives Exchange. MEL appoints a Market Participant and Clearing Participant to provide execution, clearing and settlement services for all of MEL s client s Futures. Currently MEL s Market Participant and Clearing Participant is Macquarie Bank Limited (ABN ), AFSL number ( Macquarie Bank ). Macquarie Bank is a Market Participant and Clearing Participant on ASX24, ASX (and on some foreign Derivative Exchanges). Where Macquarie Bank is not a Market Participant or Clearing Participant to a particular Derivatives Exchange, Macquarie Bank will use third parties to provide such execution, clearing and settlement to that Derivatives Exchange. MEL will be responsible for paying the brokerage, exchange fees or interest owing to Macquarie Bank or any third party Market Participant and Clearing Participant. You will only be obliged to pay the brokerage, exchange fees and interest that is owing to MEL in accordance with your Futures Trading Agreement as described in section 8 of the PDS. MEL will be entitled to retain any interest paid by Macquarie Bank or any third party Market Participant and Clearing Participant on amounts held by them in relation to your Futures contracts. You will however be entitled to the interest that is payable by MEL in accordance with your Futures Trading Agreement as described section 8 of the PDS. You should note that although MEL acts as your agent in executing Futures contracts, MEL and Macquarie Bank act as principals as between themselves with regards to those Futures contracts and you have no rights whether by way of subrogation or otherwise against Macquarie Bank or any third party Market Participant and Clearing Participant appointed by it. 4

7 You should also note that any Futures contracts entered into on your behalf will be entered into by Macquarie Bank or the relevant third party Market Participant and Clearing Participant as principal, which means that Macquarie Bank or the relevant third party Market Participant and Clearing Participant incurs obligations to the Derivatives Exchange as principal. Conversely any benefit or right obtained by Macquarie Bank or a third party Market Participant or Clearing Participant upon registration of any Futures contract with a Derivatives Exchange by novation of that Futures contract under the Operating Rules of that Derivatives Exchange, or any other legal result of registration, is personal to Macquarie Bank or that third Party Market Participant or Clearing Participant (as applicable) and that benefit, right or legal result does not pass to MEL or to you. You have no rights, whether by way of subrogation or otherwise, against the Derivatives Exchange. 5A.3 Treatment of client monies Any Australian dollar amounts you pay to MEL in relation to your Futures contracts, including Initial Margin, Variation Margin, monies paid for the execution, clearing and settlement of your Futures contracts and any additional money you may pay to MEL in connection with trading in Futures, will first be paid into MEL s Futures trust account ( MEL Trust Account ). 5A.4 MEL Trust Account The MEL Trust Account is a client money account operated in accordance with the Client Money Rules. Monies paid into the MEL Trust Account are pooled with the monies of other Futures clients and MEL keeps a record of the monies paid by you or on your behalf. In accordance with the Client Money Rules, the MEL Trust Account operates in the following way: The MEL Trust Account is a bank account with an Australian deposit taking institution held in MEL s name. The MEL Trust Account is currently a deposit account with Macquarie Bank. The only monies paid into the MEL Trust Account are monies related to your Futures account and interest on such monies. MEL does not pay any of its own money into the MEL Trust Account. Payments out of the MEL Trust Account can be made only in limited circumstances, including: making payments in accordance with any directions received from you; paying us monies we are owed and defraying proper charges; and making a payment that is otherwise authorised by law or pursuant to the Client Monies Rules. MEL will pay interest to you as described in Section 8 of the PDS but any interest earned on funds paid into the MEL Trust Account is retained by MEL and is not returned to individual clients. Under your Futures Trading Agreement you direct MEL to pay all of the monies held on your behalf in the MEL Trust Account to MEL s Market Participant and Clearing Participant (Macquarie Bank), who hold the monies in a Client Segregated Account in accordance with the Client Money Rules and the ASIC Market Integrity Rules ( Macquarie Bank Segregated Account ). Where you wish to pay the amounts owing in respect of your Futures contracts in a foreign currency, MEL may direct that you pay such amounts directly to the Macquarie Bank Segregated Account. 5A.5 Macquarie Bank Segregated Account The Macquarie Bank Segregated Account is a Client Segregated Account which is operated in accordance with the requirements of the Client Money Rules and the ASIC Market Integrity Rules. Macquarie Bank will invest the monies in the Macquarie Bank Segregated Account in accordance with Client Monies Rules and ASIC Market Integrity Rules. In the event that there is a loss of any principal on any investment made by Macquarie Bank those losses will be for your account. In accordance with the Client Monies Rules, Macquarie Bank is entitled to withdraw the following amounts from its Client Segregated Account: all amounts of Initial Margin, Variation Margin and Option Premium in respect of your Futures contracts; all proper charges and expenses incurred by Macquarie Bank in respect of your Futures contracts which will include the fees of the Derivative Exchange and any amounts required to be paid to any third party Market Participant or Clearing Participant appointed by Macquarie Bank; amounts of brokerage and interest to which Macquarie Bank is entitled in terms of its agreement with MEL; and withdrawals made in accordance with MEL s directions. MEL will direct Macquarie Bank to pay amounts from the Macquarie Segregated Account as follows: Where you have requested the withdrawal of amounts standing to the credit of your Futures account, MEL will direct Macquarie Bank to withdraw such amounts (after deducting any amounts owing by you to MEL), out of the Macquarie Bank Segregated Account directly to your nominated bank account. Where you owe MEL brokerage, interest or MEL Provided Online Platform fees, or other fees in respect of your Futures contracts, MEL will direct Macquarie Bank to pay such amounts to MEL (after deducting any brokerage, interest, Derivative Exchange fees and other fees owing to Macquarie Bank). MEL will retain these amounts for its own account. 5

8 Any other amounts which are returned by Macquarie Bank to MEL will be paid into the MEL Trust Account. Interest and other returns earned on the monies in the Macquarie Bank Segregated Account will be retained by Macquarie Bank unless otherwise agreed between Macquarie Bank and MEL. Where it is agreed that MEL will be entitled to any of the interest and other returns earned on the monies in the Macquarie Bank Segregated Account, MEL will be entitled to retain those amounts for its own account. MEL will however be obliged to pay you interest on credit balances in your Futures account as described in Section 8 of the PDS. 5A.6 Monies paid to a Market Participant and Clearing Participant in a foreign jurisdiction Money held by a Market Participant and Clearing Participant in a foreign jurisdiction will be held in accordance with the Operating Rules of the Derivatives Exchange and Clearing House in that jurisdiction and the laws of that jurisdiction and may not be subject to the same protections as afforded under the Client Monies Rules. See section 7 for additional risks associated with dealing on foreign Derivatives Exchanges. 6

9 Section 7 Significant risks explained The risk set out in section 7, paragraph (f) of the PDS is amended to read as follows: Deliverable contracts and physical delivery: Where you have a deliverable Futures Contract and you hold this to maturity, you have the obligation to make or take physical delivery of the underlying asset. Please note however that MEL is entitled to prohibit you from making or taking delivery of physical underlying assets, and as such, MEL is entitled to exercise its rights under the Futures Trading Agreement to closeout any deliverable Futures contracts before the first notice date or last trading date (whichever occurs first) of that Futures contract. In addition we wish to draw your attention to the following risks also to be inserted into section 7 of the PDS: Counterparty risk Under the terms of the Futures Trading Agreement, you will appoint MEL to open Futures contracts as your agent. MEL has in turn appointed Macquarie Bank to act as Market Participant and Clearing Participant, on its behalf. You will be exposed to counterparty risk of both MEL and Macquarie Bank (as described below). In addition, if you open a Futures contract in a foreign Derivatives Exchange you are also exposed to counterparty risk of the Market Participant or Clearing Participant used in that particular jurisdiction. No obligation of MEL under any Futures Trading Agreement or under its agreement with Macquarie Bank as Market Participant or Clearing Participant is guaranteed by the Australian Government or any other person including Macquarie Bank. Accordingly, you face the risk of losing money if MEL is unable perform its obligations under your Futures Trading Agreement or if it is unable to perform its obligations to Macquarie Bank in respect of the Futures contracts traded on your behalf or on behalf of any other client. You are also exposed to the risk that Macquarie Bank, or a third party Market Participant and Clearing Participant appointed by Macquarie Bank, may not be able to perform some or all of its obligations under the agreement in which it is appointed to trade in your Futures contracts, or under the Operating Rules of the relevant Derivatives Exchange. Macquarie Bank is an authorised deposit-taking institution regulated by the Australian Prudential Regulation Authority (APRA). As an APRA regulated entity, Macquarie Bank is required to hold capital in accordance with APRA s capital adequacy requirements and to comply with APRA s prudential standards. In complying with these requirements, Macquarie Bank also meets the financial resources requirements of its Australian Financial Services Licence. Both Macquarie Bank and MEL are members of the Macquarie group of companies, which comprises Macquarie Group Limited (ABN ) and its subsidiaries ( Macquarie Group ), however, as described above, neither Macquarie Bank nor any other member of the Macquarie Group guarantees the obligations of MEL. You must make your own assessment of the ability of MEL and Macquarie Bank to perform their obligations. You can assess the financial ability of MEL and Macquarie Bank to meet their counterparty obligations by reviewing their financial information. Information relating to the Macquarie Group structure and the Macquarie Group s risk management framework can be found in the Macquarie Group Annual Report available at Macquarie. com.au/investorrelations. We will provide a copy, free of charge, of the most recent publicly available financial reports and interim reports to any person who requests such copies by contacting MEL (see Section 2 for details). Client Monies risk The monies paid to MEL and Macquarie Bank in respect of your Futures contracts will be held on trust and separately from any monies of MEL and Macquarie Bank and will accordingly not be available to other creditors of MEL or Macquarie Bank in the event of their insolvency. However in relation to monies held in the Macquarie Bank Segregated Account you should note that: individual client accounts are not separated from each other; all clients funds are deposited into the one client segregated account; Client segregated account provisions may not insulate any individual client s funds from a default in the Macquarie Bank Segregated Account. If such a situation may arise; Macquarie Bank has the right to apply all client monies held in its Client Segregated Account to meet any default in that account; Any losses suffered as a result of the application of monies in the Macquarie Bank Segregated Account to meet obligations on any Futures contracts entered into on behalf of other clients of MEL and other clients of Macquarie Bank, will be for your account; In addition, Macquarie Bank is authorised to invest monies in the Macquarie Bank Segregated Account in accordance with Client Monies Rules. In the event that there is a loss of any principal on any investment made by Macquarie Bank those losses will be for your account. 7

10 These risks may also be present where money is paid to a third party Market Participant and Clearing Participant. See below the additional risks associated with trading in Futures contracts on a foreign Derivatives Exchange. Dealings on foreign Derivatives Exchanges Clients who deal on foreign Derivatives Exchanges should be aware of the following matters: Dealing subject to foreign rules and laws The execution and clearing of trades on foreign Derivatives Exchanges are subject to the Operating Rules of that Derivatives Exchange and Clearing House and the laws of the country in which that Derivatives Exchange or Clearing House is domiciled. These Operating Rules may differ significantly from the Operating Rules of Australian Derivatives Exchanges or Clearing Houses. Before you trade you should familiarise yourself with the foreign Operating Rules which will apply to your particular transaction. Australian regulators may not have any jurisdiction Neither ASIC nor any Australian Derivatives Exchange regulates the activities of foreign Derivatives Exchanges, nor do they have the power to compel enforcement of the Operating Rules of a foreign Derivatives Exchange or any applicable foreign laws. Generally, the foreign transaction will be governed by applicable foreign law. This is true even if the Derivatives Exchange is formally linked with a Derivatives Exchange in Australia. Protection of Clients funds Clients who trade on foreign Derivatives Exchanges may not have the benefit of protective measures provided by the Corporations Act. In particular, your funds may not have the same protection on the insolvency of a foreign Market Participant or Clearing Participant as you have where funds are paid into a trust account with the holder of an Australian Financial Services Licence. Additional risks relating to foreign Derivatives Exchanges are set out in the Risk Disclosure Statements attached to the Futures Trading Agreement. Discretionary powers of MEL and its Market Participant and Clearing Participant Under the Futures Trading Agreement you acknowledge that MEL and the Market Participant and Clearing Participant appointed to execute your trades have a number of discretionary powers which may affect your trading activities which you should understand by reading the Futures Trading Agreement. Examples of these powers include but are not limited to the following: MEL or the Market Participant and Clearing Participant can refuse to accept your instruction or impose limits on your trading which may have an effect on your trading activities. MEL or the Market Participant and Clearing Participant can also take a number of actions when certain events (e.g. default or non-compliance) occur, including closing out your Futures contracts, charging default interest or both. MEL shall not be liable to you for any loss, damage, or expense arising out of MEL or its Market Participant and Clearing Participant exercising its powers or for errors in accepting and executing orders or transmitting funds except where these arise as a result of the negligence, fraud or dishonesty of MEL or its Market Participant and Clearing Participant or their employees, agents, officers or representatives. Foreign exchange transaction risks In addition to the general risks set out above, the following risks will be relevant to you if you request MEL to enter into foreign currency exchange transactions persuant to section 9A of the PDS as amended by this SPDS. Market and volatility risk Where you instruct MEL to enter into foreign exchange transactions you will be subject to market and volitility risk of the foreign exchange market. Foreign exchange markets can be highly volatile and are subject to many influences including unforseen events or changes in political, economic and financial conditions which may result in rapid currency fluctuations which could lead to substantial loss. You will be fully exposed to movements in the currency which is the subject of the foreign exchange transaction entered into. Counterparty and settlement risk As is the case when entering into Futures contracts, where you instruct MEL to enter into foreign exchange transactions, under the terms of the Futures Trading Agreement, you appoint MEL as your agent for the purpose of executing those transactions. MEL has in turn appointed Macquarie Bank Limited to act as MEL s broker to enter into foreign currency exchange contracts. Consequently you are exposed to the counterparty risk of both MEL and Macquarie Bank. As set out above under Counterparty Risk, no obligation of MEL under any Futures Trading Agreement (including relating to foreign currency exchange contracts) or under its agreement with Macquarie Bank is guaranteed by the Australian Government or any other person including Macquarie Bank. Accordingly, you face the risk of losing money if MEL is unable perform its obligations (as they relate to foreign exchange transactions) under your Futures Trading Agreement or if it is unable to perform its obligations to Macquarie Bank in respect of the foreign currency exchange contracts entered into on your behalf. Information relating to MEL, Macquarie Bank Limited and the Macquarie Group is set out above under Counterparty Risk. 8

11 Section 8 Fees and charges Section 8 of the PDS is amended as follows: The rate at which interest will be charged on debit balances will be as follows: Australian dollar denominated negative balances will be charged Debit Interest at the 11 am Cash Rate plus 2%. All other foreign denominated negative balances will be charged Debit Interest at their respective short-term Cash Rate plus 1%. Contact your Futures broker for a full listing of the relevant Cash Rates. In addition, if all of your Futures contracts are closed out and, following that close out, the balance of your Futures account is less than zero (i.e. because the net loss on the close-out exceeds the balance of your Futures account), MEL may charge you interest on the shortfall ( Default Interest ). Default Interest will be calculated in the following manner: Australian dollar denominated negative balances will be charged Debit Interest at the 11 am Cash Rate plus 4%. All other foreign denominated negative balances will be charged Debit Interest at their respective short-term Cash Rate plus 4%. Default Interest may be charged in addition to any debit interest described above. 9

12 New Section 9 Privacy Section 9 is replaced with the following. We may collect, hold, use and disclose personal information about you to process your application, administer and manage the products and services we provide to you, monitor, audit and evaluate those products and services, model and test data, communicate with you and deal with any complaints or enquiries. We collect and record personal information through our interactions with you and your nominated adviser(s), including by telephone, or online. We may also collect personal information from public sources and third parties including information brokers and our service providers. Without this information, we may not be able to process your application or provide you with an appropriate level of service. We are required or authorised to collect your personal information under various laws including AML/ CTF Laws, the Superannuation Industry (Supervision) Act 1993 (Cth), the Taxation Administration Act 1953 (Cth), the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth), the Corporations Act 2001 (Cth), Life Insurance Act 1995 (Cth), Insurance Contracts Act 1984 (Cth), the Foreign Account Tax Compliance Act (US), and any similar law of any country, and any related laws designed to implement those laws in Australia as well as any associated regulations or Rules. Where you provide us with personal information about someone else you must first ensure that you have obtained their consent to provide their personal information to us based on this Privacy Statement. We may exchange your personal information with other companies in the Macquarie Group as well as our service providers which are described further in our Privacy Policy. We will supply the adviser(s) nominated on your application form or in a subsequent written communication to us, and their Australian financial services licensee if applicable, with information about your account. We may also disclose personal information to regulatory authorities (e.g. tax authorities in Australia and overseas) in connection with their lawful information requests or to meet our legal obligations in any relevant jurisdiction. The third parties with whom we exchange personal information may operate outside of Australia (this includes locations in the Philippines, India, the United Kingdom, United States of America and other countries specified in our Privacy Policy). You agree that while those parties will often be subject to confidentiality or privacy obligations they may not always follow the particular requirements of Australian privacy laws. We and other companies in the Macquarie Group may use your personal information to contact you on an ongoing basis by telephone, electronic messages (like ), online and other means to offer you products or services that may be of interest to you, including offers of banking, financial, advisory, investment, insurance and funds management services, unless you change your marketing preferences by telephoning us as set out below or visiting optout-bfs. Under the Privacy Act, you may request access to your personal information that we hold. You can contact us to make such a request or for any other reason relating to the privacy of your personal information by telephoning us on or ing [email protected]. Please mark communications to the attention of our Privacy Officer. You may also request a copy of our Privacy Policy which contains further details about our handling of personal information, including how you may access or update your personal information and how we deal with your concerns. The Privacy Policy can also be found via You can change your marketing preferences by telephoning us on or visiting 10

13 New Section 9A Foreign currency exchange transactions Insert the following as new Section 9A following Section 9. Where you trade, or wish to trade Futures contracts on foreign Derivative Exchanges, MEL can, on your request, facilitate a foreign currency exchange within your Futures account. MEL does not operate on foreign currency exchange markets, therefore MEL has appointed a third party broker, currently Macquarie Bank Limited, to enter into foreign currency exchange transactions. This transaction will be affected and the funds held within the Macquarie Bank Client Segregated account. You should note that this foreign currency exchange facility is offered to facilitate trading in Futures contracts on foreign Derivative Exchanges and you cannot use this feature for speculative trading purposes. Execution of foreign exchange transactions As in the case when entering into Futures contracts, where you instruct MEL to enter into foreign exchange transactions, under the terms of the Futures Trading Agreement, you appoint MEL as your agent to enter into these transactions with a broker. You can only exchange funds in your Futures account in excess of any Initial Margin or Variation Margin requirements and are only able to do so by placing an order through a Futures broker. You are not able to enter into foreign exchange transaction through a MEL Provided Online Platform. Your order will not be accepted until it has been confirmed by MEL. Where you place a foreign currency exchange for an amount of the equivalent of less than A$25,000 MEL will, on your behalf, enter into a same day foreign exchange transaction which will normally settle on the same day that MEL enters into the foreign exchange transaction. Where you place a foreign currency exchange for an amount of the equivalent of greater than A$25,000 MEL will, on your behalf, enter into a spot foreign exchange transaction which will normally settle two business days after MEL enters into the foreign exchange transaction. Calculation of exchange rate and fees For both same day and spot transactions, the exchange rate will be calculated by the broker, not MEL, at the prevailing market rate at the time MEL enters into the transaction on your behalf. This exchange rate will not be disclosed to you until after the exchange settled. The exchange rate achieved by the broker will fluctuate with underlying market exchange rates. Factors which may affect the exchange rate can include; the current spot inter bank exchange rates; the amount of currency you wish to exchange; and prevailing market conditions (such as volatility and liquidity) at the time of the transaction. MEL does not charge you fees or commissions to enter into a foreign currency exchange. However the broker MEL engages to enter into the foreign currency exchange contract will earn revenue from the spread between the wholesale price achieved by the broker and the exchange price you receive. Risks In addition to the general risks associated with Futures contracts, risks specific to foreign exchange transactions are set out at Section 7 of this PDS. 11

14 New Section 9B Foreign Account Tax Compliance Act (FATCA) Insert the following as new Section 9B following Section 9A. FATCA is United States (US) tax legislation that assists the US Internal Revenue Service (IRS) to identify and collect tax from US residents for tax purposes that invest in certain financial accounts through non-us entities. If you are a US resident for tax purposes, you should note that MEL is a Foreign Financial Institution under FATCA. MEL intends to comply with its FATCA obligations, as determined by either the FATCA regulations or any inter-governmental agreement (IGA) entered into by Australia and the US for the purposes of implementing FATCA and any Australian laws and regulations relating to the IGA. As at the date of this document it is expected that Australia will enter into an IGA with the US. It is expected that under these obligations, MEL will have to obtain and disclose information about certain investors to the ATO or IRS. In order for MEL to comply with its obligations, we will also request that you provide certain information about yourself, including your US Taxpayer Identification Number (if applicable). 12

15 Section 10 Dispute Resolution Section 10 is replaced with the following We have procedures for dispute resolution, and they are available to you free of charge. You may make a complaint relating to your Futures account directly to us verbally or in writing. We will always acknowledge any complaint promptly and provide a substantive response within no more than 45 days. If the outcome is unsatisfactory, you may be entitled to refer your complaint to the Financial Ombudsman Service (FOS) at: Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Telephone: Fax: (03) [email protected] Web: fos.org.au The Financial Ombudsman Service s jurisdiction to hear your complaint will be subject to its rules (please refer to the service s website for more details). Nothing in this PDS is intended to prevent Macquarie from objecting to the referral of a complaint to the service, where appropriate. 13

16 For more information about Futures call us on You can also visit macquarie.com.au or 1 Shelley Street Sydney NSW 2000 GPO Box 526 Sydney NSW 2001 Tel Fax /14

17 Futures Product Disclosure Statement Macquarie Private Wealth A world of opportunities Issued by Macquarie Equities Limited ABN Australian Financial Services Licence No Participant of the Australian Securities Exchange Group Date of Issue: 1 May 2008

18 Sections 01 Introduction 02 Issuer details 03 Futures trading agreement and application booklet 04 Key features of Futures 05 Financial aspects of Futures trading 06 Significant benefits explained 07 Significant risks explained 08 Fees and charges 09 Other significant characteristics of Futures contracts 10 Dispute resolution 11 Taxation implications 12 Cooling-off arrangements 13 Other considerations 14 Glossary of terms Macquarie Equities Limited ABN (MEL) is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959 and MEL s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of MEL.

19 1. Introduction Under the Corporations Act, a retail client must receive a Product Disclosure Statement (PDS) from a financial services licensee at or before the time a personal advice recommendation to acquire the financial product is made. Where no personal advice is given, the PDS should be given to the retail client before the offer to acquire the product is made. The PDS sets out the significant features of a financial product, including its risks, benefits and cost. This document is the PDS for exchange traded derivatives known as Futures, a type of financial product. Futures traded on a derivatives market are more commonly known as: Futures contracts (both deliverable and cash-settled); Futures options (which are options over a Futures contract); and Options over the underlying (which are options over commodities or cash adjustments based on stock indices). These products are known as derivatives under the Corporations Act. However for the purpose of this PDS, these products are collectively referred to as Futures. They are defined further in section 4. You should read all sections of this PDS before making a decision to trade Futures and you should retain this PDS for future reference. The information in this PDS does not take account of your particular financial circumstances and before you trade Futures you should, in conjunction with your adviser, give consideration to your objectives, financial situation and needs. You should also be aware of the risks involved and be satisfied that trading in Futures is suitable for you in view of your financial circumstances. Although the information in this PDS is up to date as at the Date of Issue specified on the front cover, it is subject to change from time to time. Where such information is not materially adverse, we may provide updates on our website at The updated information can be found out at any time and a paper copy will also be made available to you upon request and at no charge. We may also be required to issue a new PDS or a supplementary PDS as a result of certain changes, in particular where the changes are materially adverse to retail clients considering whether to invest in Futures. Any supplementary PDS will be posted on our website at If you cannot access the document from our website, please contact us (see section 2) and we will send a copy to you. 1

20 2. Issuer details Macquarie Equities Limited (MEL) ABN is the issuer of the Futures products that are the subject of this PDS. MEL holds Australian Financial Services Licence No and is a Participant of the Australian Securities Exchange Group. Macquarie Private Wealth is a division of MEL and any references to Macquarie Private Wealth should be read as a reference to MEL. References to we, us or our in this PDS are references to MEL. How to contact us Sydney Level 18, 20 Bond Street Sydney NSW 2000 Tel: Fax: Toll Free: Melbourne Level 26, 101 Collins Street Melbourne VIC 3000 Tel: Fax: Toll Free: [email protected] Web: 2

21 3. Futures trading agreement and application booklet Before trading Futures, you will need to read the Futures Trading Agreement and Application Booklet (Booklet). This Booklet includes the Futures Trading Agreement (Agreement) and Futures Trading Application Form you will be required to sign prior to any Futures trading. By signing the Futures Trading Application Form, you agree to be bound by the Agreement. The Booklet is available at or in paper copy upon request. Summary of the Agreement The Agreement sets out the terms and conditions of Futures contracts between you (and your guarantor, if relevant) and Macquarie. The Agreement governs the following matters: Dealing by Macquarie as your agent. How Macquarie may execute your orders. How and when Macquarie may clear your trades (including limitations). Principal trading. Although Macquarie will act on your instructions, Macquarie will be trading as principal. Macquarie may also trade for itself as principal on its own account and its directors, employees or related bodies corporate may trade on their own account. This may include taking an opposite position to your trade(s). Electronic recording of telephone conversations. Deposits and margins you must provide. If you fail to pay a deposit or meet a call, Macquarie may close out your contracts without notice to you. Your liability is not limited to the amount you deposit with Macquarie. Events of default include, but are not limited to: your or your guarantors bankruptcy, liquidation or other compromise or arrangement with creditors; an incorrect or misleading representation by you or your guarantor that may cause loss or damage to Macquarie; any guarantee or security being withdrawn or becoming insufficient; failure to meet a call for deposit or margin or failure to meet any other obligation under the Agreement; you are not contactable to provide instructions for more than 24 hours; you impose a moratorium on payments to creditors or cease to carry on business; conduct that indicates you will be unable to comply with your obligations; a Clearing House declines to allocate a trade to you or a Clearing Participant refuses to accept a trade you allocate to them; or you or your guarantor dies or becomes of unsound mind. Commissions, fees, expenses. Exchange rate risk. You bear all exchange rate risk. Clients Segregated accounts operation and risks. Deposits will be paid into the segregated account and will be co-mingled with deposits of other clients. Appointment of attorneys to trade on the Sydney Futures Exchange and ASX Futures Exchange. Rights of Macquarie to impose limits and refuse to deal on your behalf. Indemnities. You indemnify Macquarie (and various related parties, officers, agents and employees) for a range of conduct, including but not limited to your default under the Agreement. Please refer to clause 17 of the Agreement. Effects of termination. Transaction confirmations. General provisions governing the operation of the Agreement. The effect of revised terms declared by a licensed market operator. Risk Disclosure Statement to confirm your understanding of the key risks. Please refer to Annexure A of the Agreement. These risks are also detailed in this PDS You should note that the above is a summary only of the provisions of the Agreement. You should read the Agreement carefully and if you are uncertain about any part of the Agreement, you should obtain independent legal and/or financial advice before proceeding. 3

22 4. Key features of Futures What are Futures? A Futures contract is an agreement to buy or sell something (the underlying asset) at a specified time in the future. The underlying asset may be, for example: a specified amount of a security, such as shares in a company or government bond; a financial instrument, such as a bank bill; a stock index, such as the SFE SPI 200 ; or a commodity of a given grade or quality, such as greasy wool. The parties to a Futures contract may be required to deliver or take delivery of the underlying asset at the time specified in the contract, where the contract provides for this. Alternatively, the contract may provide for a cash adjustment to be made, based on a change in the price of the underlying asset. Types of Futures There are two main types of Futures contracts. Deliverable contracts where the seller agrees to deliver to the buyer, and the buyer agrees to take delivery of, the quantity of the commodity described in the contract. Cash settled contracts where the two parties make a cash adjustment between them according to whether the price of a commodity, financial instrument or index has risen or fallen since the time the arrangement was made. Unless you plan to make or take delivery of the commodity underlying the Futures contract, it is not advisable to enter into deliverable contracts in the last weeks before maturity. If you intend to make or take delivery, first check with your broker. A Futures contract s terms are generally set out in the Operating Rules of the exchange on which the contract was made, which might be in Australia or overseas. This Document is intended to apply to any Futures contracts traded on a computer based exchange unless otherwise indicated. There may, however, be differences in procedure and regulation of markets from one country to another and one exchange to another. Duration of Futures Futures contracts may be made for periods of up to several years in the future. Part of the standardisation of Futures contracts is that the contract maturity dates follow a predetermined cycle (standardisation is discussed in the next section). For example, in the SPI-200 contract traded on the SFE, contracts can be made for settlement only in March, June, September or December, but for up to 18 months from the time of the trade. Futures are standardised Futures traded on an exchange are standardised and interchangeable, meaning that futures contracts of a particular class are perfect substitutes for each other. A consequence of contract standardisation is that the price is the only factor that remains to be determined in the marketplace. On the SFE and ASX, Futures are quoted and traded on an electronic trading platform, which provides a system of continuous price discovery. This means that the price at which trades take place may continually change throughout a trading session. Most international Derivatives Exchanges also provide electronic trading platforms for Futures trading. Since all Futures contracts for a given future month in the same market are interchangeable, they can be closed out against an opposite position in the same contract. A trader who has bought a given Futures contract can cancel the position by selling the same contract. The net result is that the trader no longer holds a position. Similarly, a trader who has sold a given Futures contract can cancel the position by buying the same contract. In each case there will be a profit or loss equal to the difference between the buying and selling prices multiplied by the standard contract amount minus any transaction costs. In practice, the vast majority of Futures contracts are offset in this manner ahead of the contract maturity date, the remainder being fulfilled by delivery or cash settlement at maturity. 4

23 The role of the clearing house Derivatives Exchanges will generally have a Clearing House. Clearing Houses clear and settle Futures contracts executed on the exchange. The primary role of the Clearing House is to guarantee the settlement of obligations arising under the Futures contracts registered with it. This means that when your broker buys or sells a Futures contract on your behalf, neither you nor your broker needs to be concerned with the credit worthiness of the broker taking the other side of the contract. See below for further discussion on the novation process that occurs at the Clearing House. The Clearing House will never deal directly with you, rather the Clearing House will only ever deal with clearing participants that is your broker (where your broker is a clearing participant), or where your broker is not a clearing broker, your broker s clearing broker. The SFE s Clearing House is SFE Clearing Corporation. The ASX s Clearing House is Australian Clearing House (ACH). When a Futures contract is registered with the Clearing House, it is novated. This means that the contract between the two brokers who made the trade is replaced by one contract between the buying broker (or its Clearing Participant) and the Clearing House as seller; and one contract between the selling broker (or its Clearing Participant) and the Clearing House as buyer. In simple terms, the Clearing House becomes the buyer to the selling broker, and the seller to the buying broker. Buyer Buyer Clearing House as Seller Original trade (Novation) Clearing House as Buyer Seller Seller The Clearing House ensures that it is able to meet its obligation to Clearing Participants by calling Initial Margin 1 and Variation Margin 2 to cover any unrealised losses in the market. See section 5 for further information on margins. Generally your Futures contracts (and those of other clients) will be held separately from Futures contracts entered into by your broker on its own account. If your broker were to default on its obligations to the Clearing House in respect of its own Futures contracts, your Futures contracts will not be used to meet the broker s default. Rather the Clearing House will either close out your contracts or attempt to transfer them to another broker. Closing out Because of the system of registration and novation referred to above, closing out can be achieved without going back to the original party with whom the Futures contract was traded. When an existing buyer sells to close out their position, the sale transaction is registered with the Clearing House in the manner described above. Example First trade Novation Second trade Novation Resulting Positions A sells to B at $100 per unit Clearing House is now buyer to A and seller to B B sells to C at $120 per unit Clearing House is now buyer to B and seller to C A has an open sold position C has an open bought position B no longer has a position and has realised a profit of $20 per unit (ignoring transaction costs) The contracts which B held (one to buy and one to sell) have been settled in cash between B and the Clearing House; B simply receives the net profit. Any profit due to B is paid out by the Clearing House in cash, even though the original seller (A) remains in the market. 1 Also known as a deposit. 2 Sometimes referred to as additional deposit or additional margin. 5

24 Futures options and options over the underlying What is an option? Option contracts traded over Futures contracts are commonly known as Futures options. These are the most common type of option traded on a Derivatives Exchange. Options over the underlying are less common with the Cash Settled Intraday Options over the SFE SPI 200 and Eurex DAX options being examples. Following is an explanation of the nature of an option contract and of the obligations assumed by option traders. Several concepts referred to previously are applicable to options (for example, the concept of closing out). These facts will not be repeated, but only the facts particular to Futures options are discussed. The buyer of a Futures option has the right, but not the obligation, to enter into a Futures contract 3 at the Exercise Price of the Futures option. For this right, the buyer pays the option seller the Option Premium. The seller of a Futures option assumes the obligation to enter into a Futures contract 4 at the Exercise Price of the Futures option if the option is validly exercised. For taking on this obligation, the seller receives the Option Premium. Like Futures contracts, options are standardised and interchangeable, so that having bought or sold an option it is possible to close it out before its expiry or exercise. You must distinguish between Futures options and options over the underlying. If a Futures option is exercised it results in the establishment of a Futures contract. If an option over the underlying is exercised, it results in the transfer of the actual commodity underlying the option (in the case of deliverable contracts), or a cash adjustment (in the case of cash settled contracts). The following matters can apply both to Futures options and to options over the underlying. However the discussion will centre on Futures options. European Options and American Options An option will be expressed to be either a European style option or an American style option. European Options can be exercised only on the Expiry Date, not before. American Options can be exercised at any time up to and including the date the option is due to expire. The majority of options traded on the ASX and SFE are American Options. Because American Options can be exercised at any time before the Expiry Date, the seller of an option must be prepared for that option to be exercised at any time. The decision to exercise is in the option buyer s hands. Call Options and Put Options A Call Option gives the buyer the right to buy a Futures contract at a designated price at or before the Expiry Date of the option. The seller of a Call Option has the obligation to sell a Futures contract if the Futures option is exercised by the buyer. A Put Option gives the buyer the right to sell a Futures contract at the Exercise Price. The seller of a Put Option has the obligation to purchase the Futures contract if the Put Option is exercised by the buyer. 3 A bought position in the case of a call option, and a sold position in the case of a put option. 4 A sold position in the case of a call option, and a bought position in the case of a put option. 6

25 Exercising Call Options and Put Options The table below sets out the results from the buyer s and seller s viewpoint when the buyer exercises a Futures Call Option or Put Option: Buyer Exercises Bought Call Option Bought Put Option Bought Futures (at the Exercise Price of the option) Sold Futures (at the Exercise Price of the option) Sold Call Option Sold Put Option Effect on Seller Sold Futures (at the Exercise Price of the option) Bought Futures (at the Exercise Price of the option) More information Futures can be traded on Australian and overseas exchanges. Contract specifications for each standardised Futures contract can be found on the website of the relevant exchange. For further information concerning Futures contracts traded on the SFE you are referred to the ASX website at where brochures regarding the various Futures contracts can be downloaded. For a list of the main exchange websites where contract specifications for Futures will be located, please visit If you do not have access to the Internet, or you wish to trade on other Futures Exchanges, please contact us and we will arrange to forward the specific contract specifications to you free of charge. 7

26 5. Financial aspects of Futures trading Initial Margin To protect the financial security of both the broker and the Clearing House until Variation Margins are paid, each client is required to pay Initial Margin. Minimum Initial Margins are set by the Clearing House or the Derivatives Exchange or both, and may vary from time to time according to the volatility of the market. This means that an Initial Margin may change after a position has been opened, requiring a further payment (or refund). Initial Margins are calculated to cover the maximum expected movement in the market from one day to the next. A broker is entitled to call a higher Initial Margin than the minimum set. Liability for Initial Margin occurs at the time of the trade and your broker may require you to pay it before any trading is conducted on your behalf. Participants are generally required under the Operating Rules of the Derivatives Exchange to call an Initial Margin on each trade equal to at least the minimum Initial Margin set by the Clearing House. Variation Margin Variation Margin must be paid by any client whose Futures contract is showing a loss; i.e. if the market falls after a purchase or rises after a sale. You can incur losses before a contract is closed out, if the market moves against your position. Futures positions are re-valued on a daily basis, and any deterioration in your position will result in Variation Margin being called. Variation Margin is also paid to you if your Futures contract shows a profit. Example The Initial Margin payable per SFE SPI 200 Index Futures contracts is $10,000. The contracts are valued at $25 per index point. Day one Trade Market closing price Initial Margin Variation Margin Buy 1 contract at 3,500 3,375 points $10,000 payable -125 points x $25 = $3,175 payable Day two 3,600 points +225 points x $25 = $5,625 receivable Day three Sell 1 contract at 3,550 $10,000 receivable -50 points x $25 = $1,250 payable In the above example, the Initial Margin amount is $10,000 (this is set by the Clearing House). On day one, the market moves against you and you are required to pay $3,175 in Variation Margin call. On day two, the market moves in your favour and you receive a Variation Margin amount of $5,625. On day three you decide to close out your contract, as the market is moving against you again. You close out at 3,550 which means that you are required to pay a further Variation Margin of $1,250. Once the position has been closed out, the Initial Margin of $10,000 is returned and a net Variation Margin profit of $1,200 has been realised. 8

27 Liability Given the above margin requirements, your liability under a Futures contract is not limited to the Initial Margin. If, after paying the Initial Margin, the price moves against you, further margin (Variation Margin) will be called. Initial Margin (unless eroded by losses) can be returned to you on settlement of the contract. Variation Margins that become realised losses when the position is closed out or settled are not refundable. Variation Margins covering unrealised losses are not refundable unless there is a favourable change of direction in market prices before settlement or closing out of the Futures contract. Consequences of failure to pay margins Initial Margin and Variation Margin must be paid immediately after the call. 5 If you do not pay a margin, your broker is entitled to close out your position and deduct the resulting realised loss from the Initial Margin. If the realised loss exceeds the Initial Margin you are required to pay the excess to your broker. Derivatives markets can be highly volatile and you should ensure that you can always be contacted by the broker. If your broker is unable to contact you to call for margin, it may close out your Futures contracts without actually speaking to you. Profit and loss when trading Futures The table below sets out profit and loss situations when trading Futures contracts. Profitable trades Buy low-sell high Sell high-buy low Losing trades Buy high-sell low Sell low-buy high Margins and liability on Futures option contracts If you buy a Futures option, your loss is limited to the Option Premium which you paid, which is nonrefundable. If you buy an option, and pay the full premium at the time the option is traded, you will not be called upon to pay margins. If you pay only an initial deposit, you may be called upon to pay margins up to the full value of the Option Premium (but no more). If you sell a Futures option, you have a similar liability to a holder of the underlying Futures contract - that is, potentially unlimited. However, you have limited profit potential, as a seller cannot earn more than the premium for which the option is sold. Profit and loss when trading Futures options The table below sets out profit and loss situations when trading Call Options and Put Options. It sets out the levels of the underlying Futures contract at the time of opening and closing the option trade that will be favourable and unfavourable for the four basic option strategies. Option trading is a complex area, and an option trader can suffer losses even if the price of the underlying asset (in this case a Futures contract) moves favourably. Strategy Profitable trades Unprofitable trades Bought call Bought put Futures price - opening trade Futures price - closing trade Futures price - opening trade Futures price - closing trade Low High High Same or lower High Low Low Same or higher Sold call High Same or lower Sold put Low Same or higher Low High Out-of-the-money Futures options High Low This is a term used to describe an option that cannot be exercised at a profit. An out-of-the-money option is a Call Option whose Strike Price is higher than the current market level or a Put Option whose Strike Price is below market. If you are contemplating purchasing a Futures option that is significantly out-of-the-money option, you should be aware that the chance of such an option becoming profitable at expiry is remote. 5 This is generally taken to mean within 24 hours of the demand although in times of extreme price volatility this may mean as little as 1 hour. 9

28 6. Significant benefits explained There are a number of benefits in trading Futures, including the following: Standardisation: As discussed in section 4, because Futures contracts are standardised and therefore interchangeable, you may through the Derivatives Exchange open and close positions, depending on the liquidity of the market in the relevant contract. Risk management: Through the processes of novation and margining, the Clearing House assumes and manages the risk of Futures positions entered into on the Derivatives Exchange. This reduces counterparty risk in a way which is not available in Over-The-Counter (OTC) derivatives transactions. Your broker has certainty that the other side of the Futures contract will be honoured, and your broker (and therefore you) will not be subject to risk that the counterparty to the original Futures contract may default in their obligations under the Futures contract. Hedging: You can use Futures to hedge exposure in the underlying commodity, instrument or security. Speculation: You can use Futures to speculate on market movements. Futures allow you to gain exposure to a particular underlying commodity, instrument or security without the need to buy or sell the underlying itself. Range of market positions and strategies: You can potentially profit both from rising and from falling markets depending on the strategy you have employed. Through the use of Futures and options, strategies can be tailored to suit almost any market view. Leverage: Futures generally involve a high degree of leverage. Futures contracts enable you to outlay a relatively small amount of money (in the form of Initial Margin) to secure an exposure to the underlying commodity, instrument or security. For example, assume you have a positive view about the prospects of XYZ Ltd. You can either buy 1,000 XYZ Ltd shares at $10.00 and pay your broker $10,000 (plus costs) or you could buy a Futures contract over 1,000 XYZ Ltd shares and pay an Initial Margin at the time the Futures contract is entered (which is likely to be a small percentage of the contract value (plus costs)). The same amount of exposure to the underlying shares has been achieved, but for a much smaller outlay. Given a movement in the price of XYZ shares, the percentage returns (positive or negative) from the Futures strategy are likely to be much higher. Assume the Futures contract price is $10.10, and the Initial Margin payable on the above Futures position is 10%. Each contract covers 1000 shares. The following table compares the returns, assuming that the XYZ share price rises to $11.00 by maturity (transaction costs are ignored). Opening trade Shares Share price $10.00 Buy 1,000 $10.00 = $10,000 Maturity Share price $11.00 Sell 1, = $11,000 Profit $1.00 x 1,000 = $1,000 Percentage return Futures 10% 89% Futures price $10.10 Buy 1 Futures $10.10 Pay 10% Initial Margin = $1010 Futures price $11.00 Sell 1 Futures $11.00 $0.90 x 1,000 = $900 The example provided is for illustrative purposes only and does not necessarily reflect the outcome of any actual trading in Futures in similar circumstances. This leverage can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. See section 7 for further information on risks. 10

29 7. Significant risks explained The risk of loss in trading in Futures contracts can be substantial. You should carefully consider whether trading is appropriate for you in light of your financial circumstances, degree of financial knowledge and experience, situation and needs. You should be aware of the following matters: (a) Loss of Initial Margin: You could sustain a total loss of the Initial Margin that you deposit with your broker to establish or maintain a Futures contract. (b) Payment of Variation Margin: If the Futures market moves against your position, you may be required, at short notice, to deposit with your broker Variation Margin in order to maintain your position. Those additional funds may be substantial. If you fail to provide those additional funds within the required time, your position may be liquidated at a loss and you will be liable for any shortfall in your account resulting from that failure. (c) Losses beyond margin lodged: You may sustain a total loss of the funds (Initial Margin and Variation Margin amounts) that you deposit with your broker to establish or maintain a position in the Futures market. You may incur losses beyond the amounts that you lodge with your broker. You should not risk more funds than you can afford to lose. A good general rule is never to speculate with money which, if lost, would alter your standard of living. (d) Leverage: The high degree of leverage that is obtainable in trading Futures contracts can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. (e) Returning to the example of XYZ shares used previously, consider the result if the share price, instead of rising to $11.00, fell to $8.00 at maturity. The following table shows the results (transaction costs are ignored). Opening trade Shares Share price $10.00 Buy 1,000 $10.00 = $10,000 Maturity Share price $8.00 Sell 1,000 $8.00 = $8,000 Loss $2.00 x 1,000 = $2,000 Percentage return Futures Futures price $ % -208% Buy 1 Futures $10.10 Pay 10% Initial Margin = $1010 Futures price $8.00 Sell 1 Futures $8.00 $2.10 x 1,000 = $2,100 Leverage has served to multiply the loss suffered in percentage terms. Liquidity: Under certain market conditions, it could become difficult or impossible for you to close out a position, and the relationship between the prices of Futures contracts and the underlying market may be distorted or affected. Examples of when this may happen are: (i) (ii) if there is a significant change in the price of the underlying commodity, instrument or security over a short period of time; if there are insufficient willing buyers and sellers in either the Futures market or the underlying market; or (iii) if the Futures market is suspended or disrupted for any reason. Similarly, events such as these in relation to the market for the underlying asset may make it difficult for you to hedge or maintain your exposure under a Futures contract. 11

30 (f) Deliverable contracts and physical delivery: Where you have a position in a deliverable Futures contract and you hold this open position to maturity, you must be prepared to make or take physical delivery of the underlying asset if your position is matched. (g) Placing orders in a moving market: The placing of contingent orders (such as a stop-loss order) 6 may not always limit your losses to the amounts that you may want. Market conditions may make it impossible to execute such orders. For example, if the price of the underlying asset moves suddenly, your order may not be filled, or may be filled at a different price to that specified by you, and you may suffer losses as a result. (h) (i) (j) Strategies: A spread position (which involves the simultaneous purchase and sale of Futures or Futures options) is not necessarily less risky than a simple Long or Short position. 7 Options risk profile: If you propose to trade in Futures options, the maximum loss in buying an option is the premium paid, but the risks in selling an option are essentially unlimited. System failures: You may experience losses due to exchange or Clearing House system failures which may affect systems used by Participants. Participant systems may also fail which means your trades may not be executed. (k) (l) Foreign exchange movements: If you trade in Futures contracts denominated in currencies other than Australian dollars you may lose money due to exchange rate fluctuations. These losses may be in addition to any losses on the Futures contract itself. Market emergencies: You may incur losses that are caused by matters outside the broker s control. For example, a regulatory authority exercising its powers during a market emergency may result in losses. A regulatory authority can, in extreme situations, suspend trading or alter the price at which a position is settled. This could also result in a loss. (m) Market disruption: A market disruption may mean that you are unable to deal in a Futures contract when desired, and you may suffer a loss as a result. Common examples of disruption include the crash of the exchange electronic trading system, fire or other exchange or Clearing House emergency. (n) Discretionary Powers of Exchange and Clearing House: The exchange or Clearing House could exercise discretionary powers under their Operating Rules in relation to the market. They have powers to declare an undesirable situation has developed in a particular Futures contract and suspend trading. (o) Disputes and trade cancellations: When a trade is subject to dispute, the exchange may have powers to request that participants amend or cancel a trade, which will in turn result in the Futures contract with the investor being amended or cancelled. Exchanges may also exercise discretionary powers to cancel transactions under their Operating Rules. These actions can affect your Futures positions. 6 Is an order that becomes a market order (and hence executed) when the derivatives market reaches the designated price. 7 A spread is the holding of bought Futures contract for one delivery month and a sold Futures contract for another delivery month in the same contract. 12

31 8. Fees and charges Brokerage We charge you brokerage on purchase and sales executed for you. Our brokerage rates depend on the type and level of service required, the exchange upon which the purchase or sale will be conducted, the size of the transaction and the frequency of transactions. You will also have to pay GST on brokerage. The standard brokerage that you will be charged per side varies between AUD$2 and AUD$50 for purchases or sales conducted on Australian exchanges and between US$4 and US$50 for purchases or sales conducted on Foreign Exchanges. However, rates may be negotiated between you and your adviser and are subject to change. Your current rate as agreed between you and your adviser will be outlined on your trade confirmation and daily account statement. The standard brokerage fee generally includes any exchange fees that are payable. Where they are not included, you will be notified at the time of the transaction. All brokerage charges are shown on your trade confirmations. Exchange fees Fees charged by the exchange vary from exchange to exchange and can be found on that particular Derivative Exchange s website. A list of exchange websites can be found at Exchange fees are charged for execution and clearing of purchases and sales. For example, the SFE s execution fees vary between $0.90 and $100 per side (GST exclusive) and the clearing fees vary between $0.90 and $40 per side (GST exclusive). These fees vary depending on whether the contract is deliverable or cash settled and the type of contract being traded. Volume rebates may also apply against these fees. For more detailed information, you should check the SFE fees and charges schedule at The ASX s execution fees vary between $0.35 and $25 (GST exclusive) depending on whether the contract is deliverable or cash settled and the type of contract being traded. For more detailed information, you should check the ASX fees and charges schedule. Interest Credit balances You receive interest on your funds in your Futures account. This interest is calculated daily and posted to your account monthly in arrears. Any interest accrued on your credit balances will be calculated in the following manner: (i) Australian dollar denominated balances will earn interest at the 11am bid Cash Rate minus 2%. (ii) All other foreign balances will earn interest at their respective short-term Cash Rate minus 1%. Debit balances You may be charged interest on any unpaid amounts in your Futures account. The interest will be calculated in the following manner: (i) Australian dollar denominated balances will earn interest at the 11am bid Cash Rate plus 1%. (ii) All other foreign balances will earn interest at their respective short-term Cash Rate plus 1%. You can find the relevant Cash Rates on the Macquarie Futures website Other administrative charges Duplicate account statements attract a fee of $25 per statement. Other amounts In addition to brokerage, exchange fees and other charges described above, margins and premiums may also be payable. Please refer to section 5 of this PDS for more information about margins and premiums. 13

32 9. Other significant characteristics of Futures contracts Clients segregated monies Funds deposited with a Participant on a licensed market for Futures trading are deposited into that Participant s clients segregated account in accordance with the requirements of the Corporations Act. Unless otherwise agreed with your broker, you waive the right to any interest on funds deposited with your broker. Money or property deposited with your broker may only be invested according to the Corporations Act, and such investments are at your sole risk. For money deposited in your broker s clients segregated account, you acknowledge that: individual client accounts are not separated from each other; all clients funds are deposited into the one clients segregated account; clients segregated account provisions may not insulate any individual client s funds from a default in the Participant s clients segregated account. Such a default may arise from any client s trading; assets in the clients segregated account belonging to non-defaulting clients are potentially at risk, even though they did not cause the default; the Broker has the right to apply all clients monies held in its clients segregated account to meet the default in that account; and the Clearing House has the right to apply all monies in the Client Clearing Account (or House Clearing Account) to meet any liabilities in the Client Clearing Account. Dealings on foreign Derivatives Exchanges Clients who deal on foreign Derivatives Exchanges should be aware of the following matters: Dealing subject to foreign rules and laws The execution and clearing of trades on foreign Derivatives Exchanges are subject to the rules of that exchange and the laws of the country in which that exchange is domiciled. Australian regulators may not have any jurisdiction Neither ASIC nor Australian exchanges regulate activities of foreign Derivatives Exchanges, nor do they have the power to compel enforcement of the operating rules of a foreign Derivatives Exchange or any applicable foreign laws. Generally, the foreign transaction will be governed by applicable foreign law. This is true even if the Derivatives Exchange is formally linked with an exchange in Australia. Protection of clients funds Clients who trade on foreign Derivatives Exchanges may not have the benefit of protective measures provided by the Corporations Act and the Operating Rules of Australian exchanges. In particular, your funds may not have the same protection as funds deposited in Australia in a Participant s clients segregated account. Settlement If you have a deliverable Futures contract open at the close of trading on the last day of trading you will be under an obligation to deliver, or take delivery of and pay for, the commodities described in the specifications. It is the policy of some brokers not to permit speculators to make or take delivery under a deliverable Futures contract (except where required by the Clearing House). If you wish to make or take delivery, first check with your broker. If you have a cash settled Futures contract open at the close of trading on the last day of trading you will be under an obligation to pay or have a right to receive an amount of money depending on the price movement. The settlement of Futures options is more complex. For example, on the SFE all in-the-money 8 or at-the-money 9 options are automatically exercised by the Clearing House. The resulting position is settled as a Futures position. Not all exchanges automatically exercise at-the-money or in-the-money options at expiry, particularly US exchanges. Check with your broker before the Expiry Date, or the option may lapse with the result it will be worthless. The settlement procedures for options over the underlying are different again. Because these instruments can be traded on Derivatives Exchanges and stock exchanges the procedures can vary widely A put option with an exercise price above the price of the underlying asset or a call option with an exercise price below the price of the underlying asset. 9 Is a put or call option with an exercise price equal to the price of the subject matter of the option.

33 10. Dispute resolution Dispute resolution policy We are committed to providing a high standard of client service and to maintaining our reputation for honesty and integrity. If our level of service has failed to meet your expectations we would like you to tell us about your concerns. Our complaint handling process is designed to ensure that your concerns are treated seriously and that your complaint is addressed promptly and fairly. Your complaint may be lodged either verbally or in writing and will be dealt with in strict confidence. If you have a complaint about the service provided to you, please take the following steps: contact your adviser to discuss your concerns; contact our client service centre on ; or write to the Complaints Manager, Macquarie Private Wealth, PO Box 192, Australia Square NSW Any complaint will be managed in accordance with the Macquarie Complaints Handling Policy. Generally, the complaints handling officer will contact you within five (5) days advising that you will receive a substantive response or explanation for delay in providing a substantive response within 45 days. If the complaint cannot be resolved to your satisfaction, you may refer the matter to our independent external dispute resolution schemes, the Financial Industry Complaints Service (FICS) or the Banking and Financial Services Ombudsman (BFSO). If you require any additional information on how complaints are handled, please visit our website at com.au/au/complaints_policy.htm. BFSO details BFSO can be contacted on free call or facsimile (03) Alternatively you can write to: The Banking and Financial Services Ombudsman GPO Box 3 Melbourne VIC 3001 or visit their website at FICS details FICS can be contacted toll free on or facsimile (03) Alternatively you can write to: The Financial Industry Complaints Service PO Box 579 Collins Street West Melbourne VIC 8007 or visit their website at Please note that from 1 July 2008, BFSO and FICS (together with the Insurance Ombudsman Service) will be merging to form the Financial Ombudsman Service (FOS). FOS will be contactable on the telephone number but other contact details may change after 1 July Please ring that phone number to check or alternatively get in touch with us to obtain the latest contact details for FOS. 15

34 11. Taxation implications There may be taxation implications relating to your entry into Futures transactions depending on your particular circumstances. Macquarie does not provide advice with respect to taxation and you should seek advice from your tax adviser before you enter into any Futures transactions. The varied nature of Futures will mean that the taxation impact of any gains and losses arising out of such transaction will need to be considered on a case by case basis, with the assistance of your tax adviser in light of your own individual circumstances. 16

35 12. Cooling-off arrangements There are no cooling-off arrangements for exchange traded Futures contracts. 17

36 13. Other considerations Minimum investment amount and financial requirements The minimum initial investment is $10,000. In addition, you must have net tangible assets in excess of $250,000. Macquarie may also require you to maintain up to 10% of those assets in cash and readily accessible. Remuneration Macquarie s employees and directors may receive salaries, annual bonuses, commissions and other employee benefits. Where commissions are paid to Macquarie employees and directors, these are within the range of 30% to 51% of the amount earned by Macquarie. Associations Macquarie does not have any associations with referrers or external advisers that might influence it when dealing with referred clients. Macquarie or its associates, officers or employees may have interests in derivatives by acting in various roles including as investment banker, dealer, holder of principal positions, broker, lender or adviser. 18

37 14. Glossary of terms Below is a list of words used in this PDS and their meanings. ACH Australian Clearing House Pty Limited. American Option An option which may be exercised at any time up to and including the Expiry Date. ASIC Australian Securities and Investments Commission. ASX Australian Securities Exchange Limited. Call Option An option giving the buyer the right to buy the underlying asset at the Exercise Price on or before the Expiry Date. Clearing The process by which Futures contracts executed on a Derivatives Exchange are registered and cleared in the name of a Clearing Participant with the relevant Clearing House. Clearing House The clearing facility authorised by the relevant Derivatives Exchange. In practical terms a clearing house is a body that assumes the obligations or guarantees in respect of all Futures contracts and Futures options that are traded on the relevant Derivatives Exchange and registered with it. The clearing house holds all Initial and Variation Margin requirements of the Clearing Participants. The clearing house handles all cash settlement within the exchange market and provides the documentation necessary to record all business on the relevant exchange. The clearing house for the SFE markets is SFE Clearing. The clearing house for the ASX market is Australian Clearing House. Clearing Participant A Participant or member of a Clearing House. Clients Segregated Account The account maintained by the Participant under the Client Money Rules for the holding of client monies. Client Money Rules The provisions in Part 7.8 of the Corporations Act and the Corporations Regulations made under those provisions that specify the manner in which financial services licensees are to deal with client moneys and property. In other jurisdictions, client money rules may be found in the relevant legislation or operating rules of the relevant Derivatives Exchange. Corporations Act The Corporations Act 2001 of the Commonwealth of Australia. Derivatives Exchange SFE, ASX or other applicable derivatives exchange. European Option An option which may only be exercised at expiry. Exercise Price The price at which an option buyer may purchase or sell the underlying Futures contract upon exercise of the Futures option contract. Expiry Date In relation to a Futures option, the date on which the option expires as designated in the contract specifications. Futures Derivatives which are traded on a Derivatives Exchange which are commonly known as futures contracts (both deliverable and cash-settled); options over a futures contract and options over the underlying. 19

38 Initial Margin The amount that a client is required to pay to establish a position in a Futures contract. Long A bought position in a Futures contract. Margin Call A demand for additional funds to be deposited in an account to meet margin requirements. Market Order An order to buy or sell a Futures contract immediately at the current price. Operating Rules In relation to a Derivatives Exchange or Clearing House, the articles, constitution, rules, by-laws, regulations, customs and practices of that Derivatives Exchange and Clearing House. Option Premium The price paid to buy an option. Participant Participant or member of a Derivatives Exchange. Put Option An option giving the buyer the right to sell the underlying asset at the Exercise Price on or before the Expiry Date. SFE Sydney Futures Exchange Limited. SFE Clearing SFE Clearing Corporation Pty Ltd, the Clearing House for the SFE markets. Short A sold position in a Futures contract Strike Price Another term for the Exercise Price. Variation Margin The difference between the value of a Futures contract when it is initially bought or sold and its value marked to market at any given time. 20

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40 For more information about Futures Sydney Melbourne Sydney Level 18, 20 Bond Street Sydney NSW 2000 GPO Box 4294 Sydney NSW 1164 Tel Fax Melbourne Level 26, 101 Collins Street Melbourne VIC 3000 GPO Box 5435CC Melbourne VIC 3001 Tel Fax OFD /08