Sun Hung Kai Financial: U.S. Trader II - Account and trading information

Transcription

1 Sun Hung Kai Financial: U.S. Trader II - Account and trading information Sun Hung Kai Investment Services Limited ( SHKIS ) does not intend to solicit business in respect of U.S. securities from or offer any services or products in respect of U.S. securities to any person / entity in any jurisdiction in which such solicitation or offer may be prohibited or restricted or may result into SHKIS being required to be licensed or the like or to any person / entity howsoever connected with any such jurisdiction. If you are a person / entity in any such jurisdiction or are connected with any such jurisdiction in any way, do NOT read the following trading and other information. Trading and other information IMPORTANT NOTES: The following trading and other information ( Trading and Other Information ) is subject to the terms contained in the U.S. Trader II Documentation and other terms specified by Sun Hung Kai Investment Services Limited ( SHKIS ) from time to time (together, applicable terms ) and should there be any inconsistency or conflict between the following information and the applicable terms, the applicable terms shall prevail. Further, to the fullest extent permitted by applicable laws, the following information may be subject to change(s) by SHKIS at any time and from time to time, without notice and without giving any reason therefor and without incurring any liability of any nature to you or any third party. 1

2 U.S. Trader II Table of contents 1. ABOUT US COMMISSION AND FEES Commission Fees and charges Market data and news Required minimums ACCOUNT AND FUNDING Account opening Account info update Deposit funds Withdrawal funds Intra-group funds transfer Stock transfer TRADING Shortable stocks SmartRouting SM Order types Order types table Odd lot orders /10 cents orders Margin Margin definition

3 4.4.2 Margin table Real-time margining Margin calculation for Reg T margin accounts Day trading Corporate actions Phone dealing Add stock symbol SYSTEM Trader workstation (TWS) System requirement Web trader System requirement Account management Users guide HELP FAQ Account & funding Technical Trading Others Contact us

4 1. About us U.S. securities U.S. Trader II, the U.S. securities trading service of Sun Hung Kai Investment Services Limited ( SHKIS ), which operates under the Sun Hung Kai Financial ( SHKF ) brand, offers a comprehensive platform that gives you direct access to the U.S. stock markets. Traditionally, the U.S. stock markets have been perceived by local investors as being accessible only to large institutions, companies and high net-worth individuals. With U.S. Trader II, our features are tailored to suit local investors in an easy and affordable way. Advanced trading tools U.S. Trader II enhances your trading speed with a single, multi-product spreadsheet interface offering real-time streaming quotes and quick click order entry. Our web-based version WebTrader also offers a simplified trading interface with easy and direct access to your trading account. Meeting your needs U.S. Trader II caters to investors from all walks of life by offering both cash and margin securities trading accounts, so that you may pursue your goals of financial success. We understand the different lifestyles and trading preferences of our customers, and so we also offer online trading and phone dealing to meet your individual needs. Real-time margin updates U.S. Trader II provides real-time margin updates allowing you to see your trading risk at any moment of the day. Our real-time margin system applies maintenance margin requirements throughout the day to new trades and trades already on the books, and enforces SMA margin requirements at the end of the day with real-time liquidation of positions instead of delayed margin calls. Easy access with numerous order types An easy to use interface with real-time market data and quick click order entry is supported by more than 50 different order types, from basic limit orders to the most complex instructions. Short sales orders U.S. Trader II provides you with an easy way of placing short sales orders. 4

5 2. Commission and fees 2.1 Commission Our commission scheme is simple and easy to understand. Please call our Customer Service Hotline on (852) for details. 2.2 Fees and charges A. Please refer to our Fees and Charges table. B. Corporate actions U.S. Trader II will not charge for Corporate Actions affecting securities in your portfolio. Please refer to the 4.5 Corporate actions section for details. C. ADR (American Depository Receipt) fees The Depository Trust Company (DTC) collects custody fees on behalf of ADR agents for ADRs which do not pay periodic dividends. The fees are deducted by DTC in monthly billing and will be passed to accounts holding the ADR on the record date. Notes: 1. The contents of this Commissions and Fees section are subject to change(s) by us at any time and from time to time without prior notice. 2.3 Market data and news Customers can subscribe to paid, real-time market data on exchanges through Account management. In addition, U.S. Trader II may provide free delayed data as available, for any product listed on an exchange to which you do not subscribe. Delayed market data is managed in the U.S. Trader system - Trader Workstation (TWS), and ticker lines that use delayed data are highlighted in yellow for emphasis. For details on managing delayed market data, see the TWS Users' Guide. To view, add, or delete market data, Reuters Fundamentals and news subscriptions, sign into Account management and go to Trading Access then Market Data Subscriptions. Fees are based on exchange or Reuters assessments and are applied on a per-user basis. There is no requirement to subscribe to market data in order to trade and customers are free to receive market data from any data vendor, or to use only delayed market data. Many exchanges classify customers as non-professional or professional. Exchange rules require that trusts and organisations (e.g. corporations, partnerships, LLCs and unincorporated businesses) must be classified as professional. NYSE and Amex Professional Market Data require prior approval from the exchange. For details of any market data subscription available on or via U.S. Trader II, please refer to the agreements of the Information Services Provider(s) contained in the U.S. Trader II Documentation. 5

6 2.4 Required minimums A. Minimum balance To open an account, a minimum of USD 5,000 is required. - To trade a margin account you must maintain at least USD 2, Pattern day traders have higher minimum requirements, which are defined in the Day trading section of margin requirements. - Generally, accounts that show no balance for 45 days will be closed. To reactivate an account that has been closed due to an insufficient balance, a new account deposit of USD 5,000 is required. B. Monthly Activity As U.S. Trader II caters to active professional traders and investors, we require that each account generate a minimum of commissions per month ( monthly activity fee ). Please note that the monthly activity fee is based on commissions only, and does not include fees related to third-party assessments such as market data subscriptions or order modification/cancellation fees. In addition to monthly activity fee minimums, we pass through market data fees from the exchanges for any real-time market data service to which a customer subscribes. Customer type All U.S. Trader II accounts Activity fee minimum USD20 (or non-usd equivalent) 6

7 3. Account and funding 3.1 Account opening Account opening information: a) If you wish to open a U.S. Trader II account, please click on the Account Opening button on the top right corner of the page or you can call our Customer Service Hotline on (852) b) To open an account, a minimum of USD5,000 is required. c) The time it takes to open a U.S. Trader II account depends on document submission process. It usually takes 3 7 business days to open an account after all documents including, without limitation, US tax form W-8BEN, residential address proof and ID proof have been received and accepted by us. d) After the account is opened, you will need to fund the U.S. Trader II account so as to activate the account for trading; the activation process usually takes one day after cleared funds arrival in the U.S. Trader II account. e) Accounts that show no balance for 45 days will be closed. To reactivate an account that has been closed for having no balance, a new account deposit of USD5,000 is required. 3.2 Account Info Update Download and complete the form here. An original instruction must be forwarded to SHKF for further processing. You can change any of the following parts of your account information: - Account type - address - Residential address Note: 1. Account information change in U.S. Trader II will also be reflected to in your SHKIS account 2. A client should submit the form "Standing instruction for payments to designated own and/or third-party account(s)" to update a bank account. 3. Original proof of home address (e.g. utilities, residential telephone bills or bank statements less than 3 months old) is needed for updating the residential address. 4. U.S. Trader II s Margin account cannot be downgraded to cash account. Your U.S. Trader II account type must be the same as your SHKIS account. For U.S. Trader II margin account client who wish to downgrade their SHKIS account to cash, his/her U.S. Trader II margin account needs to be closed and brand-new U.S. Trader II cash account must be opened. 5. Requesting the downgrading of an account type from margin to cash may take up to one week and require special approval. 7

8 3.3 Deposit funds A client will need to first deposit funds in USD into an SHKIS account and submit the Intra-Group Funds Transfer Form to transfer and convert (if any) the funds to U.S. Trader II account. Deposit funds into your account in the following ways: - Phone banking * - Internet banking - ATM - Branch deposit - CHATs/TT remittance - Electronic fund transfer (EFT) via PPS Click here for details. It usually takes 3 BUSINESS DAYS for the system to process your deposit. Your trading account will reflect the new balance as soon as your fund deposit is cleared. For currencies other than USD, your funds will be converted into USD by default at the prevailing market exchange rate. 3.4 Withdrawal funds Download and complete the form here and fax it to us at (852) Please click here for details. 3.5 Intra-group funds transfer Download and complete the form here and fax it to us at (852) Please click here for details. Note: We only accept fax instructions for clients who have signed a client agreement version from 1998 or later. For your client agreement details, please contact your investment consultant. 8

9 3.6 Stock transfer Download and complete the Stock transfer instruction form here and fax it to us at (852) Upon receiving your instruction, we will contact your designated broker to process the transfer. Note: 1. No physical certificate deposit or withdrawal service will be provided. 2. Normal DTC transfer is accepted. 3. Please be reminded that all stock transfers should be a no change of the beneficiary ownership. We only accept fax instructions from clients who have signed or are deemed to have accepted client agreements which allow clients to give fax instructions. For your client agreement details, please contact your Investment Consultant. 9

10 4. Trading 4.1 Shortable stocks If you wish to check that the stock you want to trade is shortable, please contact your Investment Consultant or our Customer Service Hotline on (852) SmartRouting SM U.S. Trader II SmartRouting SM searches for the best firm stock, option and combination prices available at the time of your order, and may seek to immediately route your order electronically. Our statistics speak for themselves. Based on independent measurements, the Transaction Auditing Group, Inc., (TAG), a third-party provider of transaction analysis, has determined that U.S. stock and options price executions were significantly better than the industry during the second half of Unlike other industry statistics that highlight the percentage of orders improved but don't consider the dollar amount of the improvement, TAG's statistics factor in the amount of the improvement, including executions which had dis-improvement and no improvement. Unlike other smart routers, SmartRouting SM never relinquishes control of your order. It continuously evaluates fast changing market conditions and dynamically re-routes all or parts of your order trying to achieve optimal execution and maximise your rebate. SmartRouting SM represents each leg of a spread order independently and may enter each leg at the best possible venue. This technology allows system to undertake the risk of partially executed spread orders by placing them into our error account. SmartRouting Autorecovery SM re-routes your U.S. options order in the case of an exchange malfunction, with the system undertaking the risk of double executions. Please note that notwithstanding the above, we cannot guarantee execution of every instruction at the best posted price. Please refer to the U.S. Trader II Documentation for details. 10

11 4.3 Order types Order types table U.S. Trader II (TWS) supports over 50 order types and algorithms that may help limit risk, speed execution, provide price improvement, allow privacy, time the market and simplify the trading process through advanced trading functions. Order type & description Accumulate/Distribute Minimise market impact for large orders by slicing the order into smaller increments, and buying or selling over time, at pre-defined, randomised time intervals. Available for stocks, options, futures and forex. All-or-none An AON (All-or-none) order will remain at the exchange (or in the system) until the entire quantity is available to be executed. Arrival price This algorithm attempts to achieve the midpoint price at the time the order is submitted, and considers the user-defined urgency/risk aversion and maximum percentage of daily volume values. At Auction An At Auction order is submitted at the Calculated Opening Price (COP). If the order doesn't execute, it is resubmitted as a Limit order at the COP or best bid/ask. Basket A group of individual orders that are saved in a single file and submitted as a package. Bracket Bracket orders are designed to help limit your loss and help lock in a profit by "bracketing" an order with two Opposite-side orders using the same quantity as the original order. Conditional A Conditional order is an order that will automatically be submitted or cancelled ONLY IF specified criteria for one or more defined contracts are met. Discretionary A Discretionary order is a Limit order for which you define a discretionary amount (which is added to or subtracted from the limit price) that increases the price range over which the order is eligible to execute. The original limit price is displayed to the market. Good-after-time/Date (GAT) A Good-after-time/date order is held in the system and sent to the exchange on the date and time you enter. 11

12 Good-till-canceled (GTC) A Good-till-canceled order will continue to work within the system and in the marketplace until it executes or is canceled by the customer. Good-till-date/time (GTD) A Good-till-date/time order will remain working within the system and in the marketplace until it executes or until the close of the market on the date specified. Hidden A Hidden order (generally a large volume order) shows no evidence of its existence in either the market data or the deep book. Iceberg/Reserve An Iceberg/Reserve order allows you to submit an order (generally a large volume order) while publicly disclosing only a portion of the submitted order. Immediate-or-cancel (IOC) Any portion of an IOC order that is not filled immediately is cancelled. Limit A limit order is an order to buy or sell a contract at a specified price or better. Limit-if-touched An LIT (Limit-if-touched) is an order to buy (or sell) an asset below (or above) the market, at the defined limit price or better. This order is held in the system until the trigger price is touched, and is then submitted as a Limit order. Limit-on-close A LOC (Limit-on-close) is an order that executes at the closing price if the closing price is at or better than the submitted limit price, according to the rules of the specific exchange. Otherwise the order will be cancelled. Limit-on-open A LOO (Limit-on-open) order is a limit order executed at the market's open if the opening price is equal to or better than the limit price. Market A Market order is an order to buy or sell an asset at the bid or offer price currently available in the marketplace. Market-if-Touched An MIT (Market-if-touched) is an order to buy (or sell) an asset below (or above) the market. This order is held in the system until the trigger price is touched, and is then submitted as a Market order. 12

13 Market-on-close An order that is submitted to execute as close to the closing price as possible. Market-on-open An order that is executed at the market's open at the market price. Market-to-limit A Market-to-limit order is sent in as a Market order to execute at the current best price. If the entire order does not immediately execute at the market price, the remainder of the order is re-submitted as a Limit order with the limit price set to the price at which the original order executed. Midpoint Match (MPM) An ISE stock order that executes at the midpoint of the bid/ask price. One-cancels-all (OCA) Orders in a one-cancels-all group of orders will be canceled when one of the other orders executes. Pegged-to-market An order that is pegged to buy on the best offer and sell on the best bid. Pegged-to-midpoint An order that is pegged to buy/sell at the midpoint of the NBBO. Percent of volume This IB algorithm participates with volume at a user-defined rate. Relative/Pegged-to-primary A Relative or Pegged-to-Primary order derives its price from a combination of the market quote and a user-defined offset amount. The order is submitted as a Limit order and modified according to the pricing logic until it is executed or you cancel the order. Scale The Scale orders command automatically creates a series of buy (sell) Limit orders with incrementally lower (higher) prices, based on your original Limit order. Spreads A combination of individual orders (legs) that work together to create a single trading strategy. You can combine stock and option legs into a single spread. Stop A Stop order becomes a Market order to buy or sell securities once the specified stop price is attained or penetrated. Stops - Adjustable You can attach one-time adjustments to Stop, Stop Limit, Trailing Stop and Trailing Stop Limit orders which modify the stop trigger price, trailing amount and stop limit price. 13

14 Stop - Limit A Stop Limit order becomes a Limit order once the specified stop price is attained or penetrated. Stop - Trailing Stop A Trailing Stop for a Sell order sets the stop price at a fixed amount below the market price. If the market price rises, the stop loss price rises by the increased amount, but if the stock price falls, the stop loss price remains the same. The reverse is true for a Buy Trailing Stop order. Stop - Trailing Stop Limit A Trailing Stop Limit for a Sell order sets the stop price at a fixed amount below the market price and defines a limit price for the Sell order. If the market price rises, the stop loss price rises by the increased amount, but if the stock price falls, the stop loss price remains the same. When the order triggers, a Limit order is submitted at the price you defined. The reverse is true for a buy Trailing Stop Limit order. Sweep-to-fill A Sweep-to-fill order identifies the best price and the exact quantity offered/available at the price, and transmits the corresponding portion of your order for immediate execution. Simultaneously it is identifying the next best price and quantity offered/available, and submits the matching quantity of your order for immediate execution. TWAP This algorithm attempts to achieve the time-weighted average price calculated from the time you submit the order to the time it completes. VWAP - Best Efforts This algorithm achieves the Volume Weighted Average Price on a best-effort basis, without exceeding the user-defined max percent of daily volume. VWAP - Guaranteed The VWAP for a stock is calculated by adding the dollars traded for every transaction in that stock ("price" x "number of shares traded") and dividing the total shares traded. By default, a VWAP order is computed from the open of the market to the market close, and is calculated by volume weighting all transactions during this time period. TWS allows you to modify the cut-off and expiration times using the Time in Force and Expiration Date fields, respectively. 14

15 4.3.2 Odd lot orders A. Opening orders An Odd lot order to open a new position may only be sent to NYSE or Amex as part of a basket order or as a Market-on-close (MOC) order. U.S. Trader II prohibits odd-lot opening orders from being routed to NYSE Arca. B. Closing orders Odd-Lot Closing orders may be routed to any market center to which the system routes orders, and can be directed either by the customer or via SmartRouting SM C. Partial Round Lot Orders For a Partial Round Lot order (PRL), for example 249 shares, will be routed as follows: - If the order is direct-routed to NYSE or Amex, the entire order will be submitted (this applies to both Market and Limit orders). - if the order is direct-routed to NYSE Arca, only the round lot portion of the order will be submitted and, if it is executed, the system will cancel the remaining odd-lot portion of the order. - If an order is routed via SmartRouting SM, all market centers are eligible to receive the order according to SmartRouting SM logic (including NYSE Arca - but only for the round lot portion of the order). For more information, please contact our Customer Service Hotline at (852) Note: 1. Individual exchanges may impose certain restrictions on odd lot orders in addition to the restrictions specified above. 2. System will not route Odd-Lot orders for HOLDRS. Note that the Odd-Lot portion of a PRL order in HOLDRS will be rejected by the system after the round lot portion of the order is executed /10 cents orders 1/10 Cent orders Orders for 1/10 cent may be submitted for securities trading < $1 Only INet accepts 1/10 cent orders natively. For orders that are routed through our SmartRouting SM but that do not execute on INet, the bid price is rounded down to the nearest decimal place, and the ask price is rounded up. Please note that notwithstanding the various order types mentioned above, owing to the market condition or other reasons, it may not be possible to execute your instruction(s) and we have the absolute discretion to reject any instruction. Please refer to our client agreement and U.S. Trader II Documentation for details. 15

16 4.4 Margin Margin definition The definition of margin includes three important concepts: the Margin Loan, the Margin Deposit and the Margin Requirement. The Margin Loan is the amount of money that an investor borrows from his broker to buy securities. The Margin Deposit is the amount of equity contributed by the investor toward the purchase of securities in a margin account. The Margin Requirement is the minimum amount that a customer must deposit and it is commonly expressed as a percent of the current market value. The Margin Deposit can be greater than or equal to the Margin Requirement. We can express this as an equation: Margin Loan + Margin Deposit = Market Value of Security Margin Deposit >= Margin Requirement Borrowing money to purchase securities is known as "buying on margin". When an investor borrows money from his broker to buy a stock, he must open a margin account with his broker, sign a related agreement and abide by the broker's margin requirements. The loan in the account is collateralized by investor's securities and cash. If the value of the stock drops too much, the investor must deposit more cash in his account, or sell a portion of the stock. Initial and maintenance margin The Federal Reserve Board and self-regulatory organisations (SROs), such as the New York Stock Exchange and FINRA, have clear rules regarding margin trading. In the United States, the Fed's Regulation T allows investors to borrow up to 50 percent of the price of the securities to be purchased on margin. The percentage of the purchase price of securities that an investor must pay for is called the initial margin. To buy securities on margin, the investor must first deposit enough cash or eligible securities with a broker to meet the initial margin requirement for that purchase. Once an investor has started buying a stock on margin, the NYSE and FINRA require that a minimum amount of equity be maintained in the investor's margin account. These rules require investors to have at least 25 percent of the total market value of the securities they own in their margin account. This is called the maintenance margin. For market participants identified as pattern day traders, the maintenance margin requirement is US$25,000. When the balance in the margin account falls below the maintenance requirement, the broker can issue a margin call requiring the investor to deposit more cash, or the broker can liquidate the position. Please note that neither we nor the U.S. Trader II Provider (as defined in the Supplement to Sixth Schedule, please see the U.S. Trader II Documentation) is under any obligation to make any margin call. For details, please refer to the U.S. Trader II Documentation. Please note that we may impose higher margin requirements which you have to meet in any event. 16

17 4.4.2 Margin table The following table lists margin calculations for Cash and Reg T Margin accounts. The NYSE and FINRA have imposed rules to limit small investor day trading. Customers that these organisations classify as Pattern Day Traders are subject to special Day trading section restrictions for U.S. securities. The following table shows stock margin requirements for initial (at the time of trade), maintenance (when holding positions), and overnight Reg T (Regulatory End of Day Requirement) time periods. Margin requirements Cash Initial Maintenance Reg T End of Day Individual Long position 25%* Stock value Same as initial 50%* Stock value 100% * Stock value Short positions 30% * Stock value If stock price >= USD 5, then Same as Reg T End of Day for N/A maximum(minimum (30% * long positions leverage factor, 100%) * price, USD 5) If Stock Price <= 5 USD, then Maximum(100 * Stock Value, USD 2.50 * the number of shares) Non-marginable long or short positions 100% * Stock value Same as initial Same as initial Same as initial, only long positions Notes: - All Margin accounts must have a minimum of USD2,000 to trade. - SHKIS has additional algorithms which increase the nominal margin for positions that represent a >1% holding of an individual company s shares outstanding, with full margin required for concentrations of >= 5% of a company s shares outstanding. Investors should be prepared to meet the increased margin, where holdings are above 1% threshold. 17

18 4.4.3 Real-time margining Real-time margining Unlike other brokers who calculate margin only at the end of the trading day, U.S. Trader II provides real-time data that may give you the edge you need to react quickly to the markets. The Margin Requirements section of the Account window may allow you to understand your trading risk at any moment of the day by calculating requirements for initial margin (at the time of the trade) and maintenance margin (when holding positions) on a real-time basis. For more information regarding any of the real-time monitoring features mentioned here, see the TWS Users' Guide. The TWS Account window The Account window in Trader Workstation lets you monitor different aspects of your account activity, including the values used in system s margin calculations. We present key account values as the default when you first open the Account window, and you can expand each section of the Account window to display all values. A. Balances The Account window displays real-time values, including those listed below. For more information on any of the real-time monitoring features mentioned in a table below, as well as a table containing definitions of all values, see the TWS Users' Guide. 18

19 B. Margin requirements C. Available for trading D. Margin what-ifs Margin scenarios provide the margin implications of any transaction before transmitting an order. From the trading window, right click any order row and select Preview Order/Check Margin. Commission for the trade is also displayed. E. Margin Warnings Trader workstation (TWS) will automatically liquidate when the account falls below the minimum maintenance margin requirement. To help avoid this scenario, TWS provides pop-up warning messages and color-coded account information as a notification that you are approaching a margin deficiency. This allows you to take action such as entering margin-reducing trades instead of risking liquidations. To help customers monitor margin deficiencies, TWS displays colour-coded messages on the Account screen and pop-up warning messages to notify customers that they are approaching their margin limits. This feature allows you to take action, such as entering margin reducing trades, to avoid having the system liquidate your positions. The colours on the Account screen convey the following 19

20 information at a glance: Yellow You have only 5% cushion above the margin requirement. Orange Your margin cushion is depleted and you have a short time to enter in to margin reducing trades before we begin to liquidate your positions. During this time you should be able to enter a trade that will decrease your margin requirement, but not increase. Red We will shortly start to liquidate positions as necessary tp bring your account back within the margin limits. Please note that notwithstanding the above or any above-mentioned message or notification given, we may, in our absolute discretion, liquidate your positions at any time(s) and we are not under any duty to give any above-mentioned message or notification or margin call. For details, please refer to the U.S. Trader II Documentation. 20

21 4.4.4 Margin calculation for Reg T margin accounts U.S. Trader II applies margin calculations to Reg T Margin accounts as follows: 1. At the time of a trade. 2. In real-time throughout the trading day. 3. At the end of the trading day. 4. Overnight. 1. Time of trade margin calculation When you open a new position, we apply the following: a. Initial minimum equity requirement. b. Time of trade initial margin calculation. a. Initial minimum equity requirement You are required to have a minimum of USD2,000 or USD equivalent of securities equity with loan value to open a new position. If you do not meet this initial requirement, you will be unable to open a new position in your Reg T Margin account. b. Time of trade initial margin calculation Upon submission of an order, a check is made against real-time available funds. If available funds, after the order request, would be greater than or equal to zero, the order is accepted. If available funds would be negative, the order is rejected. See below picture for your reference. 21

22 2. Real-time gross position leverage check There is a real-time check on overall position leverage to ensure that the Gross Position Value is not more than 50 times the Net Liquidation Value. The leverage cap helps to prevent situations in which there is little or no apparent market risk in holding very large positions but there may be excessive settlement risk. The calculation can be expressed as: Securities Gross Position Value <= 50 (Net Liquidation Value) If the result of this calculation is not acceptable, positions may be liquidated to reduce the Gross Position Leverage. 3. SMA and end of day calculations Real-time SMA On a real-time basis, we check the balance of a special account associated with your Reg T Margin account called the Special Memorandum Account (SMA). We calculate a running balance of your SMA throughout the trading day, then enforce Regulation T initial margin requirements at the end of the trading day. No cash withdrawal will be allowed that causes SMA to go negative on a real-time basis. End of day SMA As described above, we calculate SMA in real-time throughout the trading day, but we enforce Regulation T initial margin requirements (typically 50% for stocks or 100% for non-marginable securities) at the end of the trading day. Whenever you have a position change on a trading day, we check the balance of your SMA at the end of the U.S. trading day (3:50 pm - 4:00 pm Eastern Time), to ensure that it is greater than or equal to zero. We use the following calculation to check your SMA balance in real time and apply Regulation T initial margin requirements to securities that can be purchased on margin. Note that this is the same SMA calculation that is used throughout the trading day. In the first calculation, "today's trades initial margin requirements" are added for SELL orders and subtracted for BUY orders, and are based on US Regulation T Initial Margin requirements. If the SMA balance at the end of the trading day is negative, your account is subject to liquidation. 22

23 SMA Rules SMA is calculated based on the following rules: - Cash deposits are credited to SMA. - Market appreciation: If RegT Excess of a margin account is greater than SMA at the close (normally 16:00 US/Eastern), SMA is set to equal to RegT Excess. Note that SMA balance will never decrease because of market movements. RegT Excess = 0 or (RegT Equity RegT Margin), whichever is greater. - Cash withdrawals are debited from SMA. - Fees, such as order cancellation fee, market data fee, etc. do not affect SMA. - Dividends are credited to SMA. - Exercises and assignments (EA) are reported to the credit manager when we receive reports from clearing houses. They will be treated as trades on that day. For example, on expiration, we receive EA notices on the weekend; these trades have Friday as trade date in the clearing system, but they will be treated as Monday's trade for SMA purposes by the credit manager. Exercise requests do not change SMA. DVP transactions are treated as trades. - Universal transfers are treated the same way cash deposits and withdrawals are treated. - Trades are netted on a per contract per day basis. - Realised profit and loss, i.e. day trading profit and loss are posted to SMA. - Commission and tax are debited from SMA. - All trades (one per contract) are posted to the portfolio at the end of the trading day. If RegT Margin of the portfolio increases, the increased amount is debited from SMA, if RegT Margin of the portfolio decreases, the decreased amount is credited to SMA. The current price of the underlying, if needed, is used in this calculation. - Option sales proceeds are credited to SMA. - Premiums for options purchased are debited from SMA. - The change to SMA resulting from trades is effectively the change in RegT Equity minus the change in RegT Margin. 23

24 4. Overnight margin calculations a. How to determine the last stock price before we begin to liquidate the position? Use the following series of calculations to determine the last stock price of a position before we begin to liquidate that position: Note that this calculation applies only to single stock positions. b. How much stock do we liquidate? As shown on the margin calculations page, we calculate the amount of Excess Liquidity (margin excess) in your Reg T Margin account in real time. If your Excess Liquidity balance is less than zero, we will liquidate positions in your account to bring the Excess Liquidity balance up to at least zero. You can use the following calculation to determine how much stock equity we will liquidate in your Reg T Margin account to bring your Excess Liquidity balance back to zero. Note that this calculation applies only to stocks. Notwithstanding any above-mentioned checking or calculation by us, you are under the primary duty to monitor your account(s) to ensure that it/they must, at all times, contain sufficient securities and funds for meeting our margin requirements from time to time. To the fullest extent permitted by applicable laws, you shall be responsible for all losses, liabilities and expenses as a result of your failure to meet any of our margin requirements (whether or not such failure is caused by any above-mentioned checking or calculation by us). 24

25 4.4.5 Day trading FINRA and the NYSE, as part of a small investor protection agenda, instituted regulations intended to limit the amount of trading that can be done in accounts with small amounts of capital, specifically accounts with less than USD25,000 Net Liquidation Value. Day trade: any trade pair wherein a position in a security (stock or stock option) is increased ("opened") and thereafter decreased ("closed") within the same trading session. Pattern Day Trader: someone who effects 4 or more day trades within a 5 business day period. A trader who executes more than 4 day trades in this time is deemed to be exhibiting a pattern of day trading and is thereafter subject to the PDT restrictions. In order to day trade, the account must have at least USD25,000 in Net Liquidation Value, where Net Liquidation Value includes cash, stocks, and options P+L. The NYSE regulations state that if an account with less than USD25,000 is flagged as a day trading account, the account must be frozen to prevent additional trades for a period of 90 days. The platform has created algorithms to prevent small accounts from being flagged as day trading accounts, to avoid triggering the 90 day freeze. The platform implements this by prohibiting the 3rd opening transaction within 5 days if the account has less than USD25,000 in equity. Adjustments to previous day's equity and first day trading The previous day's equity is recorded at the close of the previous day (4:15 PM Eastern Time). Previous day's equity must be at least USD25,000. However, net deposits and withdrawals that brought the previous day's equity up to or greater than the required USD25,000 after 4:15 pm Eastern Time on the previous trading day are handled as adjustments to the previous day's equity, so that on the next trading day, the customer is able to trade. For example, suppose a new customer's deposit of USD50,000 is received after the close of the trading day. Even though his/her previous day's equity was 0 at the close of the previous day, we handle the previous day's late deposit as an adjustment, and this customer's previous day equity is adjusted to USD50,000 and he is able to trade on the first trading day. Without this adjustment, the customer's trades would be rejected on the first trading day based on the previous day's equity recorded at the close. 25

26 Special cases Accounts that at one time had more than USD25,000, were identified as accounts with day trading activity, and thereafter the Net Liquidation Value in the account dropped below USD25,000, may find themselves subject to the 90 day trading restriction. The restrictions can be lifted by increasing the equity in the account or following the release procedure located in the day trading FAQ section. The proceeds of an option exercise or assignment will count towards day trading activity as if the underlying had been traded directly. Notwithstanding the above, you are under the primary duty to monitor your account(s) to ensure that your account(s) must, at all times, contain sufficient funds for any day trading activity and that your account(s) will not be frozen by virtue of any day trading activity. To the fullest extent permitted by applicable laws, you shall be responsible for all losses, liabilities and expenses as a result of your failure to comply with the aforesaid duty (whether or not such failure is caused by U.S. Trader II). 4.5 Corporate actions Voluntary corporate actions To participate in a voluntary corporate action, please contact your Investment Consultant. SHKIS may but is not obliged to process mandatory corporate action (e.g. dividend recovery, spin-offs, stock splits, effective mergers and etc.) Any previous processing of any mandatory corporate action does not constitute an assumption of any obligation by SHKIS to process any mandatory corporate action subsequently. Notwithstanding the above, SHKIS does not provide any form of advisory service, including corporate action advice. Customer is responsible for knowing the rights and terms of any corporate action relating to any security or position in Customer s account. Customer is also responsible for providing instructions regarding the handling for any voluntary corporate action. 26

27 4.6 Phone dealing Should you be unable to go online, our dedicated trilingual dealing desk (English, Cantonese, Mandarin) is always available as a backup via phone so that your portfolio should always be accessible. Order types available for phone trades: 1. Market - An order to buy or sell a stock immediately at the current market price. 2. Limit - An order to buy or sell a predetermined amount of shares at a specified price or better. 3. Stop - An order to sell a stock when its price falls to a particular point, thus limiting an investor's loss (or locking in a profit). For details, please contact your Investment Consultant or our Customer Service Hotline at (852) Please note that notwithstanding the above, owing to the market or other reasons, it may not be possible to execute your instruction(s) and we have the absolute discretion to reject any instruction. For details, please refer to our client agreement and U.S. Trader II Documentation. 4.7 Add stock symbol If you want to trade a stock with a symbol is not available on U.S. Trader II s trading platforms, please contact our Customer Service Hotline at (852) to request the addition of the relevant stock symbol. It takes 1 to 3 business days for any new stock symbol to be updated on the trading platforms; however, we reserve our right to decline any such request or remove any such stock symbol at any time without notice and without giving any reason therefore and without incurring any liability of any nature to you or any third party. 27

28 5. System 5.1 Trader Workstation (TWS) The TWS trading window is a searchable, spreadsheet-like interface that may allow you to quickly create and submit orders on any product directly from a ticker line. Create multiple pages to organise your trading environment, and get single-click access to real-time trade reports, account monitoring, price/risk analytics and more. Choose from different order types and algorithms that may help to limit your risk, speed execution, provide price improvement, ensure privacy, time the market and streamline the implementation of advanced trading strategies. Context sensitivity may help to ensure that your order is always valid by hiding features that aren t supported for selected attributes, destinations or products. Execute large volume orders via our algorithms, which balance market impact with risk, may help you achieve best execution on your large volume stock and option orders. For more information on our order types and algorithms, see the Order types table section. We provide different trading methods to accommodate the needs of different trading styles. You can run TWS directly from your internet browser, or download the application to your desktop and run it from your PC, including: a. TWS Standalone version If you use a dial-up connection, we suggest downloading the TWS standalone version and running it from your desktop, as this may result in better performance. Standalone TWS requires you to download the latest version from our website. TWS runs from your PC. Please click b. TWS Browser-based version To ensure that you are always running the latest version of the Trader Workstation (TWS) and for quickest access, we encourage you to use the Browser-based version of the TWS available from this page. The Browser-based TWS automatically runs the latest version through your browser. Please click To download TWS to your PC, see the Login Instructions. 28