Futures Contracts For Difference Product disclosure Statement ebridge Online Trading Facility Issuer: StoneBridge Securities Limited ABN 92 067 161 755 Australian Financial Services Licence No. 238148
Section 1 Important Information Purpose of this PDS This Product Disclosure Statement (PDS) is dated 5 August 2009 and was prepared by StoneBridge Securities Limited ABN 92 067 161 755 AFSL 238148 (StoneBridge) as the issuer of contracts for differences (CFDs). It describes the key features of CFDs, their benefits, risks, the costs and fees of trading in CFDs and other related information. You should read all of this PDS. This PDS is designed to help you decide whether the CFDs described in this PDS are appropriate for you. You may also use this PDS to compare this financial product with similar financial products (i.e., CFDs) offered by other issuers CFDs. Potential investors should be experienced in futures derivatives and understand and accept the risks of investing in CFDs. The information in this PDS is general only and does not take into account your personal objectives, financial situation and needs. This PDS does not advise you on whether CFDs are appropriate for you. This PDS is subject to the detailed provisions of the ebridge Online Trading Account terms. You should read all of this PDS and the ebridge Online Trading Account terms before making a decision to deal in financial products covered by this PDS. We recommend that you contact us if you have any questions arising from this PDS prior to entering into any transactions with us. StoneBridge recommends that you consult your advisor or obtain independent advice before trading under the ebridge Online Trading Facility. Currency of PDS The information in this PDS is up to date at the time and may be updated on our website (www.stonebridge.com.au). The copy can be downloaded from the website or you can call StoneBridge to request that a paper copy be provided to you free of charge it was prepared but is subject to change from time to time. If the new information is information which is materially adverse to you, we will either issue a new PDS or a supplementary PDS containing the new information. If the new information is not materially adverse to you, we will not issue a new PDS or a supplementary PDS to you, but you will be able to find the updated information on our website at www.stonebridgegroup. com.au or by calling us using the contact details given in the Directory in this document. If you ask us, we will send you a paper copy of the information. This PDS StoneBridge is required to give this PDS because it is deemed to be the issuer of financial products which are derivatives. Your CFD Transactions with StoneBridge under the ebridge Online Trading Facility will be over-the-counter derivatives. CFDs are sophisticated financial products so you should read this PDS and the ebridge Online Trading Account terms in full before making any decision to invest in them. Some expressions used in this PDS have definitions given in the terms of your ebridge Online Trading Facility. A Glossary is provided at the end of this PDS (see section 7). CONTACT StoneBridge can be contacted at: Level 27 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Telephone: 1300 724 329 StoneBridge GROUP AUGUST 2009 2
Section 2 Features Key Information Key features of futures CFDs are: They are over-the-counter derivatives issued by StoneBridge. They require an initial margin payment by you to establish the CFD and you remain liable to pay later variation margins. They are for indirectly investing in a range of exchangetraded Futures Contracts around the world. Key benefits of futures CFDs are: They make use of the electronic systems or other dealing facilities offered by StoneBridge from time to time instead of having a number of different broker accounts and custody arrangements. They give ease of access to investing indirectly in a very large number of Futures Contracts traded on exchanges around the world. They give potential to tailor your investment to meet your specific circumstances and needs, for example, potentially in smaller amounts in contrast with minimum transaction sizes based on dollar values imposed by the rules of exchanges. They give potential to use futures CFD positions as collateral to support your other dealing with StoneBridge. Key risks of futures CFDs are: You are exposed to margin calls for more payment to StoneBridge, whose timing and amount will depend on adverse movements in the market price of the Underlying Security (being a Futures Contract) and the things that affect that, such as interest rates, prices of shares or commodities or index levels. You are dealing with StoneBridge as principal in an over-thecounter derivative so you are exposed to the risk of performance by StoneBridge at the time you close your CFD position. Your recourse against StoneBridge is limited by StoneBridge s recourse and an actual recovery against the market participants used by StoneBridge to hedge its CFD issued to you. COMPARISON This summary table compares the futures CFDs offered by this PDS with direct investments into Futures Contracts. As a summary, it cannot cover all features, risks and terms of all the financial products and services, so please read all of this PDS in full. Feature CFDs Futures Direct Futures Investments (no leverage) Beneficial interest in Underlying Security Rights as a client of an exchange-regulated futures broker Value Leverage Holder of CFD has no beneficial interest in Underlying Security Holder has no rights under exchange rules. All rights come from CFD terms Value of CFD changes according to range of variables, including market price of Underlying Security (except in extreme cases of market disruption). Leverage comparable to the leverage inherent in a Futures Contract Investor has beneficial interest Client has rights imposed by operating rules of exchange Value changes according to market. The leverage inherent in a Futures Contract Further margining Further margining occurs Further margining occurs Short positions Custody Recourse Short CFDs possible, depending on availability and regulations affecting Underlying Security Holder has CFD but no interest in Underlying Securities or any margin cover paid to StoneBridge. Holder is unsecured creditor of StoneBridge, limited by StoneBridge s recourse against market participants (see section 3) Short CFDs possible, depending on availability and regulations Futures Contracts held in custody according to exchange rules Holder is usually unsecured creditor of broker who holds balance of client margin in client segregated account (which is subject to exchange s operating rules and usually liable to shortfall from default by other clients). Maybe a guarantee or fidelity fund for broker fraud, depending on local laws or exchange rules Trading By telephone, on-line trading system As permitted by broker 3
Section 2 Features Nature of a CFD A CFD is an over-the-counter agreement by which you can make a profit or loss from changes in the market price of a CFD s Underlying Security including an ASX traded Futures Contract without actually owning that financial product or having any indirect interest in the financial product. Essentially, the amount of any profit or loss made on the CFD will be equal to the difference between the price of the CFD s Underlying Security when the CFD is opened and the price of the CFD s Underlying Security when the CFD is closed, multiplied by the number of the Underlying Securities to which the CFD relates. As well as dealing in in futures CFDs whose Underlying Securities are Futures Contracts traded on the ASX or one of its related exchanges, you can also deal CFDs on many world exchanges. Unlike direct investments by trading on an exchange, CFDs are not standardised. The terms of futures CFDs are based on the ebridge Online Trading Account terms with StoneBridge, including any Supplementary Terms which are identified to you as applying to your CFDs or other Supplementary Terms for a particular online trading system. Futures CFDs, as with other CFDs, do not give you the right to acquire the Underlying Security. This is different from direct trading in the Underlying Security where you acquire a beneficial interest in the actual financial product. As the holder of a futures CFD, you do not have a beneficial interest in the Underlying Security and you have none of the rights of a holder of that financial product. Purpose of Futures CFDs People who trade in Futures CFDs may do so for a variety of reasons. Some trade for speculation, that is, with a view to profiting from fluctuations in the price or value of the CFD s Underlying Security. For example, CFD traders may be short-term investors who are looking to profit from intra-day and overnight market movements in the CFD s Underlying Security. CFD traders may have no need to sell or purchase the Underlying Securities themselves, but may instead be looking to profit from market movements in the Futures Contracts concerned. Others trade CFDs to hedge their exposures to the CFD s Underlying Security. For example, CFDs can be used as a risk management tool to enable those with existing holdings of exchange traded Futures Options, or short CFD positions in the commodities to be covered by the Futures Contracts to hedge their position by investing in futures CFDs. CFD traders can potentially profit (and lose) from both rising and falling markets depending on the strategy they have employed with all of their investments. Strategies may be complex and will have different levels of risk associated with each strategy. Whatever the purpose of the dealing, futures CFDs allow you to trade indirectly in the Underlying Securities across a number of securities exchanges around the world, without the need for arranging separate broker or custody accounts in each country and having to manage payments for all of those accounts. The use of futures CFDs involves a high degree of leverage. These CFDs enable an investor to outlay a relatively small amount (in the form of initial margin) to secure an exposure to the CFD s Underlying Security. 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 the examples in section 5. 4
Section 3 How to Trade Establishing your facility You need to establish an ebridge Online Trading Facility by completing the application form set out in StoneBridge s Account Application Form booklet. By opening an ebridge Online Trading Facility, you agree to the terms of the facility set out in the booklet. The particular terms of each CFD are decided by you and StoneBridge before entering into the Transaction. Before you enter into a CFD Transaction, StoneBridge will require you to pay an Initial Margin. This is paid to StoneBridge (and is not held on your behalf). After you make a CFD Transaction, confirmation of the transaction will be given (such as being reported online or in an online account statement or record). The fees and costs of transacting CFDs with StoneBridge are set out in this PDS. Settlement must occur on the agreed date. Changes to the specified date are permitted only if you and StoneBridge later agree. If there is early termination, you may be liable for any fees, as well as any losses, depending on the marked-to-market value of your Transaction at termination. StoneBridge may from time to time offer CFD traders an online trading platform for placing CFD orders and monitoring your Trading Account. Details of operational aspects of the trading platform are available separately from StoneBridge. It is important that you read and understand those operational rules, especially in relation to margin cover requirements and how orders are managed. QUOTES Prices for CFDs are quoted as a bid/ask spread. The CFD quote given to you means that you can buy the CFD at the higher quoted price or close out an existing CFD at the lower quoted price. StoneBridge may generate some of its profits from the spread of prices in dealing in CFDs. CLIENT Moneys TRUST ACCOUNT Before you transfer any money to StoneBridge, you should carefully consider how your money will be held and used and the risks to you. Moneys paid by you to StoneBridge for CFDs are first deposited into a client moneys trust account maintained by StoneBridge, segregated from StoneBridge s own funds. In brief, that means those funds are not available to pay general creditors in the event of receivership or liquidation of StoneBridge. Money held in a trust account may be withdrawn or invested in accordance with the Corporations Act, which includes when authorised by you in writing (by the Account Terms or by your specific instructions). StoneBridge is entitled to retain all interest earned on the money held in its trust account. You should be aware that, for client moneys trust accounts: individual client accounts are not separated from each other; all clients funds are combined into one account; funds and other assets in the trust account belonging to non-defaulting clients are potentially at risk of being withdrawn and not being paid back to the client even though they did not cause the default because StoneBridge may use the moneys to pay itself for its hedge of your CFD (see Counterparty Dealings and Limited Recourse later in this Section) and also StoneBridge is permitted by law to use client moneys in the trust account to meet obligations incurred by StoneBridge in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives (not just these CFDs) by StoneBridge, including dealings on behalf of people other than the client whose moneys were deposited into the trust account. After receiving or depositing money into a trust account, StoneBridge may, by the terms of your ebridge Online Trading Account, withdraw funds to pay itself for your margin payment obligation due to StoneBridge in respect of the CFDs (or for any other fees or charges or other payments which you owe, according to the terms of ebridge Online Trading Account or for other amounts for your Trading Account). Those moneys are then held by StoneBridge for its own account and it may deal with those funds as it sees fit. StoneBridge s general policy is that it will withdraw from the trust account all of the funds you deposit for your Trading Account, even if it is more than the required minimum Margin. This policy is to allow the client to maximise the margin recorded for the client in the Trading Account. If it is not withdrawn from the trust account, then the credit cannot be given. StoneBridge uses all of the funds to pay for or to manage its hedge transaction which corresponds with its CFD issued to you. This general policy of withdrawing all funds will not apply if you have given other written instructions (such as to credit other specific Trading Accounts you have with us, or you want the moneys invested in an approved, external financial product, (which will not give you any credit in your Trading Account) or the moneys are held in the trust account while waiting instructions from you. Since StoneBridge cannot state in advance exactly if and when all of your moneys will be withdrawn from the trust account or paid back to you, you should assume you will have at some time the risks of your moneys being in a trust account, as described above. Since the general policy is to withdraw all of the funds which you deposit for your Trading Account, your more significant credit risk arises when the moneys are withdrawn and paid to StoneBridge (see Counterparty Dealings and Limited Recourse later in this Section and Section 4 Significant Risks). Your Trading Account will be credited with the amount withdrawn from a trust account. At that point you are an unsecured creditor of StoneBridge for the performance obligations on the CFD. You are not beneficially entitled to any moneys held by StoneBridge nor in any payments made by StoneBridge to its own market participants. YOUR PROFITS OR LOSSES The amount of any profit or loss you make on a futures CFD will be equal to the difference between the amount paid for the CFD when it is issued (including fees and charges) and the price credited to your Trading Account when the CFD is closed out (including allowance for any fees and charges). Margining of CFDs CFDs in general are subject to calls for payment for margin cover. If you wish to buy a futures CFDs, we will require an initial margin payment, typically around 100% of the purchase price of the Underlying Security and any margin that would be required had you bought the Underlying Security directly. As with most other CFDs, we may set the amount of the initial margin and also at any later time require more margin payments. (Please be aware, though, that if you trade futures CFDs and other CFDs, StoneBridge may assess all of the CFDs [and other financial products] in your Trading Account to determine the margin call requirements.) 5
Section 3 How to Trade Margin cover is usually required in these cases: as initial margin, to start the trading (Initial Margin); as variation margin, meaning adjustments to margin cover due to falls in the value of the financial product or underlying security (Variation Margin); or as maintenance margin to maintain the margin cover in light of adjustments to the percentage of value of the stock allowed as margin cover or other trading platform adjustments not related to the price movements of the financial products. The minimum Initial Margins will be set by StoneBridge in terms of a percentage of the Australian dollar equivalent value of the CFD Transaction. In the case of CFD Transactions, the Initial Margin immediately payable is typically between 10% to 30% but may be as high as 100%. The Variation Margin liability is incurred at the time of the occurrence of any movement in the market that results in an unrealised loss, regardless as to when the call to pay is made by StoneBridge on you. The margin cover is usually provided by you paying cash to StoneBridge. In some cases your Trading Account may allow Synthetic Equity CFDs as collateral. Your Trading Account s collateral is effectively based on cash, any permitted Synthetic Equity CFDs and the market value of your positions. Owing to the volatility of the market, an Initial Margin may change after a position has been opened, requiring a further payment or Variation Margin at that time. They are calculated to cover the maximum expected movement in the market at any time. You will be required to provide the required margin cover whether or not you receive a margin call. In other words, you are responsible for monitoring your positions and providing the required level of margin cover. You might receive notice about margin cover requirements by email, SMS messages or, when you access your Trading Account online, pop-up messages on your screen, but you need to provide the margin cover whether or not you get these messages. In some cases the required margin cover will change automatically at times or in cases applying to your online trading platform. For example, at weekends some margin cover requirements automatically increase. If you do not ensure you maintain the required level of margin cover, all your positions (not just your CFDs) may be closed out and the resulting realised loss deducted from any proceeds. Any losses resulting from closing out your positions will be debited to your Trading Account and you may be required to provide additional funds to StoneBridge. If you are trading through an online trading platform, you must read the rules of the platform particularly carefully. In some cases all of your positions can be closed out automatically. It is your responsibility to provide the collateral for your margin cover on time. In some cases it might take 48 hours or more for funds sent to StoneBridge to be credited to your Trading Account (depending on the rules of your Trading Account or online trading platform or other external factors outside the control of StoneBridge). StoneBridge for your Trading Account Closing a CFD CFDs do not have an expiry date. They remain open until they are closed in accordance with the Facility Terms. To close a CFD position, you contact StoneBridge, either by telephone or other means or using an online trading platform, to determine the current market value for the CFD s Underlying Security, with the view to closing the position (or part of it). StoneBridge will confirm the current market value and you will then decide whether to accept the value, and if so, you would instruct StoneBridge to close your open position in accordance with your instructions. The total closing value is then determined by multiplying the number of CFDs by the value of the CFD s Underlying Security. On the day that the CFD is closed, StoneBridge will calculate the remaining payment rights and obligations to reflect movements in the contract value since the previous business close (including other credits/debits). In order to provide the futures CFDs to you in an efficient and low-cost manner, StoneBridge s discretions in determining closing prices are not limited in any way. In general, though, without limiting StoneBridge s discretion, it should be expected that StoneBridge will act reasonably and have regard to a range of relevant factors at the time. In the worst case, it is possible that the closing price determined by StoneBridge maybe zero. StoneBridge also has the right to decide to make an adjustment in any circumstance if StoneBridge considers an adjustment is appropriate. StoneBridge has a discretion to determine the extent of the adjustment so as to place the parties substantially in the same economic position they would have been in had the adjustment event not occurred. StoneBridge may elect to close a position (without prior notice to you) if an adjustment event occurs and it determines that it is not reasonably practicable to make an adjustment. Daily valuation During the term of a CFD Transaction, StoneBridge will determine your Trading Account s value, based on the value of the CFDs in your Trading Account. If trading in the CFD s Underlying Security is suspended or halted by the relevant exchange, the CFD position will be valued by 6
Section 3 How to Trade Other Shareholder Benefits As a holder of a CFD, you do not have rights to vote, attend meetings or receive the issuer s reports, nor can you direct StoneBridge to act on those rights. Other benefits such as participation in shareholder purchase plans or discounts are unavailable. DEALING Quotes for prices for dealing in CFDs are indicative only and so are subject to the actual price at the time of execution of your transaction. There is no assurance that the CFD will actually be dealt with at the indicative quote. Quotes can only be given and transactions made during the open market hours of the relevant exchange on which the Underlying Securities are traded. The open hours of the relevant exchanges are available by viewing the relevant exchange website or by contacting StoneBridge. StoneBridge may at any time in its discretion without prior notice impose limits on CFDs in respect of particular Underlying Securities (see section 4 on Risks). Ordinarily StoneBridge would only do this if the market for the particular Underlying Security has become illiquid or its trading status has been suspended or there is some significant disruption to the markets including trading facilities. You should be aware that the market prices and other market data which you view through StoneBridge s online trading systems or other facilities which you arrange yourself may not be current or may not exactly correspond with the prices for CFDs offered by StoneBridge. If you access your accounts and any trading system outside of the hours when orders may be accepted, you should be aware that the orders may be processed at a later time when the relevant exchange is open to trading, by which time the market prices might (and currency exchange values) have changed significantly. COUNTERPARTY DEALINGS AND LIMITED RECOURSE Once an order for a CFD is received, StoneBridge will, at or about the same time, make a similar transaction (in its own name, on its own account) with other market participants to hedge the transaction entered into with you, so that StoneBridge has little or no direct market exposure to later changes in the value of the Underlying Security. In order to make those transactions, StoneBridge is usually required to pay for its hedge or to deposit moneys with the hedging counterparty to maintain StoneBridge s open hedge position. StoneBridge funds this with the payments made to it from withdrawing all of your funds from the trust account. The moneys withdrawn from the trust account are payment to StoneBridge (even if more than the required Margin). The withdrawn moneys are not held beneficially for you (see under Client Moneys Trust Account earlier in this Section). (Please note that StoneBridge does not use your trust moneys to pay for its own principal positions. The moneys withdrawn from the trust account become owned by StoneBridge and so may be used by StoneBridge as it decides, but its policy is to use those funds to acquire and manage hedge transactions which correspond with the CFD issued to you.) Since the general policy is to withdraw all of the funds which you deposit for your Trading Account, typically your more significant credit risk arises when the moneys are withdrawn and paid to StoneBridge (rather than the risks for when your money is in the trust account - see Client Moneys Trust Account earlier in this Section). Your credit risk is on StoneBridge but this is affected by StoneBridge s dealings with its hedging counterparties. The particular hedging counterparty used by StoneBridge will depend on which trading system is used by the client or other decisions made in the discretion of StoneBridge. It is possible that StoneBridge s hedging counterparty, or the custodian used by the hedging counterparty, may become insolvent or it is possible that other clients of that hedging counterparty may cause a default which reduces the financial resources or capacity for that hedging counterparty to perform its obligations owed to StoneBridge under the hedge contracts. Since StoneBridge is liable to you as principal on the CFD, StoneBridge could be exposed to the insolvency of its hedging counterparty or other defaults which affects the hedging counterparty. Since StoneBridge is in the business of providing CFDs in respect of the Underlying Securities and is not assuring the performance and credit risk of StoneBridge s counterparties, StoneBridge limits its liability to you under the terms of the CFDs by the extent to which StoneBridge actually recovers against its hedging counterparties and allocates that to your CFD. It is therefore possible that StoneBridge might not fully recover from each hedging counterparty due to reasons not arising from your own CFDs, or it may incur costs in seeking the recovery or choose to terminate recovery efforts early, thereby reducing the proceeds available to StoneBridge to allocate in its discretion to performing its CFD issued to you. It is important to understand that you have no rights or beneficial interest in an Underlying Security or any contract which StoneBridge has with its hedging counterparties and you cannot force StoneBridge to make any decision about seeking recovery against StoneBridge s hedging counterparty. While in theory this is a significant risk to you, broadly this is economically comparable to the same risk to you if you were to deal in the market directly with the same hedging counterparties and incur your own costs of seeking recovery, perhaps in overseas jurisdictions. By dealing in these CFDs, you effectively get the benefit of StoneBridge s primary obligation to you and the benefit of StoneBridge dealing with market participants who would not ordinarily deal with you directly. There is a risk to you arising from StoneBridge s general policy to use all of the clients payments to paying or being available to pay StoneBridge s hedge counterparties. This is broadly similar to the risk to you arising from StoneBridge being allowed to use all of the moneys in a trust account for meeting any of the obligations incurred by StoneBridge in dealing with any derivative throughout its business, but this risk is reduced for you because it is limited by reference to StoneBridge s dealings with each hedge counterparty, not all of the derivatives dealt by StoneBridge across all of its business. Also, StoneBridge maintains risk policies to ensure prudent management of margin requirements from all of its clients so that sufficient margin is paid by all clients and held with the relevant hedge counterparty or, if there is an amount surplus to the hedge counterparty s requirements, that surplus is maintained for StoneBridge in a trust account. The risks you have by dealing with StoneBridge (due to it being paid all of your moneys deposited into the trust account and StoneBridge then making corresponding hedge transaction with counterparties funded by those payments) cannot be simplistically assessed by reference to historical financial information about StoneBridge or its hedge counterparties or general statements of principle. The credit risk you have on StoneBridge depends on its solvency generally as well as on the amount (and kind) of its capitalisation, all of its business risks, its client and stock concentration risks, its counterparty risks for all of its business and transactions (not just the CFDs), its risk management systems and actual implementation of that risk management. Your credit risk on StoneBridge will fluctuate throughout the day and from day to day, including due to the implied credit risk on hedging counterparties, whose credit risk to StoneBridge (and so indirectly 7
Section 3 How to Trade to you) cannot be assessed or verified on a continuous basis or perhaps at all. You should take into account all of those factors and not rely only on past financial statements of any person. If you require further information about the hedging counterparties used by StoneBridge on particular CFDs before deciding whether to invest in them, please contact StoneBridge for further information. The hedging counterparties used by StoneBridge may change from time to time and depend on the Underlying Security, the trading system and other factors from time to time. It is not practical to set out in this PDS any further information about hedging counterparties and StoneBridge takes no responsibility for third-party information about those hedging counterparties; however, StoneBridge will reasonably assist you to locate such other information as is publicly available. CONFIRMATIONS OF TRANSACTIONS If you transact in CFDs by an online trading system, the confirmation of that transaction, as required by the Corporations Act, may be obtained by accessing the daily statement online, which you can print. If you have not used an online trading system, you will be sent the confirmation in the ordinary course. Once you have entered an order into an online trading system, the system may report the main features of your transaction in a pop-up window. This is a preliminary notification for your convenience and is not designed to be a confirmation as required by the Corporations Act. If you provided StoneBridge with an e-mail or other electronic address, you consent to confirmations being sent electronically, including by way of the information posted to your Trading Account in the online trading system. It is your obligation to review the confirmation immediately to ensure its accuracy and to report any discrepancies within 48 hours. STONEBRIDGE INSURANCE StoneBridge has a comprehensive insurance policy in place to cover a variety of different scenarios, some which may assist in the repayment of deficits arising from dealing in hedging counterparties or if there is fraudulent activity by one of StoneBridge s employees, directors or authorised representatives that results in your money being used in fraudulent activities. If the insurance policy is insufficient or the insurer fails to performance obligations, StoneBridge may not be able to make the payments it owes to you. MARKET CONDUCT All market participants (including StoneBridge) have a legal obligation to ensure that the markets are fair, orderly and transparent. StoneBridge clients should be aware that some practices in placing orders can constitute market manipulation or creating a false market which is conduct prohibited under the Corporations Act 2001. It is the client s responsibility to be aware of unacceptable market practices and the legal implications. The client may be liable for penalties to regulators such as ASIC or be liable to StoneBridge for costs to StoneBridge arising out of those trading practices of the client which lead to the client, StoneBridge or any other person suffering loss or penalty. Online Trading Platforms If you use an online trading platform, you must carefully read and follow the supplementary terms and operational rules for that platform. It may impose special trading rules regarding posting margin cover, (such as when payment is effective) or how Variation Margins are calculated (such as automatic adjustments outside of trading hours, such as during the weekend) or how orders are managed. UNDERLYING SECURITIES The Underlying Security of a futures CFD is typically a Futures Contract or an options contract over a Futures Contract (a Futures Option ). A Futures Contract is an exchange-traded Futures Contract. This means that your over-the-counter derivative, being the futures CFD issued by StoneBridge, operates by reference to a theoretical Futures Contract or Futures Options contract which is exchange traded. While StoneBridge will generally deal in its own Futures Contract (or option), or an over-the-counter version of that, to its hedge to you, you do not have any beneficial interest in any actual Futures Contract (or option, or OTC contract) held by StoneBridge nor is your futures CFD a Futures Contract which is traded on any exchange, though it may share many of the economic features of those financial products. Therefore you should be familiar with Futures Contracts and be an experienced investor in them before you invest in StoneBridge s futures CFDs. To help ensure you understand the features and risks of StoneBridge s futures CFDs, the following section describes Futures Contracts and some kinds of them. Please bear in mind, though, this describes Underlying Securities which are exchange-traded Futures Contracts, it does not describe your futures CFD nor do you have any interest in any hedge contract held by StoneBridge. You should always read and understand the full terms of your CFDs by reading this PDS and the terms of your ebridge Online Trading Account in full. Types of Futures Contracts There are two main types of Futures Contracts. One is an agreement under which 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. Such contracts are described as deliverable contracts. The other kind is an agreement under which the two parties will make a cash adjustment between them according to whether the price of a commodity or security has risen or fallen since the time of contract was made. Such contracts are described as cash settlement contracts. Contract Specifications The terms and conditions of a Futures Contract are set out in the rules and regulations of the exchange on which the contract was made. Futures exchanges exist in a number of countries and regions, including the United States of America, the United Kingdom, Europe, Asia as well as Australia. The material in this document is intended to refer to any Futures Contract traded on any exchange, but there may be differences in procedures and regulation of markets from one country to another and one exchange to another. Futures Contracts are made for periods of up to several years in the future, although the vast majority are for settlement within six months of the agreement being made. Part of the standardisation of contracts is that the time of the delivery or settlement is one of a series of standardised maturity times. For example, in the SPI 200 Index Future traded on the Sydney Futures Exchange (SFE), contracts can be made for settlement at the end of March, July, September or December during a period of 18 months from the time of the trade. The terms and specifications of Futures Contracts traded on the Sydney Futures Exchange are accessible at its website: www.asx.com. Futures Contracts are standardised A result of contract standardisation is that price and volume are the only factors that are to be determined in the marketplace. Price discovery can occur by means of an open outcry system, under which brokers on the trading floor state aloud the prices at which they are prepared to buy or sell, giving other brokers with an interest in that commodity an equal chance of deciding whether to accept a bid (buying price) or offer (selling price) or by means of an electronic trading system. Futures prices represent a consensus of market opinion as to what the price of the commodity should be at the specified future time. 8
Section 3 How to Trade Since all Futures Contracts for a given future month in the same market are exactly alike, obligations under Futures Contracts are easily transferred from one party to another. A Client who holds a futures CFD whose Underlying Security is a contract to buy may cancel this obligation by taking a futures CFD in respect of a new contract to sell in the same month. This process is known as offsetting or closing out the contract. In the same way, the holder of a contract to sell can close out by taking a new contract to buy. 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. In practice, the vast majority of contracts are offset in this manner, the remainder being fulfilled by delivery or by mandatory cash settlement in those markets if no provision for delivery exists. Closing Out Closing out a futures CFD can be achieved by buying or selling (as the case may be) an opposite futures CFD Transaction. Expiry of Futures Contracts It should be noted that since all futures CFDs are only ever cash settled, all positions need to be closed or rolled into the next contract month. StoneBridge therefore advises you to be aware of the expiry and first notice dates of any Futures Contracts you invest in and ensure that you close your position before this date. If you do not close a futures CFD position within 2 days of its expiry or first notice date, StoneBridge reserves the right to close your position for you at the first available opportunity at the prevailing market price. Any resulting costs, gains or losses will be passed on to you. If you require any assistance or clarification regarding the expiry of Futures Contracts, please contact your StoneBridge advisor. Futures Options On many futures exchanges, Futures Options (option contracts over Futures Contracts) are available in addition to Futures Contracts. An option on a Futures Contract can be defined as a contract which gives the buyer the right, but not the obligation, to buy or sell a Futures Contract, at a pre-determined price known as the strike price, on or before a specified date in the future. In exchange for this right, the buyer pays the seller a sum of money known as the option premium. There are two types of options. A call option is an option to buy in the futures market at a designated price (the exercise price or striking price), at any time before the option expires, irrespective of the current futures price. A put option is an option to sell in the futures market at the exercise price. Like Futures Contracts, options are standardised, so that having bought an option it is possible to sell it later to a third party. Depending on the nature of the option, an option may be exercised at any time prior to expiry or only on expiry. Upon exercise, a buyer (taker) and a seller (granter) are required to take up the resulting futures positions. There are two parties to an options contract; the buyer (or taker) and the seller (or grantor). If the option is exercised, it becomes a Futures Contract, and the buyer of the call option then has a bought futures position at the exercise price, while the seller (grantor) is required to take the opposite (sold) side of this Futures Contract. If the option was a put option, the buyer, on exercise, then has a Futures Contract to sell at the exercise price and the seller (grantor) has a Futures Contract to buy at this price. Exercising call and put options Provided the buyer pays the full amount of the premium which is non-refundable at the time the option is traded, the buyer will not be called upon to pay margins; if the buyer pays only an initial margin (deposit), the buyer may be called upon to pay margins up to the full value of the premium (but no more). Provided the underlying futures market has moved in the buyer s favour, the holder of an option can profit by selling it later at a higher premium, or by exercising it and closing out the resulting future contract. The profit depends on the movement in the underlying futures market and is potentially unlimited. However if the conditions do not suit the buyer, then the options can be left to lapse and the buyer simply forgoes the premium paid. On the other hand, sellers (grantors) of option contracts have limited profit potential (they cannot earn more than the premium for which the option is sold) and have similar potential liability to the holder of a Futures Contract, i.e., unlimited potential for loss. Margins will be called if the market price moves against the seller. You must distinguish between Futures Options and exchange traded options. If a Futures Option is exercised, a Futures Contract is established. StoneBridge s futures CFDs follow that pattern too, in respect of the Underlying Security. European and American options European options can only be exercised on the expiry date of the option, and not before. American options are tradable and can be exercised at any time up to the date the option is due to expire. Options traded on a futures exchange (such as the SFE) usually may be exercised at any time before the expiry date. In this case, if you are the seller of an option, you must be prepared for that option to be exercised any time before the expiry date. Futures Option Exercise Procedure The settlement of derivative contracts that are Futures Options is more complex than for many other derivatives. Your futures CFD will be operated by StoneBridge and its terms as close as possible to how the Futures Options work. On some exchanges (e.g., the SFE) all in-the-money options are automatically exercised at expiry (converted into Futures Contracts) by the exchange. Not all exchanges automatically exercise at-the-money or in-the-money options at expiry, particularly some European and US Exchanges where in the money options may be cash settled. Check with your StoneBridge advisor if you are not sure about your futures CFD. An in-the-money put option has an exercise price above the settlement price of the underlying Futures Contract at expiry of the option. For example a client has bought a 4800 put option CFD and on the last trading date of the option the settlement price of the futures is at 4700. The client s put option position will then be exercised into a short (sold) Futures Contract from CFD 4800. An in-the-money call option has an exercise price below the settlement price of the underlying Futures Contract at expiry of the option. For example a client has bought a 4600-call option CFD and on the last trading date of the option the settlement price of the futures is at 4700. The client s call option position will then be deemed to be exercised into a long (bought) Futures Contract from 4600. The exercised position will be netted out on the settlement date. Out-of-the-money options This term is 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. A Client contemplating purchasing futures CFD whose Underlying Security in a deep out-of-the-money option should be aware that the chance of such an option becoming profitable is ordinarily remote. 9
Section 4 Significant Risks Significant Risks Using futures CFDs involves a number of significant risks. You should seek independent advice and consider carefully whether CFDs are appropriate for you given your experience, financial objectives, needs and circumstances. Key risks You should consider these significant risks involved in CFDs: Market risk: Financial markets such as futures markets can change rapidly. Prices depend on a number of factors including for example, commodity prices or index levels, interest rates, demand and supply and actions of governments. In some cases, shares may be suspended from trading or have their quotation withdrawn from the exchange where they are traded. This will directly affect the value of a CFD position. It may become difficult or impossible for you to close out a position. This can, for example, happen when there is a significant change in the CFD s value over a short period. StoneBridge s ability to close out a futures CFD depends on the market for the Underlying Securities. Stop-loss orders may not always be filled and, in any event, may not limit your losses to the amount specified in the order. Over-the-counter contracts such as these futures CFDs by their nature are not liquid investments in themselves. If you want to exit your futures CFD, you rely on StoneBridge s ability to close out early, which might not match the liquidity or market price of the Underlying Securities. CFDs are not Futures Contracts and are not covered by the protections for exchange traded contracts arising under the Corporations Act, the ASX Rules, the rules of SFE Corporation Limited or other exchange, even if the CFD s Underlying Securities are traded on one of those exchanges. Not a regulated market: The futures CFDs offered by StoneBridge are over-the-counter derivatives and are not covered in the rules for exchange-traded Futures Contracts, such as guarantee or compensation funds or rules applying to brokers. StoneBridge and counterparty risk: You have exposure to StoneBridge for the performance of each futures CFD. This is common to all OTC financial market products. If StoneBridge were to have reduced financial capacity or become under external administration, then it may be unable to meet its obligations to you in full, or at all. StoneBridge limits its exposure by entering into opposite transactions with other market participants to hedge its exposures to you. StoneBridge s practice is to enter into back to back positions with its hedging counterparties which correspond with StoneBridge s futures CFDs issued to you and make its profits from the spread on prices of dealing in the futures CFDs, not by making a market. In addition, StoneBridge must comply with the financial requirements imposed on it under its AFS licence. Since StoneBridge intends to have back to back positions with its hedging counterparties, StoneBridge is exposed to the financial performance by the hedge counterparties. The hedge counterparties may fail to perform their obligations to StoneBridge, which might impact on StoneBridge s resources to perform its obligations to you in respect of the futures CFDs. In order to manage the overall risks and to continue to provide efficient trading systems for futures CFDs at a reasonable cost, StoneBridge limits its exposure to you under futures CFDs by the amount it actually recovers against its counterparties (see section 3) and as it allocates to your CFDs. Electronic trading system: You are responsible for the means by which you access the online trading system or your other contact with StoneBridge. If you are unable to access the trading system, it may mean that you are unable to trade in CFDs (including closing them out) and you can suffer a profit or loss as a result. StoneBridge may also suspend the operation of the online trading system or any part of it, without prior notice to you. Although this would usually only happen in unforeseen and extreme market situations, StoneBridge s discretion is not limited. If the online trading system is suspended, you may have difficulty contacting StoneBridge, or at all, or your orders may not be able to the executed at prices quoted to you. StoneBridge may impose volume limits on client accounts or filters on trading, which could prevent or delay execution of your orders, at your risk. You have no recourse against StoneBridge in relation to the availability of the online trading systems nor for their errors and software. Please review the supplementary terms and any guidance material for any particular online trading system Margining: You could sustain a loss, greater and not limited to the initial and variation margin that you have paid to establish or maintain a CFD. If the Underlying Security s value moves against your CFD position, you are responsible for monitoring and meeting the margin cover requirements. Positions are ordinarily marked to market on a continuous basis. Your obligation to meet the margin cover is not dependent on StoneBridge giving you notice of that (i.e., a margin call ). You may be required to deposit with us a Variation Margin in order to maintain your position. The amount of the Variation Margin may be substantial. If you fail to provide those additional funds within the required time, your entire position may be liquidated at a loss and you will be liable for any shortfall in your Trading Account resulting from that failure. If a position is closed out, all of it may be closed not just a proportion needed to cover the margin call. There is no limit on the amount of margin which may be called in order to meet a revised valuation of your transaction. Leverage: The high degree of leverage that is involved in CFDs because of small margin requirements can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. Regulatory bodies: A client may incur losses that are caused by matters outside the control of StoneBridge. For example, a regulatory authority exercising its powers during a market emergency may ultimately result in losses to the client by reason of the effect on the Underlying Security and so the terms of the client s futures CFD. A regulatory authority can, in extreme situations, suspend trading or alter the price at which a position is settled, which will affect the Underlying Security for the client s futures CFD. Market disruptions: A market disruption may mean a client is unable to deal in futures CFDs when desired, and they suffer at a loss as a result of that. This is because the market disruption events which affect the Underlying Security will therefore also affect the futures CFD on the same or very similar basis. Common examples of disruptions include the crash of a computer-based trading system, fire or other exchange emergency, or an exchange regulatory body declaring an undesirable situation has developed in relation to particular series of contracts or a particular trade, and suspends trading in those contracts or cancels that trade. Our powers on default, indemnities and limitations on liability: If you fail to pay, or provide security for, amounts payable to StoneBridge or fail to perform any obligation under your 10
Section 4 Significant Risks Transactions, StoneBridge has extensive powers under the Facility Terms with you to take steps to protect our position including, for example, the power to close out positions and to charge default interest. Under the Facility Terms you also indemnify StoneBridge for certain losses and liabilities, including, for example, in default scenarios. Further, StoneBridge s liability to you is expressly limited (to the extent permitted by law) to performing its obligations. You should read the Facility Terms carefully to understand these matters. Credit Risk: For so long as your moneys are held in the trust account, you have the risk that the funds may be used for purposes other than in respect of your CFD (see Client Moneys Trust Account in Section 3). When your funds are withdrawn to pay StoneBridge, your credit risk is on StoneBridge and that risk is affected by StoneBridge s use of all of the funds to pay for and to manage the hedge transactions with counterparties (see StoneBridge and counterparty risk, above, and Counterparty Dealings and Limited Recourse in Section 3). Your risk on the credit of StoneBridge is affected by StoneBridge being able to use all of the funds from all of its clients who pay StoneBridge. Your risk is assisted by the policies of StoneBridge to manage prudently the collateral requirements for all of its clients and to refrain from paying all of the funds over to the hedge counterparties (see Counterparty Dealings and Limited Recourse in Section 3). Your Trading Account may reflect collateral given to StoneBridge as security for your performance of your obligations. StoneBridge has a right to adjust your Trading Account towards satisfaction of any outstanding liability you have to StoneBridge (e.g., to pay fees). Conversely, you are subject to our credit risk. If StoneBridge were to become insolvent, then we may be unable to meet our obligations to you in full or at all. Operational risk: There is always operational risk in a CFD Transaction. For example, disruptions in operational processes such as communications, computers and computer networks, or external events may lead to delays in the execution and settlement of a transaction. We are not liable to you if losses arise owing to delays, errors or failures in operational processes outside our control, in particular, due to faults in the online trading platform or in the provision of data by third parties. General Risks StoneBridge strongly recommends that, if you are not fully familiar with CFDs, you obtain independent legal, financial and taxation advice before proceeding with a transaction. Further, StoneBridge recommends that you should consider the following: It is your responsibility to understand the nature and risks associated with each Transaction. In entering into any Transaction, neither StoneBridge nor any of its representatives will advise you, or is to be taken as advising you, as to any strategy, risk profile or financial result. CFD trading is highly speculative and volatile. There is no guarantee or assurance that you will make profits, or not make losses, or that unrealised profits or losses will remain unchanged. Past performance of markets, and currencies in particular, is never an assurance of future performance. The value of your Trading Account may fluctuate according to exchange rates and interest rates, as well as other market conditions which are outside of your control and which cannot be forecast. Trading with StoneBridge may give rise to actual or potential conflicts of interests, because StoneBridge is acting as principal in its CFD Transactions with you and also because it may be transacting with other persons, at different prices or rates, or StoneBridge will be trading with banks and other market participants. StoneBridge will make those transactions as principal or as agent, and will do so to hedge its position and with the intention of making a profit. Information about prices or rates may come from several sources and may not be current at the time given to you. StoneBridge does not take responsibility for information about rates or other financial market data or statements and StoneBridge relies on your acknowledgment that you do not rely on any such information given to you or discussed with you. StoneBridge only undertakes to perform the Transaction agreed with you at the price or rate for that Transaction, and not at any other price or rate available in the market. Important Payment features Payment Netting The terms of your ebridge Online Trading Account with StoneBridge establish a master facility which applies to all Transactions made under it, subject to the special terms of each Transaction. If you have more than one Transaction with StoneBridge under the ebridge Online Trading Facility which settles in the same currency on the same date, payments and receipts arising from those Transactions will be netted, so that all settlements are combined and only a single payment is made as between you and StoneBridge. This will also occur if your Trading Account is terminated and all of your Transactions are terminated early on the same date. Your payments to StoneBridge Since StoneBridge is acting as principal in CFD Transactions with you, the cash deposits you pay to StoneBridge as margin cover are paid to StoneBridge for its own benefit. Those funds need not be placed into a trust account and be held on trust for you, although StoneBridge may to do so initially, then later withdraw the funds for its own benefit as your payment for your CFD (or for fees, charges or later margin). 11
Section 5 Costs, Fees & Charges Costs, Fees & Charges StoneBridge derives a financial benefit by entering into other transactions with other persons at different rates from those quoted to the Client. CFD Transaction Fees We charge a Transaction Fee on each CFD. Our rates vary depending on the type and level of service required, and the frequency and size of transactions. The standard fee for Futures CFDs you will be charged per Transaction is typically between 0.3% and 0.5% of the value of the Transaction and is up to a maximum of 1%. The fee accrues immediately upon execution of the trade, and will be reflected in the execution price in accordance with the Trading Account terms. Finance Charges/Credit A Finance Charge may be imposed if you have not paid StoneBridge any amount you are required to pay. The rate of Finance Charge is the prevailing Stonebridge rate (which varies with market conditions). This value is calculated daily. Conversion Fee You will be charged a conversion fee when converting currencies to your Base Currency. This occurs each time there is a conversion from a trade currency to your Base Currency. The conversion fee charged is up to a maximum of 100 basis points (1.00%) of the FX Transaction s full face value being converted. External Fees, Taxes and Charges You are responsible for any stamp duty, transaction duty, GST or similar goods and services or value added tax payable in respect of trading in Transactions (except for any income tax payable by StoneBridge). Bank charges and fees imposed on StoneBridge to clear your funds or in respect of your payments will also be charged to your Account. Your account terms may allow StoneBridge to impose other fees or charges from time to time which do not relate directly to Transactions. For example, you may be required to pay royalty or similar charges set by data providers (e.g., the ASX) for your use of information feeds or for online transaction services. StoneBridge may debit these amounts to your Trading Account. CFD Trading Examples Here are some examples to illustrate the variables for a typical Transactions and how they affect the calculations. The variables of your actual Transactions will of course differ, so please check with StoneBridge before entering into your Transaction. Example 1: Buying an Index Futures CFD for SFE SPI 200 Index Futures Buy a SFE SPI 200 Index Futures CFD when the price of the SFE SPI 200 Index Futures is 3500. If a transaction Fee of A$25 is charged on the execution of each CFD. The initial margin outlay in this example is $4,500*. * The actual margin required varies between approximately 2% - 10% Opening TRANSACTION VALUE OF TRADE TOTAL OF OUTLAY (10% MARGIN) COMMISSION / TRANSACTION FEE FUTURES COMMODITY CFD BUY 1, SFE SPI 200 FOR 3500 POINTS A$87,500 (3500* A$25 per point) A$4,500 A$25 After 7 days, the SFE SPI 200 Index Futures has rallied to 3600 points and the investor decides to liquidate the CFD position to realise the gain. CLOSING TRANSACTION SALES REVENUE GROSS PROFIT FINANCING COSTS A$ 0 TRANSACTION FEE A$ 25 NET PROFIT A$ 2,450 PROFIT AS A % OF INITIAL INVESTMENT Index Futures CFD SELL 1, SFE SPI 200 FOR 3600 POINTS A$ 90,000 (3600 * A$25 per point) A$ 2,500 (3600 3500 points * A$25 per point) 54.44 % Example 2: Buy 100 Barrels of US Crude Oil CFDs An investor is bullish and expects the price of US Crude oil CFD to rally in the short term. The price is currently at US$60. Using CFDs with a gearing of 10 times the potential investment increases to US$6,000, assuming a 10% margin requirement. The example in this PDS assumes no brokerage, commission or transaction fee is charged but the price takes into account the costs and profit to StoneBridge Group. Opening TRANSACTION VALUE OF TRADE US$ 6,000 TOTAL OF OUTLAY (10% MARGIN) FUTURES COMMODITY CFD Buy 100 barrels of US Crude oil @ US$60.00 US$ 600 TRANSACTION FEE A$ 0 After 7 days, If the US Crude Oil Futures CFD Contract has rallied to US$65.00 and the investor decides to liquidate the position. CLOSING TRANSACTION SALES REVENUE US$ 6,500 GROSS PROFIT US$ 500 TRANSACTION FEE US$ 0 NET PROFIT US$ 500 PROFIT AS A % OF INITIAL INVESTMENT FUTURES COMMODITY CFD Sell 250 barrels of US Crude oil @ US$65.00 83.33% Notes to all examples in this PDS: 1. The above examples are to illustrate the impact of key variables on the outcome of a Transaction. They are not forecasts or projections of any particular Transaction. 2. The worked examples illustrate in dollar terms how trading incurs fees (including StoneBridge s fees), charges or other payments. These examples are not intended to be exhaustive and document every trading strategy. 3. The examples use simplifying assumptions by not taking into account an investor s tax rate or overall tax position, potential changes in interest rates charged to or earned on the Trading Account or the time value of money. While these variables will undoubtedly change the outcome of a 12
Section 6 General Information Transaction, they are normal market variables which cannot now be predicted and so must be taken into consideration by a potential investor in Transactions. 4. Margin requirements, interest rates and external charges may of course change at any time. ebridge Online Trading ACCOUNT TERMS The legal terms governing your dealing in CFDs with StoneBridge are set out in the ebridge Online Trading Account agreement, including any Supplementary Terms for CFDs and any supplementary terms for the Electronic Trading Platform which you use for dealing with these CFDs. You will need to have an ebridge Online Trading Account with StoneBridge which you make by applying for the facility on StoneBridge s application from (which accompanies the terms of the ebridge Online Trading Account Agreement). The ebridge Online Trading Account Agreement has the legal terms for your dealings with us for the products covered by this PDS and also the dealings ain other financial products which are not covered by this PDS (such as trading in other kinds of CFDs offered by StoneBridge). By opening an account with us you agree to the terms of the ebridge Online Trading Account agreement. Accounts denominated in Foreign Exchange Your Trading Account may be denominated in Australian dollars and or any other currencies permitted by StoneBridge from time to time. If you instruct StoneBridge to effect a Transaction denominated in a currency different from the denomination of your Trading Account currencies, StoneBridge will not convert the currency value of your Transaction into the selected currency which may be your local currency but will remain in the currency of the transaction provided an account designated in the similar currency has been set up. A specific instruction from the client is required and the calculation will generally only occur on a monthly basis at month end if your account is traded over the desk. The foreign currency conversions can expose you to foreign exchange risks between the time the Transaction is entered into and the time the relevant conversion of currencies occurs. Foreign exchange markets can change rapidly. Exchange rates depend on a number of factors including for example, interest rates, currency supply and demand and actions of government. In some situations, exchanges of currency may be suspended. These will impact on the rates of conversion set by StoneBridge. Queries and Disputes Any disputes about fees or charges must be brought to our attention within five (5) calendar days of the fee being applied. Please see the section in this PDS on Dispute Resolution. Role of StoneBridge You trade CFDs with StoneBridge as principal. Your risk lies with StoneBridge. You will not have rights against any other person in the market. You do not have a transaction with a quoting bank or any other person. (StoneBridge may of course be dealing with banks or other market participants in its own transactions.) About StoneBridge StoneBridge is an Australian owned investment company. We are a Participant of the ASX Group (as stockbroker and clearing participant). Further information about StoneBridge is available on its website at www.stonebridgegroup.com.au Applications You apply for a ebridge Online Trading Facility by returning to StoneBridge a completed application form which accompanies the booklet with the Facility Terms. Individual CFD transactions are made by contacting your StoneBridge advisor or using an online trading platform. Taxation implications CFDs will have taxation implications for Clients, depending on the current tax laws and administration, the nature of the Client for tax laws, the terms of the transactions and other circumstances. These are invariably complex and specific to each Client. You should consult your tax advisor before trading in these financial products. The following information should be regarded as general information only.the following information should be regarded as general information only. Australian Taxation regime for CFDs The Australian Taxation Office (ATO) has released Taxation Ruling 2005/15 which describes the income tax and capital gains tax consequences of dealing in CFDs. A copy of Taxation Ruling 2005/15 is available from the ATO s website www.ato.gov. au. Potential investors should note that this is a public ruling that the purpose of Part IVAAA of the Taxation Administration Act 1953 (Commonwealth) and therefore, if the ruling applies to the investor, the Commission of Taxation is bound to assess that investor on the basis outlined in the ruling. Penalties may apply where the treatment outlined in a taxation ruling is not followed and the investor has a tax shortfall. Profits and losses on CFDs Any gains derived or losses incurred by you in respect of a CFD should be included in your assessable income. When calculating the amount of profit or loss, you need to consider the difference between the Closing Value and the Open Contract Value and any fees, and dividends or other distribution amounts on open positions paid or received by you. If you hold your CFDs for the purpose of trading, you should seek independent taxation advice relevant to your circumstances. Tax file number withholding rules The tax file number withholding rules only apply to those investments as set out in income tax legislation. StoneBridge s current understanding is that those withholding rules do not apply to its CFD financial products; however, if it is later determined to apply and you have not provided StoneBridge with your tax file number or an exemption category, StoneBridge may be obliged to withhold interest payments at the highest margin tax rate and remit that amount to the ATO. Other fees, charges or commissions If the CFD gives rise to gains that are assessable or losses that are deductible, any fees other than charges or commissions should be available as a deduction at the time they are paid by the investor and debited against their Trading Account. Taxation of Financial Arrangements (TOFA) The introduction of the TOFA laws from 1 July 2009 could apply to the financial transactions made for CFDs; however, it excludes (i) individuals; (ii) superannuation funds and managed investment schemes whose total assets are less than $100 million and (ii) and other entities with a turnover which is less than A$100 million or other threshold tests, unless any of these persons elect to be treated by TOFA. You should seek independent taxation advice relevant to your circumstances. 13
Section 6 General Information Goods and Services Tax With the exception of fees and charges as set out in this PDS, amounts payable for or in respect of CFDs are not subject to goods and service tax, in accordance with Australian Taxation Office Ruling GSTD 2005/3, available from www.ato.gov.au. Cooling Off There is no cooling off arrangement for CFDs. This means that you do not have the right to return the CFD, nor request a refund of the money paid to acquire the CFD. If you change your mind after entering into a CFD with StoneBridge, you must close it out, and take the risk of transaction costs and a loss incurred in doing so Ethical Considerations CFDs made under the ebridge Online Trading Account do not have an investment component. Labour standards or environmental, social or ethical considerations are not taken into account by StoneBridge when making, holding, varying or ending CFDs. JURISDICTIONS The CFDs offered by this PDS are available only to persons receiving the PDS in Australia. The distribution of this PDS in jurisdictions outside Australia may be subject to legal restrictions. Any person who resides outside Australia who gains access to this PDS should comply with any such restrictions is failure to do so may constitute a violation of financial services laws. The offer to which this PDS relates is not available to USA investors. Dispute Resolution We want to know about any problems you may have with our service so we can take steps to resolve the issue. If you have a complaint about the financial product or service provided to you, please take the following steps: 1. Contact your advisor and tell him/her about your complaint. You may do this by telephone, facsimile, email or letter. 2. If your complaint is not satisfactorily resolved within three business days of receipt of your complaint, please contact Head of Compliance on 1300 724 329 or put your complaint in writing and send it to us at: Level 27, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000. We will try to resolve your complaint quickly and fairly. Complaints received in writing will be responded to within a fortnight of receipt of your written complaint. 3. If you still do not get a satisfactory outcome, you have the right to complain to the Financial Ombudsman Service Ltd (FOS), if your complaint is within its rules. FOS is an external dispute resolution scheme. The contact details for FOS are: Financial Ombudsman Service G.P.O. Box 3, Melbourne VIC 3001 telephone 1300 780 808 www.fos.org.au We are a member of FOS complaints resolution scheme. The service to you is free. 4. The Australian Securities and Investments Commission (ASIC) also has an Infoline on (Ph 1300 300 630) which you may use to make a complaint and obtain information about your rights. Privacy All of the information collected by StoneBridge, in the Application Form or otherwise, is used for maintaining your Trading Account and for the purpose of assessing whether you, as a prospective Client, would be suitable for the Transactions and financial services, having regard to your financial and personal circumstances; and trading experience. StoneBridge has obligations under, and has procedures in place to ensure its compliance with, the Privacy Act 2000. Significantly, these include the following: 1. Collecting personal information In collecting personal information, StoneBridge is required to collect only information which is necessary for the purpose described above and ensure that collection of the information is by fair and lawful means; and to take reasonable steps to make you, the individual, aware of why the information is being collected and that you may access the information held by us. If necessary, StoneBridge also collects information on directors of a corporate client or agents or representatives of the client. StoneBridge may be required by law to collect information, such as for taxation purposes or to identify persons who open or operate an account. StoneBridge may take steps to verify information given to it, such as consulting registries, referees, employers or credit agencies. This information will not be disclosed to any other person although StoneBridge may disclose this information to its related bodies corporate if you intend to use the services of any of those related bodies corporate. 2. Using the personal information Once StoneBridge has collected the information from you, StoneBridge will only use the information for the purposes described above unless you consent otherwise. Personal information may be disclosed to: any person acting on your behalf, including your advisor, accountant, solicitor, executor, attorney or other representative; related bodies corporate of StoneBridge if you use, or intend to use, services of those other corporations any organisations to whom we outsource administrative functions brokers or agents who refer your business to us (so that we may efficiently exchange information and administer your account) regulatory authorities as required or permitted by law or by court order. This information will not be disclosed to any other person without your consent. You may access your personal information held by StoneBridge (subject to permitted exceptions), by contacting StoneBridge. We may charge you for that access. As StoneBridge is obliged by law to take reasonable steps to ensure that the personal information used is accurate, up to date and complete, please inform us immediately if any of the information provided in this section changes. 3. Retaining personal information StoneBridge has implemented and maintains secure protection of all personal information obtained from misuse, loss, unauthorised access, modification or disclosure. The information will be destroyed or de-personalised if StoneBridge no longer requires the information for the purpose referred to above. 14
Section 7 Glossary ASX means the securities and other exchanges operated by ASX Limited. Australian Dollars or A$ means the lawful currency of the Commonwealth of Australia. CFD means a contract for the parties to pay in cash the difference in prices of securities on the terms of the ebridge Online Trading Account, whose term continues until the closing date. Client refers to the person who has the ebridge Online Trading Account. Close Out, Closed Out and Closing Out in relation to a Transaction means discharging or satisfying the obligations of the client and StoneBridge under the transaction and this includes matching up the Transaction with a Transaction of the same kind under which the Client has assumed an offsetting opposite position. ebridge Online Trading Account means your account with StoneBridge established under the Facility Terms, including all Trading Accounts and all Transactions recorded in them. Facility Terms means the terms of your ebridge Online Trading Account with StoneBridge by which you trade Transactions. Futures Contract means a Futures Transaction which is exchange traded. Futures Option means an option over a Futures Transaction, usually an exchange traded option over a Futures Contract. Futures Transaction means any transaction, whether exchange traded or an OTC contract, to buy or sell a specific quantity of a described commodity at an agreed date in the future, whether or not it is physically settled or capable of being physically or cash settled, and includes an option for such a transaction. Margin means the balance of the amount of cash or other assets required to cover dealing through a Trading Account. OTC contract means an over-the-counter contract for a financial product, including options and contracts in respect of foreign exchange or other commodities, such as metals. Price means, in relation to a Transaction, the price or rate quoted by StoneBridge and agreed to by the Client. StoneBridge means StoneBridge Securities Limited ABN 92 067 161755 AFSL 238 148. Trading Account means your account with StoneBridge established under the Facility Terms for a specific method of dealing, and is part of the ebridge Online Trading Account. You may have several Trading Accounts within your ebridge Online Trading Account, such as a Trading Account for online trading in CFDs and a separate Trading Account for other OTC transactions. Transaction means any of the kinds of OTC contracts which are traded under the Facility Terms. Underlying Security means the reference security underlying the CFD. 15
Stonebridge office directory AUSTRALIA Adelaide Suite 5, 148 Greenhill Road Parkside ADELAIDE SA 5063 Securities Tel (Int) +61 8 8291 1111 Tel (Aus) 1300 734 400 Futures Tel (Int) +61 8 8291 1222 Tel (Aus) 1300 734 411 Fax (Int) +61 8 8172 0972 Brisbane Level 26, Waterfront Place 1 Eagle Street BRISBANE QLD 4000 Securities Tel (Int) +61 7 3032 2444 Tel (Aus) 1300 792 633 Futures Tel (Int) +61 7 3032 2333 Tel (Aus) 1300 782 533 Fax (Int) +61 7 3229 4884 Gold Coast Level 11, 50 Cavill Avenue SURFERS PARADISE QLD 4217 Securities Tel (Int) +61 7 5504 2111 Tel (Aus) 1300 736 600 Futures Tel (Int) +61 7 5504 2222 Tel (Aus) 1300 736 611 Fax (Int) +61 7 5527 5658 Melbourne Level 13, 8 Exhibition Street MELBOURNE VIC 3000 Securities Tel (Int) +61 3 8660 7222 Tel (Aus) 1300 733 300 Futures Tel (Int) +61 3 8660 7333 Tel (Aus) 1300 733 311 Fax (Int) +61 3 9663 1415 Sydney Level 27, Governor Phillip Tower 1 Farrer Place SYDNEY NSW 2000 Securities Tel (Int) +61 2 8336 7300 Tel (Aus) 1300 732 200 Futures Tel (Int) +61 2 8336 7400 Tel (Aus) 1300 732 345 Fax (Int) +2 8336 7600 Fax (Int) +61 2 8336 7333 Tel (Aus) 1300 732 288 Online Tel (Int) +61 2 8336 7707 Tel (Aus) 1300 133 104 Perth Level 6, 105 St. Georges Terrace PERTH WA 6000 Securities Tel (Int) +61 8 6436 3111 Tel (Aus) 1300 735 500 Futures Tel (Int) +61 8 6436 3222 Tel (Aus) 1300 735 511 Fax (Int) +61 8 9322 7955 New Zealand Auckland Level 7, Tower 1 51-53 Shortland Street AUCKLAND Tel (Int) +64 9 308 0780 Tel (NZ) 0800 288 888 Fax (Int) +64 9 308 0789 Wellington Level 8, Equinox House 111 The Terrace WELLINGTON Tel (Int) +64 4 471 7600 Tel (NZ) 0800 874 266 Fax (Int) +64 4 471 7607 China Beijing Unit 920, Level 9 Winland International Finance Centre 7 Finance St. Xi Cheng District BEIJING CHINA Tel (Int) +8610 5836 9160 Fax (Int) +8610 5836 9170 Hong Kong Unit 2812, 28/F The Centre 99 Queens Road Central Hong Kong Tel (Int) +852 3920 8289 Fax (Int) +852 2169 0816 16
StoneBridge Group Level 27 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Tel +61 2 8336 7700 Fax +61 2 8336 7800 www.stonebridgegroup.com.au StoneBridge Group Limited ACN 098 273 824 StoneBridge Securities Limited ACN 067 161 755 AFSL 238148 Participant of the ASX StoneBridge Futures Pty Limited ACN 001 225 116 AFSL 238156 Full participant of the SFE GlenBridge Asset Management Pty Ltd ACN 103 162 278 AFSL 226199 StoneBridge Custodians Pty Limited ACN 092 452 161 StoneBridge Nominees Pty Ltd ACN 060 709 926 StoneBridge Securities (NZ) Limited 1835790 StoneBridge Securities (HK) Limited