SGI Daily Double Short Bund Index Index rules Version as of 26 February 2010
General Description of SGI Daily Double Short Bund Index Objective The main objective of this strategy is to provide the same financial outcome than a double short strategy based on a portfolio of 10-Year German Government bonds while avoiding the costs linked to the use of cash instruments, namely the borrowing cost and twice the daily bid-ask spreads (15 bps in average over the last 12 months, to be multiplied by 2). The Index combines a long position in a daily overnight investment at EONIA rate along with a double short position in Bund Futures, the notionals of both investments being rebalanced on a daily basis. Constituents, Sub-Indices and Performance The Index relates to the performance of a notional short position in EUREX Bund Futures Contracts closest-to-expiry, leveraged by a factor of 200%, and to the interests generated by an overnight deposit at EONIA rate. The notional of both investments in the EUREX Bund Futures Contracts and in the overnight deposit is revised every day to take into account the most recent past performance of the Index. The leveraged position in the relevant EUREX Bund Future Contract Series is rolled to the next contract series on each Roll Date (which is the first Business Day immediately preceding the last trading day of each EUREX Bund Futures Contract Series). The EUREX Bund Futures Contracts series is not amended between Roll Dates. On any Business Day, the notional amount of the new position in the overnight deposit equals the sum of (i) the notional amount invested in the overnight deposit at the previous Business Day; (ii) the interests generated from this overnight deposit since the previous Business Day; and (iii) gains or losses from the position in the EUREX Bund Futures Contracts since the previous Business Day. On any Business Day, the notional amount of the new position in EUREX Bund Futures Contracts equals the leverage of 200% multiplied with the new notional amount in the overnight deposit as detailed in the previous paragraph. 2
Index Closing Level Calculation The Index Closing Level (Index T ) on each business day (T) aims to reflect the daily return on the EUREX Bund Futures Contracts. The Index Closing Level on any business day (T) is to be calculated by the Index Calculation Agent as a function: (i) the Index Closing Level of the previous Business Day ( Index T- 1 ); (ii) the performance of the position in the EUREX Bund Futures Contracts since the previous Business Day ( BundPerf(T) ); using Ref(T) the Reference Closing Level on day T (iii) the performance of the daily overnight investment at EONIA rate since the previous Business Day ( EoniaPerf(T) ). Index T Index 1 EoniaPerf(T) 2 BundPerf ( T ) with : DayCountT 2; T 3 EoniaPerf(T) EONIA() 360 Re f ( T ) Re f ( T 1) BundPerf(T) Re f ( T 1) Ref ( T ) The latest traded price on the EUREX Bund Futures contract at 17h40 on Day(T), this price is availableon BBG page: RX1CMDTY QR The EUREX Bund Futures contract for Day(T) is the front EUREX Bund Futures contract till the Rolling day (see below) EONIA() The EONIA rate as published by ECB on Day() T Any business day, as per EUREX trading calendar for Bund Futures 3
Current Index Level Calculation The Current Index Level (Index t ) (where t is current time during the business Day (T)) aims to reflect the Index Level is to be calculated by the Index Calculation Agent as a function: (iv) the Index Closing Level of the previous Business Day ( Index T- 1 ); (v) the current performance of the position in the EUREX Bund Futures Contracts since the previous Business Day ( BundPerf(T) ); using Ref(t) the Reference Closing Level on day T (vi) the performance of the daily overnight investment at EONIA rate since the previous Business Day ( EoniaPerf(T) ). Index t Index 1 EoniaPerf(t) 2 BundPerf with : DayCountT 2; T 3 EoniaPerf(t) EONIA() 360 Re f ( t) Re f ( T 1) BundPerf(t) Re f ( T 1) Ref ( t) The last traded price of the EUREX Bund Futures contract The EUREX Bund Futures contract for Day(T) is the front EUREX Bund Futures contract till the Rolling day (see below) t is any timeon business Day(T) as per EUREX trading calendar for Bund Futures Roll consideration on the Index Level Calculation The EUREX Bund Futures Contract Series to use on any Business Day (T) is the front EUREX Bund Futures contract on Day(T). To avoid any doubt, hence, on Day(T) being a Roll day, the BundPerf(T) takes into account the performance of the new future contract between Day(T) and Day(). The BundPerf() depends on the previous future contract between Day() and Day(T-2). ( t) 4
Adjustments due to extreme Market Movements If the current index level at time t 0, Ref(t 0 ) Ref(T -1) 120%, this means that the leveraged and short index drop by more that 40% at the calculation time t 0 in comparison to the closing prices on the last trading Day() then the Ref(t 0 ) will be adjusted intraday in order to avoid a potential total loss. During the adjustment, Ref(t 0 ) is considered as received on Day(): NewIndex NewRef(T -1) Pr eviousindex Ref(T -1) 120% Re f ( t) NewRe f ( T 1) NewBundPerf(t) NewRe f ( T 1) 1 2 20% 60% Pr eviousindex and for t > t 0, the current index level is the calculated using this NewIndex and the NewBundPerf(). Indext NewIndexT- 1 1 EoniaPerf(t) 2 NewBundPerf ( t) Further Information and Description The Index Sponsor is Societe Generale and the Calculation Agent is Standard & Poor s. The index disseminated real-time on Bloomberg and Reuters under the following tickers: Bloomberg Reuters DSFBI.DSFBI 5
Specific Risk Factors relating to the Underlying Asset Market liquidity risk The Financial Instrument may not be traded easily on a secondary market given its lack or absence of liquidity. Therefore, unless a commitment is given when selling the Financial Instrument, Société Generale does not commit to buy back or propose prices during the Financial Instrument life. Nevertheless, where Société Generale offers such a buy back, the offered price will include the hedge or the position closing costs generated by a buy back in the secondary market. Those costs will be connected with the market conditions. Leverage related risk The Financial Instrument may have embedded leverage. Consequently, the value of the Financial Instrument may reflect an amplified fluctuation of the value of any underlying instruments or reference underlyings. Risk of having to liquidate in unfavourable market conditions The marked-to-market value of the Financial Instrument or other financial instruments from your portfolio may be subject to significant volatility or fluctuations, which may require you to pay margin calls, make provisional payments or resell partly or totally the Financial instrument before maturity in order to comply with your contractual or regulatory obligations. As a consequence, you may have to sell off or liquidate the Financial Instrument under market conditions unfavourable to you. If you have any liquidity constraint, it is likely that an investment in the Financial Instrument with such risks must be excluded or limited. Credit risk Insofar as payments are due from (i) Société Générale or any replacement entity (in their capacity as counterparty under the Financial Instrument and/or as deposit bank, as the case may be) and/or (ii) the issuer(s) of the securities in relation to the Financial Instrument, you are exposed to the credit risk of Société Générale or the replacement entity and/or to the credit risk of the issuer(s) of the securities. In the specific case of credit derivative transactions, you will also be exposed to the credit risk of the reference entity(ies). Warning on comparisons and performances When a comparison with other products, performance (whether past or future) or simulated performance (whether past or future) of financial instruments is displayed in this document, data will have been drawn from external sources believed to be reliable but which has not been independently verified by Société Générale. Société Générale expressly disclaims any liability with respect to the accuracy, completeness or relevance of such data. Figures 6
related to comparison, performance (whether past or future) or simulated performance (whether past or future) are not a reliable indicator of future returns. Where amounts are denominated in a currency other than that of your country of residence, the return may increase or decrease as a result of currency fluctuations. The contractual documents relating to the Financial Instrument may provide for methods of adjustment or substitution in order to take into account the consequences of certain extraordinary events, which may affect (i) one or more of the underlying instruments to which it is linked or on which it is based or, as the case may be, (ii) the early termination of the Financial Instrument, might have on the Financial Instrument. 7