ASX CFDS PRODUCT DISCLOSURE STATEMENT YOU ARE WHAT YOU DO
Important notes and disclaimers Issued by Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 ( CommSec ) Locked Bag 34 Australia Square NSW 1214 Australian Financial Services Licence No. 238814 Date of Issue: 1 July 2013 The latest version of this PDS can be found on the CommSec web site at commsec.com.au. Changes to the PDS that are not considered to be materially adverse will be available from the CommSec web site, where you can download an updated version. Alternatively, you can call an ASX CFD dealer on 1300 133 875 during trading hours. Important information This PDS has been prepared without taking account of your objectives, financial situations or needs. For that reason, before acting on the information in this PDS, you should consider its appropriateness to your objectives, financial situation and needs, and if necessary seek appropriate professional advice. Trading ASX CFDs can involve considerable risks. For that reason, you should only trade ASX CFDs if you understand the nature of the product (especially your rights and obligations) and the extent of the risks you are exposed to. Before trading, carefully consider this PDS and the relevant booklets regarding ASX CFDs from the Australian Securities Exchange (ASX). You should also carefully assess your experience, investment objectives, financial objectives, financial resources and other relevant issues. Products offered by this PDS This PDS covers ASX CFDs traded on the ASX 24. ASX CFDs are derivatives held over selected Australian shares, indices, foreign currency pairs and commodities. A complete list of securities and financial instruments which ASX CFDs are traded over can be found on the ASX website. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 23 123 124 AFSL 234945 and a Participant of the ASX for the ASX 24 Market. Foreign jurisdictions The distribution of the PDS in jurisdictions outside Australia may be restricted by law and therefore persons into whose possession those documents come should seek advice on and observe any such restrictions. Failure to comply with relevant legislation may violate those laws. This PDS does not constitute an offer or invitation in relation to an ASX CFD in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The financial products offered under this PDS have not been and will not be lodged or registered under the Unites States Securities Act of 1933, as amended, and may not be offered or sold directly in the United States. Before you begin dealing through CommSec, you must complete, sign and return the ASX CFD Client Agreement and then have your application approved by CommSec. The offer or invitation to open an ASX CFD account and enter in CommSec ASX CFDs is only available to persons receiving the PDS (whether in paper or electronic form) within Australia who are Australian residents and who provide an Australian address for service when making their application to open an ASX CFD account. ASX CFD Client Agreements which do not specify an Australian address for service or which are accompanied by payment drawn from a foreign bank account may be rejected and returned.
CONTENTS Join the ASX CFD revolution 2 What is an ASX CFD? 2 Features of ASX CFDs 3 The benefits of trading ASX CFDs 7 The power of leveraging 8 I can do that 8 The risks of trading ASX CFDs 9 Example of a loss 11 Practical risk management 12 I can do that 12 Calculating your position 13 Margins 13 Initial Margin 13 Variation Margin 13 Free Equity and Gross Liquidation Value 14 Additional Margin 14 Example of a Margin call 15 When CommSec will close out your ASX CFD 18 Trading with multi-currencies 18 How it works Foreign Exchange transfer 18 How it works Trading ASX Foreign Exchange CFDs 19 I can do that 20 Currency conversion and public holidays 22 Available currencies 22 What will it cost? 23 Brokerage fees 23 ASX Australian Equity CFDs 23 ASX Index CFDs 23 ASX Commodity CFDs 24 ASX FX CFDs 24 Advised ASX CFD Accounts 24 Currency Conversions Spreads 24 Using CommSecIRESS 25 Cashflow payments 25 Contract interest 27 Open Interest Charge (OIC) 28 Other interest cashflows 29 Dividend Cashflow 29 Franking Credit Cashflow (FCC) 30 Yield Cashflow 31 Other things you need to know 32 Where to find out more 32 Default events 32 Security Interest 33 Trading halts, suspensions and delistings 34 Suspension of trades and alteration of settlement prices 34 Market disruptions 34 Client agreements and documents 34 Termination of the ASX CFD Client Agreement 34 Taxation 34 Tax considerations 34 Gains or losses made on ASX CFDs 35 Interest, dividend adjustments, yield cashflow and other charges 35 Treatment of other expenses 35 Interest on an ASX CFD account 35 Taxation Ruling 35 Taxation of Financial Arrangements 36 Foreign Exchange gains and losses 36 Foreign currency considerations on interest, dividends and other income and expenses 36 Tax File Number (TFN) Interest Withholding Tax 36 Goods and Services Tax (GST) 36 Rights of CommSec 37 Resolving disputes 37 External dispute resolution 38 An ASX CFD in action 39 Long position a profit 39 Short position a loss 42 Glossary 46 Time to get started 49 Open an ASX CFD Trading Account 49 Privacy 50
2 ASX CFDS JOIN THE ASX CFD REVOLUTION ASX Contracts for Difference (CFDs) are versatile and liquid financial tools for experienced traders that you can hold over a share, index, foreign currency pair or commodity. Trading ASX CFDs allows you to: Potentially profit from either a rising or falling market. Use leverage to diversify your portfolio. Hedge your existing portfolio. This Product Disclosure Statement (PDS) is designed to help you understand the ASX CFD market. It provides you with information about the benefits and risks of ASX CFDs, and other information to help you decide whether this financial product is suitable for you. WHAT IS AN ASX CFD? An ASX Contract for Difference (CFD) is a derivative designed for experienced traders. It enables buyers and sellers to exchange the difference in value between the entry and exit price of a contract. The contract gets its price from an underlying security or a financial instrument. However, unlike other derivatives such as Options and Futures, they will not expire. They also have different cashflows depending on the underlying security or financial instrument. You can trade ASX CFDs over approved Australian shares and selected global indices, foreign exchange rates and commodities. An ASX CFD allows you to make a profit or a loss from the fluctuations in the price of its underlying instrument or security on a daily basis, without you needing to own it. You will either be paid, or have to pay an amount of money, depending on the position you have taken on the ASX CFD and the movement in the price or value of the underlying instrument or security. You can enter into either a long position (to buy) or a short position (to sell). If you hold a long position, you will usually profit from a rise in the price of the underlying instrument or security. However, if the price falls, you will generally make a loss. If you enter into a short position, you will usually profit if the price of the underlying instrument or security falls. Conversely, if the price of the underlying instrument or security rises, you will normally make a loss. You may have already used Over-the-Counter (OTC) CFDs. The two products have some differences. With an OTC CFD, the contract is between you and the product issuer. However, with an ASX CFD, once the buyer and seller are brought together, the Exchange (in this case, ASX Clear (Futures)) becomes the counterparty to both the buyer and the seller. So your trades are protected by a regulated and transparent market.
PRODUCT DISCLOSURE STATEMENT 3 ASX CFDs are highly leveraged products. They allow you to make a greater return from a smaller initial investment than if you had invested directly in the underlying (for example, if you had bought shares). However, this can also work against you, leading to larger losses. ASX CFDs are only suitable for experienced, confident investors who feel comfortable with the risks associated with trading highly leveraged products. FEATURES OF ASX CFDS What are the underlying securities or instruments for ASX CFDs? What is the role of the ASX 24? What is the role of ASX Clear (Futures)? Who can trade CommSec ASX CFDs? ASX CFDs will initially include: The top 50 stocks listed on ASX Key global equity indices A range of major foreign currency exchange rates Selected commodities A list of ASX CFDs and Contract specifications are available at asx.com.au/cfds The ASX 24 is a trading platform operated by the ASX for the operations of the ASX CFD market. The ASX is responsible for setting the standards for the way ASX CFDs work. The ASX Clear (Futures) is responsible for the registration, clearing and processing of all trades executed on ASX 24, including ASX CFDs. In relation to ASX CFDs, ASX Clear (Futures): Confirms and registers all trades. Once a contract is registered, becomes the buyer to the seller, or the seller to the buyer. Sets and collects Margins. Monitors the size of each Clearing Participant s position in relation to the overall market. ASX CFDs are only suitable for experienced traders who are comfortable with the risks involved with trading highly leveraged products. It is vital to note that you may lose more than the amount of funds in your ASX CFD account. In order to trade ASX CFDs with CommSec, you will need to read and understand this PDS, sign a client agreement and pass a risk awareness and knowledge test over the phone.
4 ASX CFDS What are the trading hours? What is the minimum order size? What is the minimum initial deposit that I need to have in my trading account? When does my ASX CFD position expire? How do I pay amounts due? How does CommSec pay me? How do I withdraw money from my account? Trading hours vary for different ASX CFDs. Up-to-date trading hours are available on asx.com.au/cfds or you can call CommSec on 1300 133 875. The minimum order size with CommSec is: ASX Equity CFDs: AUD 500 ASX Index CFDs: 1 contract ASX FX CFDs: 100 contracts ASX Commodity CFDs: 1 contract AUD 5,000 ASX CFDs do not have an expiry. Positions will remain open until closed out by you, CommSec or ASX. See page 32 for more information on situations where CommSec can close out your positions, and page 34 for instances where the ASX may delist contracts. All amounts you owe to CommSec will be debited from your ASX CFD Trading Account. It will be your responsibility to ensure that there are enough cleared funds in your account to cover all payments when they are due. There can be more than one Currency Ledger in your ASX CFD Trading Account. You will need to have enough cleared funds in your Currency Ledger to open and maintain an ASX CFD position denominated in that currency. See page 18 for more information on currencies and conversion. You can also facilitate an online funds transfer request to fund your Australian dollar Currency Ledger. All amounts due to you from CommSec will be credited to the relevant Currency Ledger of your ASX CFD Trading Account. You can request a withdrawal online (from your Australian dollar currency ledger) or by contacting CommSec by telephone or in writing. It is at CommSec s discretion whether or not you will be able to withdraw money from your ASX CFD Trading Account. In order to withdraw money from your ASX CFD trading account, you will need to have sufficient Free Equity in your Australian dollar Currency Ledger (see page 14 for a further explanation of Free Equity).
PRODUCT DISCLOSURE STATEMENT 5 How much Margin do I need to contribute? How are contract values calculated? What costs will I incur from trading ASX CFDs? Do I have to pay interest? Do I receive interest? You start by paying an Initial Margin in the Contract Currency of the ASX CFD you are trading. For example, if you are trading Australian shares, the Contract Currency will be Australian dollars. However, if you are trading ASX CFDs over a foreign index, for example, the Contract Currency will be in the currency of that Index. At the end of each day, you pay or receive Variation Margin the realised (on closed positions) or unrealised profit or loss on your open position. See page 13. If the market moves rapidly against your open position, you may also be called on to pay Additional Margin (see page 14). The contract value of an ASX CFD is calculated by multiplying the price of the relevant ASX CFD by the number of contracts and the number of underlying units per contract. For more information about calculating various cashflows involved in trading ASX CFDs, see page 25. You will need to pay CommSec brokerage costs, and currency conversion spreads where relevant. Please see page 23 for the brokerage schedules and page 24 for currency conversion spreads. You will also have to pay an Open Interest Charge to the ASX Clear (Futures) (see page 28). You will have to pay interest under the following circumstances: When long positions are held overnight, you will need to pay Contract Interest (see page 26). When short positions are held overnight in ASX FX CFDs, you will pay a Yield cashflow (see page 31). On overdue payments, and when your ASX CFD account is in debit. You will receive interest under the following circumstances: When short positions are held overnight, you will receive Contract Interest (see page 26). When long positions are held overnight in ASX FX CFDs, you will receive a Yield cashflow (see page 31). On cleared funds held in your ASX CFD account.
6 ASX CFDS Do I receive dividends if I hold ASX CFDs over equities or indices? Can I exchange CommSec ASX CFDs position for physical assets? How will Corporate Actions be managed for ASX CFDs? What are the taxation implications of ASX CFDs? ASX Equity CFDs If you hold a long position in an ASX Equity CFD over an underlying security when the underlying becomes exdividend, you will receive a cash payment equal to the dividend amount. And in the same way, you may also receive a cashflow equivalent to franking credits. If you hold a short position in an ASX Equity CFD over an underlying security when the underlying becomes exdividend, you need to pay an amount equal to the dividend amount. You must pay a cash equivalent of franking credits as well. ASX Index CFDs If you hold a long position in a particular ASX Index CFD and a stock in that index goes ex-dividend, you will also receive a cash payment equal to the dividend amount determined by ASX Clear (Futures). If you hold a short position over an ASX Index CFD when a dividend is announced, you must pay a cash payment equal to the dividend amount determined by ASX Clear (Futures). Note that these dividend payments may not be announced see page 29 for more information. CommSec does not offer Exchange for Physical. That is, we don t allow you to swap your ASX CFD position for the underlying stock. All trades will be cash settled. Any position in an ASX Equity CFD over a security will be adjusted to reflect the same economic exposure as the underlying security on which the ASX Equity CFD is based. So at any time there is a Corporate Action (such as a share split, capital repayment, or takeover), as much as possible the same economic impact will be reflected back into the ASX Equity CFD position. All adjustments due to corporate actions will be communicated to the market by circular which is available on asx.com.au/ cfds. CommSec does not offer taxation advice. We strongly recommend you obtain advice from your accountant or taxation adviser. Please refer to page 34 for more information about tax treatment.
PRODUCT DISCLOSURE STATEMENT 7 THE BENEFITS OF TRADING ASX CFDS Short selling Hedging Leveraged exposure Trade without needing to own the underlying Diversification Central counterparty clearing No expiry date With ASX CFDs, you have the ability to easily enter into a short position that is, to sell a CFD over equities, an index, a foreign currency pair or commodities that you don t actually own. This allows you to potentially profit, even when the market is going down. You can use ASX CFDs to hedge your exposure to a position in the underlying instrument or security. For instance, if you own shares in a company, you could also hold a short position of the equivalent number of ASX CFDs over the same company. This way, the movement of the ASX CFDs offsets the movement of the shares that you own, protecting you against a fall in the share market. However, if the share price rises, you do not get a net benefit from any increase in the share market. Because ASX CFDs are so highly leveraged, you can have exposure to an underlying instrument or security using only a relatively small amount of your own money. This also means your percentage returns can be greater. ASX CFDs offer you the benefits of trading without having to own the underlying security or instrument. For instance, when you take a long position against an equity, you could enjoy cashflow from dividends, exposure to capital movement and, in some cases, a cash payment equivalent of franking credits. This is all while outlaying only a fraction of the cost of the shares. ASX CFDs may help to potentially diversify your portfolio risk. For instance, share traders can use ASX CFDs to increase their exposure to a variety of financial instruments such as indices, foreign exchange pairs or commodities. ASX CFDs are cleared by ASX Clear (Futures). After your trade is registered, ASX Clear (Futures) becomes the counterparty to each side of the contract. In other words, if you are the buyer, ASX Clear (Futures) becomes the seller, or if you are the seller, ASX Clear (Futures) becomes the buyer. So your trades are protected by strong financial backing, and transparent market regulation. ASX CFDs as compared to options and futures do not have an expiry. The position is closed when you trade the opposite side of the contract.
8 ASX CFDS THE POWER OF LEVERAGING One of the most attractive features of ASX CFDs is their potential to allow you to profit, using a comparatively small outlay of your own money. I CAN DO THAT 1. The strategy 2. How she did it 3. The result John and Alice both decided to invest in Woolworths shares. But, while John simply invested $25,000 of his own capital, Alice decided to use ASX CFD to leverage into the same position. Alice entered into a Woolworths Limited ASX CFD at a fraction of the opening Contract Value ($1,500 being Initial Margin at $1.50 per contract). After three days, John s investment had increased in value to $27,500, giving him a profit of $2,500, or 10% of his initial outlay. At the same time, Alice s investment also increased in value to $27,500, also giving her a profit of $2,500. That s 166.67% of her initial outlay, compared to John s 10%. Item John s shares Alice s ASX CFDs Opening Trade Buy Quantity 1,000 1,000 Price $25.00 $25.00 Contract Value $25,000 $25,000 Initial Outlay $25,000 $1,500 Closing Trade Sell Quantity 1,000 1,000 Price $27.50 $27.50 Contract Value $27,500 $27,500 Profit (Loss) $2,500 $2,500 Return on Outlay 10.00% 166.67% Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments. See page 23 for brokerage fees and other cashflows. However, just as leverage can potentially multiply your profits quickly, it can equally magnify your losses as we ll see next.
PRODUCT DISCLOSURE STATEMENT 9 THE RISKS OF TRADING ASX CFDS ASX CFDs are risky, as they are a highly leveraged class of financial product. Only experienced investors with a high tolerance for risk should use these products. You must read and fully consider this PDS. You will also need to complete a risk awareness and knowledge test over the telephone before you can trade ASX CFDs. Some of the risks may include: Losses magnified by leverage Unlimited losses Losses of Margins and Margin calls The high degrees of leverage involved in trading ASX CFDs can work against you as well as for you. Using leverage can lead to substantial losses as well as substantial gains. Holders of short positions in the event of adverse upward price movement can be exposed to theoretically unlimited losses. You could lose a great deal more than the Initial Margin needed to support an ASX CFD position (see page 13). Positions are marked to market that is, they are changed to reflect the current market position as prices move throughout the day. You will need to settle payments on a daily basis to account for market movements. If the market moves against your position, you may have to pay Variation Margin (see page 13) to maintain your position. This amount could be substantial. If you do not pay the Variation Margin in full by the requested time, CommSec has the right to close out your ASX CFD positions at a loss. You will then be responsible for any deficit in your account. As well as paying the Initial Margin and Variation Margin, you may have to pay an Additional Margin (see page 14) while you hold an ASX CFD. The Additional Margin, also known as a Margin call, must be paid to CommSec by 2 pm Sydney time the next day, or earlier if CommSec requires. Liquidity Close out There may be times in the market, such as periods of high market volatility or low turnover when it may be difficult or even impossible to buy or sell (close out) existing positions. CommSec can close out your ASX CFD in certain circumstances. See page 34 for more details.
10 ASX CFDS Conditional or Contingent Orders Unannounced dividend cashflow on indexes Operational risk Market risk Conditional Orders (sometimes known as Contingent Orders), can be used when trading ASX CFDs, but placement of an order on the market does not guarantee that the order will be filled (see page 11 for more information). If the ASX CFD security price moves suddenly and the market gaps that is, the price can move very quickly without trading occurring your order may not be filled, so you may not be able to trade at the price you nominated. As a result, you could suffer losses. Holders of short positions over ASX Index CFDs may have to make a payment if any stocks on that particular index announce a dividend. However, because of the potentially large number of dividends for each index, the ASX will not record which stocks within an index have announced dividends on any given day. So you may need to make this payment without any prior warning. Any interference or breaks in operational processes such as communications, computers, networks or other external events can lead to delays in the execution and settlement of a transaction. On top of other operational risks, each ASX CFD contract market closes at least once, and in some cases, twice a day. However, the underlying markets, such as the underlying foreign exchange and commodity markets, will continue to trade. You will not be able to trade during the times that the relevant ASX CFD market is closed. This could lead to losses. For more information about the individual ASX CFD contract specifications, go to asx.com.au/cfds ASX CFD transactions are subject to rules, procedures and practices of the ASX and ASX Clear (Futures). Under the ASX 24 Operating Rules, certain trading disputes between market participants may lead to the ASX cancelling or amending a trade. In these situations, your consent is not required for the cancellation of a trade. In some circumstances, trading in underlying instruments or securities may be halted, suspended from trading or have their quotations withdrawn from the exchange. These factors will directly affect an ASX CFD s value, and the ASX CFD market may also be closed. Financial markets can change very quickly. For example, interest rates can rise or fall, political events in a country or region can affect markets, or demand and supply for stocks and commodities may rise or fall suddenly. Other factors such as a company s performance can also influence the price of the underlying instruments and securities.
PRODUCT DISCLOSURE STATEMENT 11 Foreign exchange risk If you are trading foreign exchange rates, foreign indices or commodities, your payments, profits, losses, debits and credits are calculated in the relevant foreign currencies that are associated with the ASX CFD. This creates a risk, as foreign exchange markets can change quickly in a short amount of time and are affected by a number of factors, such as interest rates, political events and even suspension of currency exchange. As a result, your foreign currency ledgers could be affected by fluctuations in currency value. Fluctuations in the relevant foreign currency exchange rate may affect profit or loss made on an ASX CFD position in Australian dollars, between the time you convert to a particular currency to open your ASX CFD position, and the time you close it and request the balance to be converted back to Australian dollars. See page 18 for examples. Legal As Australia is a member state of the United Nations, we are obliged to implement United Nations Security Council sanctions. Consequently, CommSec may be prohibited from dealing with certain person or entities. This means that if it appears that you are, or act on behalf of, a proscribed person or entity, then CommSec may be required to suspend, cancel or refuse you services or close or terminate any arrangement with you. We may also be required to freeze assets of yours. You could incur significant costs as a result of these actions. EXAMPLE OF A LOSS 1. The decision 2. What happened 3. The result Rick expected ASX RIO Limited CFD to rise on the back of increased base metal prices. He bought 1,000 contracts of ASX RIO Limited CFD at $98.00 per contract, with an Initial Margin of $5 per contract or $5,000 in total. Unfortunately, after opening the position, prices of base metals fell due to profit-taking. Rick decided to close all ASX RIO Limited CFD positions at $94.00 before the situation deteriorated further. Rick s gross loss (excluding daily cashflows* and brokerage) was $4,000. His overall gross percentage loss was 80% of his initial outlay. Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments * See page 23 for information about brokerage and daily cashflows.
12 ASX CFDS PRACTICAL RISK MANAGEMENT One way of managing or limiting loss is to set up a Conditional order. This instructs CommSec to trade some or all of your ASX CFDs if the price of the ASX CFD moves to the level that you have set as your trigger. I CAN DO THAT 1. The decision 2. What happened 3. The result Deborah bought 1,000 contracts of ASX BHP Billiton Limited CFD at $31.00 per contract. After one day, the price increased to $35.00 per contract, giving Deborah an unrealised profit of $4.00 per contract. While Deborah didn t want to miss out on potential further gains, she was wary that the price of ASX BHP Billiton Limited CFD could fall again and she would lose what she had gained. To protect her investment, Deborah submitted a Conditional Order to sell the ASX BHP Billiton Limited CFD at not less than $34.45. Deborah set her Fallingsell Trigger at $34.50. This meant that if the price of ASX BHP Billiton Limited CFD dropped to $34.50, her sell order would be placed into the market. The price of ASX BHP Billiton Limited CFD dropped to $34.50, and Deborah s sell order was triggered. As there were enough buyers in the market, Deborah was able to sell her ASX CFDs at $34.45. In this way, she was able to realise gains of $3.45 per contract a total profit of $3,450. (excluding daily cashflows* and brokerage). Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashflow adjustments. * See page 23 for information about brokerage and daily cashflows. It s important to note that Conditional orders are not guaranteed. There is a risk that your order will not be executed if the market is moving too fast for the limit order to be placed before your limit is reached. It s particularly important to be careful when setting Conditional orders on highly volatile stocks. This is because the stock may move enough to trigger a Conditional order, but then rebound quickly to its original price potentially causing loss or reduced profit. Before you can trade Conditional orders, CommSec requires that you meet certain conditions, including the completion of a short test. To find out about Conditional Trading, we recommend you read the CommSec Brochure Secure your position which can be downloaded from commsec.com.au or ordered by calling 13 15 19.
PRODUCT DISCLOSURE STATEMENT 13 CALCULATING YOUR POSITION MARGINS If you enter into an ASX CFD, you will need to pay a Margin. That is you do not have to put up the full value of the contract. Instead you provide part of it called a Margin. Margins are designed to protect the financial security of the market. If you trade an ASX CFD, you have a potential obligation to the market because the position may move against you. A margin is an amount that is calculated to ensure that you can meet your obligations on that trading day. There are three Margin components that you may need to pay Initial Margin, Variation Margin and Additional Margin. Please note that all Margins will be debited or credited to the relevant Currency Ledger of your ASX CFD Trading Account (see page 22 for more information about currencies). Initial Margin The Initial Margin is the amount you pay to open an ASX CFD position. It is debited from the relevant Currency Ledger of your ASX CFD Trading Account and is held as security for your open positions. Initial Margins are generally returned or credited to your ASX CFD Trading Account when the contract is closed out. The Initial Margin is denominated in the Contract Currency. The amount of Margin required is determined by ASX Clear (Futures), based on a number of factors such as historical price volatility and liquidity of the underlying security and market. It is intended to ensure protection for a large single day price movement. CommSec also has the right to charge an extra amount on top of this Margin. If we do, we will list this as a separate amount (Buffer Margin) on your statement. Initial Margin is monitored and can be revised should market conditions change. You can find out the current ASX Clear (Futures) rates for the Initial Margin at asx.com.au/cfds. Variation Margin The Variation Margin represents the profit or loss on your ASX CFD position (open or closed). Each day, the prices of all ASX CFDs are re-evaluated, based on the closing price (Daily Settlement Price or DSP) of the underlying security or financial instrument. This system is known as Mark to Market. Variation Margin is denominated in the Contract Currency of the ASX CFD. The DSP for ASX CFDs is determined by the ASX. The price of most ASX CFDs will be equal to the closing price of the underlying market. ASX Oil CFDs are different to the above. The DSP is based on the West Texas Intermediate (WTI) Crude Oil assessment, which is carried out by Platts*, a leading global provider of energy and metals information. The ASX Oil CFD DSP is based on a weighted first and second month assessment which derives a smooth spot price, thereby avoiding * Platts is a Trademark of the McGraw-Hill Companies, and is used by the ASX under licence.