CUSTOMER FUNDS PROTECTION AT SOCIETE GENERALE SECURITIES AUSTRALIA PTY LTD January 2015
OVERVIEW The foundation for protecting customer property when customer trades with us is three-fold: Segregation Capital Requirements and Regulatory Reporting Audits and Inspections 2
I. SEGREGATION Societe Generale Securities Australia Pty Ltd ( SGS Australia ) is a subsidiary of Newedge Group SA and incorporated in Australia. SGS Australia holds an Australian Financial Services ( AFS ) license with the Australian Securities and Investments Commission ( ASIC ) and is a trading participant of ASX 24 (formerly SFE - Sydney Futures Exchange) and a clearing participant of ASX Clear (Futures). The supervision of the ASX market participants trading activities is conducted by ASIC through the ASIC Market Integrity Rules. Among those rules is the treatment of the client monies and client property. SGS Australia s obligations in relation to client monies: Proprietary money and property must be always segregated from our client monies and property. Client monies must be deposited into a separate account in a licensed bank designated as Clients Segregated Account. Client property must be allocated to a separate safe keeping authorized custody account and held on trust for the client. 3
I. SEGREGATION (cont d) If a SGS Australia account is held with an external broker, two separate accounts are to be maintained by such external broker namely, House Account and a Client Segregated Account. Monies and properties in House Account and Client Segregated Account cannot be commingled or netted. Client properties held in safe custody cannot be used to satisfy SGS Australia s obligations. 4
I. SEGREGATION (cont d) Clients Segregated Account ( CSA ) How does it work? Only money received from clients or interest received for clients can be allocated to a CSA. Client monies must be deposited into CSA no later than the next business day of the receipt. Client property must be deposited into safe custody on or before the next business day after receipt. Client monies and property can be applied to pay margins and settlement of client transactions, make payment as instructed by the client, defray brokerage and other proper charges and/or fees. In the case of a margin call not satisfied by the client for more that 5 business days, then the CSA will be topped-up by SGS Australia s own monies to make customers 100% whole. 5
I. SEGREGATION (cont d) Clients Segregated Account ( CSA ) How does it work? As required by the Market Integrity Rules, SGS Australia performs a reconciliation of the aggregate balance held by it in the CSA and the corresponding balance as recorded in SGS Australia accounting records on a daily basis. The reconciliations are maintained as part of the regular books and records of SGS Australia. SGS Australia must notify ASIC within 2 business days if (i) a reconciliation has not been performed; (ii) the total deposits is less than total third party client moneys; or (iii) SGS Australia is unable to reconcile its client s segregated accounts. 6
II. CAPITAL REQUIREMENTS SGS Australia is required to maintain minimum Net Tangible Asset ( NTA ) of A$5 million. SGS Australia is also required to maintain ASIC s Base Level Financial Requirements in excess of the greatest of: A$10 million of Tier One Capital; Sufficient cash flow to cover next 3 months projected expenses for contingencies; or Hold Surplus Resources of 5% of Adjusted Liabilities (A$1 million to A$100 million) plus 0.5% of Adjusted Liabilities greater than A$100 million. 7
III. REGULATORY REPORTING AND INVESTMENT OF CUSTOMER FUNDS SGS Australia s regulatory capital requirements are met through equity and subordinated loans from its parent, Newedge Group. Subordinated loans may not be called before maturity without prior regulatory approval. SGS Australia must file a monthly financial report with ASX and ASIC. If SGS Australia ever had an issue regarding the adequacy of its capital or the amount of client monies in segregation, according to regulatory rules, it would be required to advise ASIC and ASX promptly. ASIC strictly restricts how AFS holders invest client monies. A written client consent is required for investment of client funds. However, SGS Australia invests client monies typically in a manner that is more conservative than that authorized by ASIC. 8
IV. AUDITS AND INSPECTIONS As an AFS holder, ASX trading and clearing participant, and a member of Newedge Group, SGS Australia is subject to the following formal inspections or ongoing reviews by the following parties: Australian Securities and Investment Commission (ASIC) Australian Securities Exchange (ASX) Deloitte Touche Tohmatsu, our external auditors 9
IV. AUDITS AND INSPECTIONS (CONT D) In addition, The Autorité de Contrôle Prudentiel et de Résolution ( ACPR ), the French regulator of Newedge Group and Societe General, has a right to inspect SGS Australia. Société Générale has the right to audit any Newedge company at any time. The client asset protection procedures are also subject to the review and examination of the Internal Audit Department of SGS Australia. 10
V. SUMMARY OF APPLICATION OF BANKRUPTCY RULES Under the local regulations, client property and money are held in segregated account(s). Such client property and money may not be commingled with property and money of SGS Australia and may not be used by SGS Australia in the course of its own business except in accordance with local rules and regulations relating to the client s trading with SGS Australia or the terms of client s agreements with SGS Australia. One client s moneys are combined and commingled with other clients moneys in the bank or the clearing house only if they trade the same product with us such that, for example, monies which SGS Australia receive from its clients that are not in connection with trading in futures contracts would not be combined and commingled with monies it receives for trading in futures contracts. 11
V. SUMMARY OF APPLICATION OF BANKRUPTCY RULES (CONT D) Client s property is held separate and on trust for the client subject to the terms of the client s agreements with SGS Australia. SGS Australia will margin call a client for additional funds where necessary. If such client defaults in meeting such margin call, Corporations Act and ASX 24 Rules allow SGS Australia to use one client s excess money to meet the obligations (including on default) of another client if they trade the same product. As mentioned previously, SGS Australia will top up CSA with its own monies if a margin call is not satisfied by the client for more than 5 business days. If the client fails to pay this margin call, and if SGS Australia becomes insolvent before it tops up the client segregated account, clients may lose some or all of their client money. 12
V. SUMMARY OF APPLICATION OF BANKRUPTCY RULES (CONT D) Client property and money will generally not be affected by any bankruptcy of SGS Australia as client property and money do not belong to SGS Australia. Unless otherwise provided by the local rules and regulations, clients property and money shall not be available for payment of SGS Australia s debts. Client property is held on trust for the client subject to SGS Australia s rights under customer agreements. 13
VI. EVALUATING RISKS TO SEGREGATED CUSTOMER PROPERTY Fraud. This risk is mitigated by SGS Australia s internal control governance and the number and frequency of external audits to which it is subject. The internal control structure includes programs for regulatory Finance and Accounting, Treasury, Front Office, Clearing Operations, Compliance, Financial Crime Prevention/AML, Internal Audit, Permanent Supervision, and Operational Risk. The Firm s internal control procedures are reviewed annually by its external auditors. Proprietary Trading. This risk is mitigated as SGS Australia does not engage in any significant proprietary trading activities (other than certain other treasury and customer facilitation activities). Default by another customer. This risk is mitigated by SGS Australia s procedures for approving and monitoring clients, and the daily and prompt collection of margins. 14
VII. STRUCTURE OF SGS AUSTRALIA Société Générale 100% Newedge Group, SA 100% Société Générale Securities Australia Pty Ltd 15
VIII. NEWEDGE S CONSOLIDATED CAPITAL Newedge, like its shareholder Société Générale, is subject to strict capital adequacy requirements. As of 31 December 2013, the audited consolidated capital structure of Newedge was 1,107M (calculated in accordance with IFRS rules). Consolidated regulatory capital of Newedge as of 31 December 2013 was 1,331M (calculated in accordance with French banking regulation). 16
IX. CONCLUSION SGS Australia manages the Customer Protection regime for trading on ASX in an efficient manner. This management is back stopped by regular reviews and reconciliations, both internally and externally, by third party auditors and regulators. SGS Australia is part of a strong organization subject to stringent regulatory requirements. 17
This document has been produced for information purposes only and is not to be construed as an offer to buy or sell any financial instrument or security. Due to international regulations not all financial instruments/services may be available to all clients. You should be aware of and observe any such restrictions when considering a potential investment decision. This information is not intended to be construed as investment advice. We do not accept any liability or loss or damage arising from any inaccuracy or omission in or the use of or reliance on the information in this document. All information is subject to change without notice. The contents of this document have been prepared solely for the benefit of the clients of Societe Generale Securities Australia Pty Ltd. and no other legal entity or person. For the avoidance of doubt, it may not be copied or reproduced in whole or in part, in any medium or given to any third party. This document has been prepared to provide a broad overview on how Societe Generale Securities Australia Pty Ltd. handles its clients assets. It is not intended to be an advice, opinion or a comprehensive explanation of the legal or regulatory regime in Australia regarding the handling of client assets and it should not be relied upon as such. You are encouraged to obtain your own independent professional advice on laws and regulations regarding your assets as you consider necessary and appropriate. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS REPORT COMES SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING. Société Générale is primarily regulated in France by the Autorité de Contrôle Prudentiel et de Résolution ( ACPR ). Newedge Group SA and its branches are lead regulated by the ACPR. Newedge Group SA is also regulated by the Autorité des Marchés Financiers in France. Société Générale Newedge UK Limited is authorized and regulated by the Financial Conduct Authority (FCA). Newedge Group (Zurich and Dubai branches) and Société Générale Newedge UK Limited do not deal with, or for, Retail Clients (as defined under MiFID, FCA rules and Dubai Financial Services Authority ( DFSA )). If this material is distributed by Newedge Group Dubai Branch it is intended for Professional Clients only (as defined by the DFSA) and no other person should act on it. Only Société Générale Capital Canada Inc. is a member of the Canadian Investor Protection Fund. Société Générale, Société Générale Newedge UK Limited and SG Americas Securities, LLC are Swap Dealers registered with the CFTC and NFA. Not all products or services are available from all SG Group organizations or personnel. If necessary, please consult our local office for details. 2015 Société Générale. All rights reserved 18