YOU ARE WHAT YOU DO
ASX CFDS
PRODUCT
DISCLOSURE
STATEMENT
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.
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
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.
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 theunderlying securities or instruments for 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
What is the role of the ASX 24?
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.
What is the role of ASX Clear (Futures)?
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.
Who can trade CommSec ASX CFDs?
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.
What are the trading hours?
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.
What is the minimum order size?
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 What is the minimum
initial deposit that I need to have in my trading account?
AUD 5,000
When does my ASX CFD position expire?
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.
How do I pay amounts due?
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.
How does CommSec pay me?
All amounts due to you from CommSec will be credited to the relevant Currency Ledger of your ASX CFD Trading Account.
How do I withdraw money from my 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).
How much Margin do I need to contribute?
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).
How are contract values calculated?
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. What costs will I
incur from trading ASX CFDs?
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).
Do I have to pay interest?
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.
Do I receive interest? 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).
Do I receive dividends if I hold ASX CFDs over equities or indices?
ASX Equity CFDs
If you hold a long position in an ASX Equity CFD over an underlying security when the underlying becomes ex-dividend, 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 ex-dividend, 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.
Can I exchange CommSec ASX CFDs position for physical assets?
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.
How will Corporate Actions be managed for ASX CFDs?
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.
What are the taxation implications of ASX 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.
THE BENEFITS OF TRADING
ASX CFDS
Short selling 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.
Hedging 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.
Leveraged exposure
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.
Trade without needing to own the underlying
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.
Diversification 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.
Central counterparty clearing
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.
No expiry date ASX CFDs as compared to options and futures do not have an expiry.
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 profi t 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 profi t 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 cashfl ow adjustments. See page 23 for brokerage fees and other cashfl ows.
However, just as leverage can potentially multiply your profits quickly, it can equally magnify your losses as we’ll see next.
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
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.
Unlimited losses Holders of short positions in the event of adverse upward price
movement can be exposed to theoretically unlimited losses. Losses of
Margins and Margin calls
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 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.
Close out CommSec can close out your ASX CFD in certain circumstances.
Conditional or Contingent Orders
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. Unannounced
dividend cashflow on indexes
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.
Operational risk 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.
Market risk 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.
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 profi t-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 cashfl ows* 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 cashfl ow adjustments
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 profi t 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 Falling-sell 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 profi t of $3,450. (excluding daily cashfl ows* and brokerage).
Assumptions: This example is hypothetical and for illustrative purposes only. This example does not incorporate any fees, interest or other cashfl ow adjustments.
* See page 23 for information about brokerage and daily cashfl ows.
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.
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.
any price jump as assessments move from one month to the next month. For more details on the formula used to create the DSP for the ASX Oil CFD, go to asx.com.au/cfds. The following matrix demonstrates how Variation Margin is determined:
If you hold a long position If you hold a short position
If the price of the underlying rises
You receive Variation Margin to refl ect your unrealised gains
You pay Variation Margin to cover your unrealised losses If the price of the
underlying falls
You pay Variation Margin to cover your unrealised losses
You receive Variation Margin to refl ect your unrealised gains Variation Margin is calculated at the close of trading for the period that you hold a particular ASX CFD contract. It is debited or credited to the relevant Currency Ledgers of your ASX CFD Trading Account the next trading day.
If you need to pay Variation Margin but do not have enough funds in your account to do so, you must pay this amount by 2pm Sydney time the next day (or a lesser time, if we determine). We have the right to close out your position if you fail to make this payment.
Free Equity and Gross Liquidation Value
If you closed out all your positions in a Contract Currency at the current market price (including existing transaction charges or other adjustments), the amount of money remaining in that Currency Ledger is known as your Gross Liquidation Value (GLV). Your GLV, less the Initial Margin is known as Free Equity. GLV, Initial Margin and Free Equity are calculated separately in respect of each currency (Currency Ledger) in your ASX CFD Trading Account. Free Equity can be used to enter into ASX CFD positions or withdrawn from your ASX CFD Trading Account. Free Equity in one Currency Ledger cannot be used to fund Initial Margins in another Contract Currency, nor does it contribute to the GLV of another Contract Currency.
Additional Margin
CommSec may require payment of Additional Margin (a Margin call) during the term of your ASX CFD positions, in addition to Initial Margin and Variation Margin. This happens if your ASX CFD Currency Ledger has Free Equity that is negative, and the absolute amount by which it is negative is more than 5% of Gross Liquidation Value (GLV). ASX Clear (Futures) may also conduct an intra-day Margin call during periods of extreme market volatility. Where this event happens, CommSec has the discretion to call for Additional Margins from you.
If you receive a call for an Additional Margin, you must put money into your ASX CFD Currency Ledger to bring your Free Equity into a positive position in that currency. You will need to do this by 2 pm Sydney time the next day, or at an earlier time specified by CommSec. You will be notified of a Margin call by email, phone, SMS or account balances
on CommSec’s trading platforms. It is important for you to keep CommSec notified of any changes in your contact details.
You can fund your Margin call by the following means: • Reduce your open positions in the default currency; or
• Confirm a currency conversion request to move excess funds from one currency to fund the default currency; or
• Call the CommSec CFD Desk on 1300 133 875 to organise a deposit of new funds. EXAMPLE OF A MARGIN CALL
1. The decision 2. What happened 3. The result
Amanda believed that the FTSE (UK index) price was going to increase. So she bought 15 ASX FTSE CFD for £6,470.
During that day, the FTSE declined signifi cantly, to the point where Amanda then received a call for Additional Margin (a Margin call) from CommSec’s ASX CFD desk. To limit losses, Amanda could either reduce her existing open contracts in ASX FTSE CFDs, or convert available funds in other currencies, in this case, (Australian dollars) into Sterling.
Amanda provided £2,000 to create positive Free Equity in her account. In this way, she was able to keep her position open and continue to trade.
Open Long Position
Buy Quantity 15
Price £6,470
Contract Value £97,050.00
Initial Margin (£4,800.00)
Brokerage (£53.38)
Initial Outlay (£4,853.38)
Assumptions:
1. Initial Margin calculated at £320 per contract. 2. Brokerage is 0.055% x Contract Value, including GST.
Amanda’s GBP currency ledger goes into Margin call. That is, the absolute value of negative Free Equity (£603.38) is greater than 5% of the GLV (£4,196.62). With the ASX FTSE CFD trading at £6,420, Amanda has a couple of options to bring Free Equity back into a positive situation.
• She could reduce the number of open contracts in ASX FTSE CFD. This will reduce her Initial Margin obligations.
• Alternatively, she could convert excess funds in other currencies into GBP. In this situation, she has Cash Balance and Free Equity balance of $7,500 in AUD, which can be utilised to cover the shortfall in GBP.
Amanda wanted to maintain the open positions in ASX FTSE CFD, so she decided to convert AUD 5,000 into GBP to cover the Margin call in the latter currency, as shown on the following page.
Below is a record of the entries that Amanda’s ASX CFD account would have had during that day:
AUD GBP Description Cash Mo vement Cash B alanc e Gr oss
Liquidation Value Initial Mar
gin Fr ee Equit y Cash Mo vement Cash B alanc e Gr oss
Liquidation Value
Initial Mar gin Fr ee Equit y Da y 1 Deposit A
UD on opening
of ac count $2 0,0 00.0 0 $2 0,0 00.0 0 $2 0,0 00.0 0 $2 0,0 00.0 0 Fo reign curr enc y co nv er sion r equest ac cept
ed (Buy £5,
000 . Sell AUD 12,500) ($ 12,500 .00) $7 ,500 .0 0 $7 .500 .0 0 $7 ,500 .0 0 £5, 000 .0 0 £5, 000 .0 0 £5, 000 .0 0 £5, 000 .0
Buy 15 AS
X FT
SE CFD @
£6, 47 0 (£ 4,800 .00) £200 .0 0 £5, 000 .0 0 (£ 4,800 .00) £200 .0 Br ok er age £5 3.38 (£5 3.38) £146.62 £4 ,946.62 (£ 4,800 .00) £146.62 AS X FT
SE CFD @ £6,
420 at
1.00 am ES
T £4 ,196.62* (£ 4,800 .00) (£60 3.38) Fo reign curr enc y co nv er sion r equest ac cept
ed (Buy £2,
000
,
Sell A
UD 5,
000) @ 6.
00 a.m. ES T ($ 5, 000 .00) $2,500 .0 0 $2,500 .0 0 $2,500 .0 0 £2, 000 .0 0 £2, 146.62 £6, 196.62 (£ 4,800 .00) £1 ,396.62 Assumptions:
This example is hypothetical and for illustrative purposes only.
* Gross Liquidation Value has dropped by £750.00 to re
fl
When CommSec will close out your ASX CFD
It’s important to realise that if your ASX CFD account breaches any of the following limits, CommSec can do either of the following to normalise the account:
• Effect a foreign currency transaction and transfer funds from one Currency Ledger to another, or
• Close you partially or fully out of an ASX CFD position
Each limit is assessed and calculated separately in respect of each currency in your ASX CFD Trading Account.
You have negative Free Equity and the amount by which it is negative is more than 50% of your Gross Liquidation Value (GLV); or
• Your GLV is less than AUD 1,000 equivalent of the Contract Currency; or • Your GLV is 1% or less of the contract value; or
• Your GLV is 35% or less of Initial Margin (including buffer where applicable) or • A default event occurs, as set out on page 32; or
• Where certain events in relation to the underlying instrument occur (see for example Trading Halts, Suspension and Delistings on page 34.
TRADING WITH
MULTI-CURRENCIES
Before trading ASX CFDs with a Contract Currency other than Australian dollars, you must convert your funds into the appropriate foreign currency from your ASX CFD Trading Account. CommSec allows you to initiate currency conversion requests online or over the phone.
HOW IT WORKS – FOREIGN EXCHANGE TRANSFER
CommSec uses the Commonwealth Bank of Australia (the Bank) to complete foreign currency conversions on your behalf. Conversions will be placed using a rate determined by us. Because of the volatile nature of foreign exchange, the rates quoted will be indicative only. The final rate won’t be established until the Bank has accepted and confirmed your request as set out on page 22. Whenever CommSec converts any currency in your ASX CFD account to another currency, you will be charged a fee for this conversion in the form of a spread on the exchange rate.
Physical settlement of the cash will occur the trading day following the conversion request, however once a conversion has been confirmed by the Bank you will receive credit to your available balance enabling you to trade immediately.
Once your deal has been confirmed by the Bank, the amount of the bought currency will be credited to the relevant Currency Ledger of your ASX CFD Trading Account. You will then be able to place orders on any ASX CFDs denominated in the buy currency. Similarly, the opposing Currency Ledger balance in your ASX CFD Trading Account will be reduced by the sell amount.
Each currency balance held in your ASX CFD Trading Account is operated as a separate currency ledger. Cashflows and Margins are debited and credited against the relevant currency ledger(s) from time to time. Margin call assessments are made for each currency ledger. Any foreign currency that you convert from your ASX CFD Trading Account can only be used for ASX CFD trading. So you won’t be able to deposit or withdraw any foreign currency from this account. You may hold foreign currency balances in your ASX CFD account.
Generally, the foreign currency conversion request will be confirmed, and the associated adjustments to your Currency Ledger balances in your ASX CFD Trading Account will take place immediately.
You will be exposed to foreign exchange risks between the time the currency conversion is initiated and such time(s) that you wish to transfer into any currency agreed by CommSec, or converted back to Australian dollars. Please also see page 11 for more information about Foreign Exchange Risk.
HOW IT WORKS – TRADING ASX FOREIGN EXCHANGE CFDS ASX FX CFDs are based on two currencies, commonly called currency ‘pairs’. The second currency quoted in the currency pair is the Contract Currency. Margins, Contract Interest and Open Interest Charge are denominated in the Contract Currency. The first currency quoted is referred to as the Opposing Currency and is the currency in which Yield Cashflow is denominated.
When buying an ASX FX CFD, you are buying (long) the first currency and selling (short) the second currency. Conversely, when selling an ASX FX CFD, you are selling (short) the first currency and buying (long) the second currency. For instance, if you went long an ASX AUD/USD CFD, you would be buying AUD (Opposing Currency) and selling USD (Contract Currency).
It is also important to note that one ASX FX CFD is equivalent to 100 times of the underlying foreign currency exchange rate.
I CAN DO THAT
1. The decision 2. What happened 3. The result
Katie formed the view that the Australian dollar (AUD) would fall relative to the US dollar (USD) because of positive expectations about the US economy.
She decided to use ASX CFDs to take a short position in the AUD/USD exchange rate and benefi t from this view.
Katie sold 1,000 ASX AUD/USD FX CFDs at US$0.8090 each. As there were a number of cashfl ows that would be paid in US dollars, she needed to convert some Australian dollars into US dollars. She would also need to keep some Australian dollars in her account to pay the Yield Cashfl ow.
Katie had AUD 6,200 in her ASX CFD account, and requested a currency conversion online through her ASX CFD Trading Account, to convert AUD 3,000 into US$ 2,425.50 at a rate of 0.8085.
The following day, as Katie predicted, the value of the AUD fell relative to the USD. So Katie closed her short position by buying 1,000 ASX AUD/USD FX CFDs at US$0.8050 per contract.
After taking interest, brokerage, and GST into account, Katie made a profi t of US$ 296.08 - 35.06% return on her initial investment of US$ 844.50. Katie also had to pay Yield Cashfl ow of AUD 17.12 from her Australian dollar currency ledger.
Item Amount
USD
Currency conversion from AUD 2,425.50 Opening Trade
Sell Quantity 1,000
Opening Price 0.8090
1 Contract Value 80,900.00
2 Initial Margin (Outlay) (800.00)
3 Brokerage (44.50)
Closing Trade
Buy Quantity 1,000
Closing Price 0.8050
1 Contract Value 80,500.00
3 Brokerage (44.28) Variation Margin (Profit or Loss) 400.00
Total Brokerage (88.78)
4 Open Interest Charge (3.36)
5 Contract Interest (11.78)
Profit 296.08
Final Balance
Including profit 2,721.58
AUD
Initial AUD balance 6,200.00
Currency conversion to US$ (3,000.00)
6 Yield Cashflow (17.12)
Final Balance
Including Yield Cashflow 3,182.88
Assumptions: This example is hypothetical and for illustrative purposes only. Assume position is held overnight with Daily Settlement Price of 0.8075.
1. For ASX FX CFDs, each contract is worth 100 times of the underlying foreign currency exchange rate.
2. Initial Margin calculated at US$ 0.80 per contract. 3. Brokerage is 0.055% x Contract Value, including GST.
4. Open Interest charge is Open Interest Charge rate (1.50%) x Number of Days Contract is held (1 day) / Number of Days in the year (360 days) x Daily Settlement Price (0.8075) x Number of Contracts (1000) x Units per Contract (100).
5. Contract Interest is Federal Funds Rate (5.25%) x Number of Days Contract is held (1 day) / Number of Days in the year (360 days) x Daily Settlement Price (0.8075) x Number of Contracts (1000) x Units per Contract (100).
6. Yield is AUD Target RBA Cash Rate (6.25%) x Number of Days Contract is held (1 day) / Number of Days in year (365 days) x Number of Contracts (1000) x Units per Contract (100).
Until a foreign currency balance is converted back to Australian dollars, movements in the relevant foreign exchange rate will affect the Australian dollar value and hence the profit or loss from ASX CFD positions.
As Katie holds a balance in US dollars, she is exposed to foreign exchange risk on the amount of funds that she transferred plus the US dollar profit that she has made on her ASX AUD/USD CFD trade.
Let’s look at the impact on Katie’s ASX CFD account if the AUD/USD exchange rate moves before she decides to convert her US dollars back to Australian dollars.
AUD Account USD Account AUD/USD Exchange Rate Total (AUD Equivalent) AUD 3,182.88 US$ 2,721.58 0.8050 AUD 6,563.72
Moves down to 0.8010 AUD 6,580.61 Moves up to 0.8090 AUD 6,547.01 Assumptions: This example is hypothetical and for illustrative purposes only.
If the AUD/USD exchange rate moves downward from 0.8050 to 0.8010, Katie will have lost the equivalent of AUD 16.89 because she held her balance in US$. Conversely, if the AUD/USD exchange rate moves upward from 0.8050 to 0.8090, she will have gained AUD 16.71.
CURRENCY CONVERSION AND PUBLIC HOLIDAYS
Foreign currency conversion won’t be available on Christmas Day, Boxing Day or New Years Day. Additionally, if there is a public holiday in the country of any currency which forms part of the currency pair you are requesting, or a cross-rate used to derive the price, rates may not be available, and you may not be able to place a foreign currency conversion request. For example, July 4th is Independence Day in the USA, so rates will not be available for any currencies against USD.
Trading hours for currency conversions are between 8 am Monday (Sydney time) and 5 pm Friday (New York time). You won’t be able to convert currency outside of these hours.
AVAILABLE CURRENCIES
The available currencies in which you can request a foreign currency conversion include: • Australian dollar (AUD)
• US dollar (USD)
• Great Britain pound (GBP) • Euro (EUR)
• New Zealand dollar (NZD) • Japanese yen (JPY).
The available currencies are updated from time to time by the Bank, and generally mirror the different contract currencies for ASX CFDs.
WHAT WILL IT COST?
BROKERAGE FEESWhen you open, and when you close, an ASX CFD position you will need to pay brokerage costs to CommSec. Brokerage and the Initial Margin together represent the cost of opening an ASX CFD position. When you close your ASX CFD position Initial Margin is released and brokerage is charged again. Brokerage is charged in the Contract Currency as listed below, and includes GST.
ASX Australian Equity and Index CFDs
Currency Minimum Percentage
Internet trades AUD 14.95 0.11
Telephone trades AUD 54.60 0.22
Internet trades AUD/S&P/
ASX200
14.95 0.055
Telephone trades AUD/S&P/
ASX200
54.60 0.11
ASX Index CFDs
Index Currency Percentage
Internet trades Dow Jones
Industrial Average
USD 0.055
NASDAQ USD 0.055
FTSE UK GBP 0.055
DAX EUR 0.055
DJ Euro Stoxx EUR 0.055
Telephone trades Dow Jones
Industrial Average
USD 0.11
NASDAQ USD 0.11
FTSE UK GBP 0.11
DAX EUR 0.11
ASX Commodity CFDs
Commodities Currency Percentage
Internet trades Gold USD 0.055
Oil USD 0.055
Telephone trades Gold USD 0.11
Oil USD 0.11
ASX FX CFDs
Currency pair Currency Percentage
Internet trades AUD/USD USD 0.055
AUD/NZD NZD 0.055
AUD/EUR EUR 0.055
NZD/JPY JPY 0.055
AUD/JPY JPY 0.055
EUR/USD USD 0.055
USD/JPY JPY 0.055
NZD/USD USD 0.055
Telephone trades AUD/USD USD 0.11
AUD/NZD NZD 0.11
AUD/EUR EUR 0.11
NZD/JPY JPY 0.11
AUD/JPY JPY 0.11
EUR/USD USD 0.11
USD/JPY JPY 0.11
NZD/USD USD 0.11
Referred ASX CFD Accounts
Where your account application has been referred to us by a third party we may pay an ongoing referral fee based on CFD trades executed to that third party.
Currency Conversions Spreads
Whenever CommSec converts any currency in your ASX CFD account to another currency, you will be charged a fee for this conversion.
The fee will be debited from your ASX CFD account and will be in the form of a spread on the exchange rate, known as a bid/offer spread. The bid/offer spread will not exceed 1.00% and typically will be lower.
For example, if the published exchange rate from converting AUD to USD is USD/AUD 0.7500, the Exchange Rate CommSec may quote you could be as low as 0.7425.
USING COMMSECIRESS
You can trade ASX CFDs through CommSecIRESS. Separate fees apply, see commsec.com. au for details
CASHFLOW PAYMENTS
When you trade ASX CFDs you will receive, or need to pay out, a variety of cashflows, depending on:
• What kind of ASX CFD you hold, and • Whether you hold a long or short position.
The following table illustrates who pays, or receives each cashflow.
Cashflow ASX Equity CFD ASX Index CFD ASX FX CFD ASX Commodity CFD Long Party Short Party Long Party Short Party Long Party Short Party Long Party Short Party Contract
Interest
Pays Receives Pays Receives Pays Receives Pays Receives
Open Interest Charge
Pays Pays Pays Pays Pays Pays Pays Pays
Dividend Receives Pays Receives Pays N/A N/A N/A N/A
Franking Credit cash equivalent
May receive Pays N/A N/A N/A N/A N/A N/A
Yield N/A N/A N/A N/A Receives Pays N/A N/A
These cashflows are calculated on the full contract value of your open ASX CFD position, not just on the portion held as Initial Margin.
The following table illustrates when the cashflows are calculated and when it is paid or received.
Cashflow Calculated Paid/received
Contract Interest (CI) Daily on all open positions held at the close of trade
The next trading day Open Interest Charge (OIC) Daily on all open positions
held at the close of trade
The next trading day Dividend (equities) On all open positions held at
the close of trading on the day prior to the ex-dividend date of the underlying stock
Ex-dividend date
Dividend (Index) On all open positions held at the close of trading on the day prior to the ex-dividend date for the stock in the index
Ex-dividend date
Franking Credit Cashflow (FCC)
On all open positions held at close of trading on the day prior to the ex-dividend date
The day after the ex-dividend date Yield Cashflow (FX) Daily on all open positions held
at the close of trading day
The next trading day
ASX CFDs have two kinds of payments for holders of open positions in an ASX CFD:
The Contract Interest (CI) is paid by the buyer (the holder of the long open position) and received by the seller (the holder of the short open position), through ASX Clear (Futures).
The Open Interest Charge (OIC) is a daily charge set by the ASX that is paid by both the buyer and the seller to ASX Clear (Futures).
Long position
Long position
Short Position Pay
Pays Receives
Pay
Pays Receives
After NSOP adjustment
CI
Dividend Cashflow
Franking Credit Cashflow
Contract interest
The Contract Interest cashflow is calculated at close of trading day on all open positions.
•
If you hold an open short position overnight, you will receive the Contract Interest on that ASX CFD, on the next trading day.• If you hold an open long position overnight, you will pay Contract Interest on that ASX CFD on the following trading day.
You will always pay or receive Contract Interest in the Contract Currency of the ASX CFD. The actual Contract Interest Rate is fixed to a benchmark rate of this currency, known as the Contract Interest Base Rate. For instance, if the Contract Currency of your ASX CFD is the Australian dollar, the Contract Interest Base Rate is the overnight cash rate of the Reserve Bank of Australia. The Contract Interest Rate changes whenever this benchmark changes.
Contract Interest base rates can be viewed at asx.com.au/cfds. Calculating Contract Interest
Contract Interest = I x SP x N/D x C x U where:
I = The Contract Interest Base Rate SP = the ASX CFD Daily Settlement Price
N = the number of days for which the contract interest is being calculated
D = the number of days used in interest calculation (based on market convention)* C = the number of open contracts that you hold
U = the number of units of the underlying per lot of the ASX CFD contract
* The ASX will use the days of the year convention (which is 365 or 360 days) that corresponds to the Contract Currency of the ASX CFD. For example, if the Contract Currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days.
So, for instance, if you held a long position over 1000 ASX BHP Limited CFDs for the weekend (Friday, Saturday and Sunday), your Contract Interest would be $21.58, and is calculated as follows:
the Contract Interest Base Rate 6.25% p.a. Multiplied by the ASX BHP Limited CFD Daily Settlement Price $42.00 Multiplied by the number of days for which the Contract Interest is being
calculated
3 Divided by the number of days used in interest calculation 365 Multiplied by the number of open contracts that you hold 1,000 Multiplied by the number of units of the underlying per lot of the ASX CFD
contract
1
Open Interest Charge (OIC)
This is a separate charge set by the ASX and may vary according to product. It is paid to ASX Clear (Futures) by holders of both long and short positions. You will always pay Open Interest Charge in the Contract Currency of the ASX CFD.
The ASX can vary the OIC rate, but it is expected they will change it infrequently. You can view current OIC rates and any upcoming changes to the rate at asx.com.au/cfds.
If you are trading ASX Equity CFDs, the OIC rate may differ depending on whether you hold a long or short position. The OIC rate charged for all other ASX CFDs will be the same regardless of the position you hold. For example, if you hold a long position over an ASX Index CFD, you will pay the same OIC that you would if you held a short position over that Index.
The OIC is calculated at the close of a trading day. It will be debited from the relevant Currency Ledgers of your ASX CFD Trading Account on the next trading day. If you hold an open position over non-trading days (for example, weekends or public holidays) you will still have to pay OIC for each night the position is open.
Calculating Open Interest Charge
OIC charge = OIC Rate x (N/D) x SP x C x U where:
OIC Rate = Open Interest Charge Rate, which is decided by ASX Clear (Futures) and
applied to open positions. (The OIC rate may differ, depending on whether the position is long or short.)
N = The number of days for which the OIC is being calculated.
D = The number of days in the year (according to market convention).* C = The number of open contracts that you hold.
SP = The ASX CFD Daily Settlement Price.
U = The number of units of the underlying per lot of the ASX CFD contract. * OIC is always charged in the Contract Currency of the ASX CFD. The ASX will use the days of the year
convention (which is 365 or 360 days) that corresponds to the Contract Currency of the ASX CFD. For example, if the Contract Currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days.
So, for instance, if you held a long position over 1,000 ASX Telstra Corporation Limited CFD for the weekend, your open interest charge would be $0.58, and is calculated as follows:
The Open Interest Charge Rate 1.50% p.a. Multiplied by the ASX Telstra Corporation Limited CFD Daily Settlement Price $4.70 Multiplied by the number of days for which the OIC is being calculated 3 Divided by the number of days in the year (based on market convention) 365 Multiplied by the number of open contracts that you hold 1,000 The number of units of the underlying per lot of the ASX CFD contract 1 Assumptions: This example is hypothetical and for illustrative purposes only.
Other interest cashfl ows
You may receive interest from CommSec on Free Equity in your ASX CFD Trading Account. Interest can be calculated for each Currency Ledger in your ASX CFD Trading Account. In AUD, the rate is the RBA Target Overnight Cash Rate less a margin that is no more than 1.5%. In foreign currencies, the rate of interest is based on the prevailing foreign currency market interest rate and may be either positive or negative. The foreign currency market interest rate is adjusted by a Margin that reflects business costs (both fixed and variable), risks associated with the product and a profit Margin. The Margin may vary from time to time due to changed market conditions, the relative liquidity of the foreign currency held, and the timing of the transaction. If your ASX CFD Trading Account is in debit, or you don’t pay any necessary payments on time, you will be charged interest, which is paid to CommSec. These rates are variable, and you can view them on commsec.com.au.
Dividend Cashfl ow
If you hold ASX Equity or Index CFDs and the underlying stock or stock in the index goes ex-dividend, you will need to pay, or will be paid a dividend cashflow.
If you hold a long position you will receive the dividend cashflow. If you hold a short position you must pay the dividend cashflow.
The amount you will pay or receive depends on the number of ASX CFDs you hold at the close of trade on the last cum-dividend date for a particular stock. The dividend cashflow will be paid in the ASX CFD’s Contract Currency.
Calculating Dividend Cashflow
Dividend cashflow = Di x C x U where:
Di = Dividend payment (excluding any franking credits) in dollars and cents of the currency in which the dividend is paid.
C = The number of open contracts that you hold.
U = The number of units of the underlying per lot of the ASX CFD contract. Calculating Index Dividend Cashflow
Index dividend cashflow = Ei x C x U where:
Ei = Weighted dividend amount in dollars as advised by Index Provider in the Index Currency.
C = The number of open contracts that you hold.
Franking Credit Cashfl ow (FCC)
This cashflow only concerns ASX CFDs held over Australian shares. The Franking Credit Cashflow (FCC) is a monetary equivalent of a franking credit. Unlike a franking credit though, it doesn’t entitle you to a potential tax offset.
It is calculated on all open positions held at close of trading on the last cum-dividend date of the underlying stock.
The FCC for short positions is calculated differently from long positions. This is because of an incentive given to attract Designated Price Makers (DPM) (that is, large institutions who provide liquidity and competition in the ASX CFD market). Designated Price Makers are rebated the FCC on their net short positions. As a result, when the Designated Price Makers hold more short contracts than long contracts, holders of long positions will not receive the full value of the franking credit cashflow entitlement. The net short open position percentage of DPMs at the close of each trading day for each ASX Equity CFD is available
at asx.com.au/cfds.
If you hold a long position over an ASX Equity CFD the day before its underlying security becomes ex-dividend:
• You may receive all or part of the FCC.
• You will be paid the FCC the day after the ex-dividend date.
• The FCC is always charged and paid in the Contract Currency of the ASX CFD. If you hold a short position over the ASX Equity CFD the day before its underlying security becomes ex-dividend, you will have to pay a FCC.
Calculating FCC – long
Long Franking Credit Cashflow = [Ts / (Ts + Ds)] x FL x CL x U where:
FL = Long Franking credit per share as calculated by ASX. CL = The number of long open ASX CFD contracts that you hold.
U = The number of units of the underlying per lot of the ASX CFD contract. Ds = Total net open short positions held by the Designated Price Makers in the
ASX CFD contract after a mandatory close out is performed by ASX Clear (Futures). This involves clearing the long and short positions of the Designated Price Makers which can be offset against each other.
Ts = Total open short positions held by all non-Designated Price Makers (customers) in the ASX CFD contract.
Calculating FCC – short
Short Franking Credit Cashflow = Fs x Cs x U where:
Fs = Short Franking Credit per share as calculated by ASX. Cs = The number of open contracts that you hold.
U = The number of units of the underlying security or instrument per lot of the ASX CFD contract.
Yield Cashfl ow
If you hold ASX Foreign Exchange (FX) CFDs you may also pay or receive a Yield Cashflow.
ASX FX CFDs are traded in pairs, with one currency known as the Contract Currency and the other the opposing currency. A Yield Cashflow is calculated as interest, based on the official Cash Rate of the opposing currency.
For example, if you are trading ASX AUD/EUR CFDs, the Contract Currency is EUR. Therefore, the Yield will be calculated based on the Reserve Bank of Australia (RBA) cash rate — the official Cash Rate of the AUD.
If you hold a long position you will receive the Yield Cashflow. Holders of short positions will pay the Yield Cashflow.
Calculating Yield Cashflow
Yield = I x N / D x C x U where:
I = Yield interest rate for the contract.
N = The number of days for which the Yield Cashflow is calculated. D = Number of days used in the Interest Calculation (based on market
convention)*.
C = The number of open contracts that you hold.
U = The number of units of the underlying per lot of the ASX CFD contract. * The ASX will use the days of the year convention (which is 365 or 360 days) that corresponds to the
opposing currency of the ASX FX CFD. For example, if the opposing currency is Australian dollars, British pounds, or New Zealand dollars, the days of the year would be calculated at 365 days, whereas the Euro, Japanese yen and US dollars are calculated at 360 days.
OTHER THINGS YOU NEED
TO KNOW
WHERE TO FIND OUT MORE
This PDS contains a summary of the risks and returns from trading in ASX CFDs. For further detailed information on ASX CFDs, the ASX has an educational booklet understanding ASX CFDs available at commsec.com.au.
We strongly recommend you read this booklet before trading ASX CFDs.
DEFAULT EVENTS
According to the ASX CFD Client Agreement, we have the right to take action in the case of default events. A default event includes the following:
• You fail to pay any money you owe to CommSec or CBA under the ASX CFD Client Agreement or any other agreement, or on any account you hold with CommSec or CBA, when it is due.
• You don’t carry out and observe in a timely manner any obligation under the ASX CFD Client Agreement or any other agreement you have with CommSec or CBA, or any obligation you have on any account you have with CommSec or CBA.
• You make a misleading or incorrect representation. • You stop paying your debts.
• You enter into or propose to enter into any scheme of arrangement or compromise with your creditors, or call a meeting to discuss an intended scheme of arrangement or compromise.
• You become insolvent, or, if you are a corporate client, a receiver and a manager or an administrator is assigned to you or any of your assets.
• If you are a corporate client, a resolution is passed or a petition is presented or an order is made for your winding up or liquidation.
• You die or become unsound of mind, or a bankruptcy notice is issued against you. • Any security created by any mortgage or charge binding upon you or your assets
becomes enforceable and the mortgagee or chargee takes steps to enforce the security.
• Any guarantee of or security for your obligations is, without the consent of CommSec, withdrawn or becomes defective or insufficient.
• Any of your debts become immediately due and payable, or become capable of being declared due and payable, before their stated maturity, by reason of your or any other
person’s default.
• You are not contactable by telephone for 24 hours, or by 2pm Sydney time the following day, whichever is earlier, in order for CommSec to obtain instructions with respect to an ASX CFD and you do not make alternative arrangements.
If a default relating to you occurs, CommSec has the right and power (but not the obligation) to take any one or more of the following steps without giving you prior notice: • Terminating the ASX CFD.
• Closing out all or any of your ASX CFD positions.
• Treating all or any ASX CFDs as if you have closed them out.
• Terminating any other agreement between you and CommSec or any other CommSec account.
• Cancelling any outstanding orders so as to close your ASX CFD account or other accounts.
• Satisfying any obligation you have to CommSec out of any property, money or security belonging to you in CommSec’s control or custody.
• Satisfying any obligation you have to CommSec by transferring funds from your other accounts with CommSec.
• Exercising any other power or right which CommSec may have under the ASX CFD Client Agreement or in law or in equity, or taking such other action as a reasonably prudent financial services licensee would take in the circumstances.
In addition, if a default event occurs:
• CBA and/or CommSec may combine any account that you hold with either of them, or set off any amount that is or may become owing by them to you against, any amount owing by you to them.
• CBA and/or CommSec may severally enforce their security interest provided for under the ASX CFD Client Agreement.
SECURITY INTEREST
Under the ASX CFD Client Agreement you grant each of CBA and CommSec a separate first ranking security interest over:
• all of your interest in your ASX CFD Trading Account;
• all of your interest in respect of, or in connection with, any Margin, any Free Equity and any other amount whatsoever that is payable to you under the ASX CFD Client Agreement; and
• all of your rights and interest in the client segregated account referred to in clause 3(b) of the ASX CFD Client Agreement,
to secure obligations owing by you under or in connection with the ASX CFD Client Agreement to CBA and CommSec.
TRADING HALTS, SUSPENSIONS AND DELISTINGS
An underlying instrument or security may be placed in a trading halt in certain circumstances. A security could also be suspended or de-listed in certain situations. If this happens, CommSec has the right to cancel any order for an ASX CFD which has not yet been opened. CommSec can also close any open ASX CFD, when the underlying instrument or security is the subject of a trade halt, suspension and delisting.
SUSPENSION OF TRADES AND ALTERATION OF SETTLEMENT PRICES The exchange bodies the ASX and ASX Clear (Futures) have the right to suspend trading, put limits on positions, exercise limits or terminate open contracts. They may do this in order to keep markets orderly and fair, or to provide reasonable and efficient services.
MARKET DISRUPTIONS
All ASX CFDs are subject to the rules, procedures and practices of the ASX and ASX Clear (Futures). If there are trading disputes between market participants, the ASX may cancel or amend a trade. In these circumstances, we have the right to cancel a trade without your permission.
CLIENT AGREEMENTS AND DOCUMENTS
Before trading ASX CFDs, you must read the Client Agreement carefully. If you trade ASX CFDs through CommSec, you will need to sign a Client Agreement form with us.
TERMINATION OF THE ASX CFD CLIENT AGREEMENT
Either you or CommSec may terminate the ASX CFD Client Agreement by giving two Business Days notice. The ASX CFD Client Agreement will continue to apply in relation to any open ASX CFDs, but you must notify CommSec within five Business Days of the date of termination of the ASX CFD Client Agreement that you wish to close all existing ASX CFDs. If any ASX CFD is not closed out within five Business Days, CommSec may close out that ASX CFD as if a default event had occurred.
TAXATION
ASX CFDs may have tax implications. The main taxation consequences of ASX CFDs offered by CommSec are set out below.
