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O.C.M .Online Capital Markets Pty Ltd ACN 140 899 476

Level 2 19-21 Hunter St. Sydney

NSW 2000

Australia

PRODUCT DISCLOSURE STATEMENT

AUSTRALIAN FINANCIAL SERVICES LICENCE NO: 343628

DATE: 1 May 2014

This Product Disclosure Statement is in three parts:

• Part 1 includes general information about O.C.M. Online Capital Markets Pty Ltd and the Financial Products

• Part 2 contains information about foreign exchange products

• Part 3 contains information about contracts for difference


Table of Contents PART 1

1. INTRODUCTION

2. ISSUER DETAILS

3. FINANCIAL PRODUCTS

4. MARGINS AND FUNDING

5. LIMITING RISKS

6. CLIENT MONIES

7. CLIENT AGREEMENT

8. HOW ORDERS ARE EXECUTED AND CONFIRMED

9. SIGNIFICANT RISKS

10. TRADING HOURS

11. TAXATION IMPLICATIONS

12. COOLING-OFF ARRANGEMENTS

13. COMPLAINTS

14. FEES AND COSTS

15. OTHER INFORMATION

16. HOW TO CONTACT US

17. GLOSSARY


PRODUCT DISCLOSURE STATEMENT PART 1

1. INTRODUCTION

1.1 Information

This Product Disclosure Statement (“PDS”) has been prepared by O.C.M. Online Capital Markets Pty Ltd, AFSL 343628, ACN 140899476 (“The Company” or “OCM”) as the issuer of Over the Counter (“OTC”) contracts for derivatives and foreign exchange products.

The information in this PDS is general information only and does not take into account your personal objectives, financial situation and needs. This PDS is subject to the provisions of the Client Agreement. Before making a decision to acquire these financial products you should read our Financial Services Guide (“FSG”) and PDS, including the Part that relates to those financial products you are considering dealing in, and you should be satisfied that any trading you undertake in relation to those financial products is appropriate in view of your objectives, financial situation and needs.

When we use the terms “we”, “our” or “us” in this PDS the reference is to The Company or OCM. When we use the term “you” or “Client”, we mean you as the user of our products or other clients of The Company.

Please contact us if you have any questions in relation to this PDS.

1.2 Purpose of this PDS

This PDS is an important document and provides you with key information about our products to assist you to:

• decide if the relevant products meet your needs; and

• Compare the products with similar products.

If you intend to apply to use any of the products or services described in this PDS, please read this document thoroughly, and then keep it for future reference, together with all other documentation which you receive from us in connection with your trading of The Company’s products.

1.3 Important information about the risks involved in dealing in the products described in this PDS

OTC contracts can be highly leveraged and speculative with a high degree of risk. Potential investors and traders should be experienced in foreign exchange contracts and derivative products and understand and accept the risks of investing in OTC contracts.


Before trading in the products referred to in this PDS you should give consideration to your objectives, financial situation and needs. We recommend that you take all reasonable steps to fully understand the possible outcomes of trades and strategies in relation to the products offered. You should also be aware of the risks involved and be satisfied that trading in our products is suitable for you in view of your financial circumstances.

Additionally, by depositing funds with us you are exposed to counterparty risk, (see clause 6 of Part 1 of this PDS) which explains the risk that you may not receive all the money held by the OCM on your behalf in the Client trust account if there is a deficit in the Client trust account and OCM becomes insolvent or is otherwise unable to pay the deficiency.

We recommend that you consult your financial adviser or obtain other independent advice before trading in the products referred to in this PDS.

1.4 Electronic PDS

This PDS may be viewed online on The Company’s websites at isdeposit.com. (hereinafter: “the website domain”). If you access the electronic version you should ensure that you download and read the entire PDS. A paper copy of the PDS is available free of charge on request.

1.5 Other Jurisdictions

The offer to which this PDS relates is available only to persons receiving this PDS in Australia.

This PDS does not constitute an offer or invitation in any place which, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this PDS in jurisdictions outside Australia may be restricted by law and persons who come into possession of it who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable laws.

1.6 Changes to this PDS

The information in this PDS is subject to change from time to time and is up to date as at the date of this document. If there is any material change to this information, we will issue a new or supplementary PDS with the new information. You will be able to find the updated information on our website at the website domain or by contacting us. If requested, we will send you a paper copy of the information.

1.7 7 ASIC Regulatory Guide 227

ASIC Regulatory Guide 227 entitled “Over-the-counter contracts for difference: Improving disclosure for retail investors” requires the issuers of some OTC products to publish certain information addressing a range of disclosure benchmarks. These seven disclosure benchmarks are not mandatory but are required to be addressed on an ’if not, why not’ basis. They have been developed by ASIC and are intended to assist retail investors to assess the potential benefits and understand the risks associated with trading these products and decide whether investment in these products is suitable for them.


.

Following is a description of the disclosure benchmarks together with how The Company has addressed them and discloses whether The Company meets each of the benchmarks and if not, why not.

Benchmark 1: Client Qualification.

The Company meets this benchmark as it maintains and applies a written “Client Qualification” policy which:

(a) sets out the minimum qualification criteria that prospective investors will need to demonstrate before The Company will permit you to commence trading with us;

(b) outlines the processes The Company has in place to ensure that prospective investors who do not meet the qualification criteria and thus, assessed by us as “unsuitable” are not accepted as a client and trade in our products; and

(c) requires that we maintain records of our client assessments.

Because The Company products can be complex and may not be suitable for all investors, all prospective clients of The Company must complete a “suitability test” before they can begin trading with The Company. You will be required to complete the suitability test at the time you open your account.

This suitability test enables prospective clients to demonstrate to us that they have an adequate understanding of the features and risks of our products.

The results of all client assessments will be recorded by The Company.

If you are successful in completing the test your account will be activated to enable you to commence trading. If you are not successful you will not be able to trade however, you will be given one further opportunity to complete the test. Please contact us if you have any concerns about the suitability test.

Benchmark 2: Opening Collateral.

The Company meets this benchmark.

To open an account, The Company accepts only deposits made via electronic funds transfer or credit card. The initial deposit when establishing your account via credit card is limited to $1000.

Benchmark 3: Counterparty Risk – Hedging.

The Company meets this benchmark as it maintains and applies a written policy to manage its exposure to market risk from client positions. This policy is available on our website and also described briefly below. We also refer you to clause 9 of Part 1 of this PDS, “Significant Risks” and in particular the section entitled “Credit or Counterparty risk”.


Given you are dealing with The Company as counterparty to every transaction, you will have an exposure to us in relation to each transaction. This is a common risk associated with all OTC financial products. The risk is that The Company may not be ready, willing or able to meet its obligations, for example, if The Company were to become insolvent.

You will be reliant on The Company’s ability to meet its counterparty obligations to you to settle the relevant transaction. The Company may, at its discretion, limit this exposure by hedging some or all of the exposure it has to its clients. This is achieved by entering into opposite transactions as principal in the wholesale market (with hedging counterparties) in relation to the exposures with clients. Where The Company exercises its discretion and chooses to hedge it currently does so using its parent company,

O.C.M. Online Capital Markets Ltd as its hedging counterparty. The Company is then exposed to counterparty risk with that hedging counterparty. The Company will not always hedge its exposure. However, where the transaction is in excess of a certain amount (that is determined by OCM at its discretion) it may be hedged.

The Company’s hedging arrangements and hedging counterparties may change from time to time and we refer you to our website for a full explanation of our hedging policy which also sets out our current hedging counterparties.

When selecting hedging counterparties, the Company takes into consideration a number of factors such as, but not limited to:

an assessment of the proposed hedging counterparty’s licensing arrangements and the regulatory environment in which the proposed hedging counterparty operates.

an assessment of the proposed hedging counterparty’s financial resources and credit rating.

an assessment of the proposed hedging counterparty’s human resources with specific regard to the compliance resources.

an assessment of the proposed hedging counterparty’s information technology resources with specific regard to monitoring and risk assessment of open positions.

the availability, accessibility and expected responsiveness of representatives of the proposed hedging counterparty.

the experience of the proposed hedging counterparty.

the reputation of the proposed hedging counterparty in the market place. whether the proposed hedging counterparty will provide additional value .

whether the proposed hedging counterparty has adequate disaster recovery procedures.


Benchmark 4: Counterparty risk – Financial resources.

The Company meets this benchmark as The Company maintains and applies a written policy to ensure it has adequate financial resources. This policy details how we monitor our compliance with our licence conditions in relation to financial requirements. Monitoring of our obligations is conducted on a monthly basis whereby a current Balance Sheet is prepared and the relevant financial calculations are performed and compliance is confirmed.

The Company maintains sufficient financial resources to meet its financial obligations.

You should satisfy yourself that The Company is able to meet its obligation to you. You can assess The Company’s financial ability to meet its counterparty obligations by reviewing its financial statements. Should you wish to be provided with a copy of the most recent audited financial accounts of the Company then please request this Information directly from us and we will provide it free of charge.

The Company undertakes regular stress testing on a quarterly basis to ensure in that the event of significant adverse market movements we hold sufficient liquid funds to meet its obligations to investors without needing to have recourse to client money to do so.

Benchmark 5: Client Money.

The Company meets this benchmark as it maintains and applies a clear policy with respect to the use of client money.

This policy is explained in clause 6 of Part 1 of this PDS in the section entitled “Client Monies”.

Benchmark 6: Suspended or halted underlying assets.

The Company meets this benchmark as it is our policy that no new positions can be opened where there is trading halt or trading in the underlying futures contract has been suspended on the relevant exchange. We also refer you to clause 9 of Part 1 of this PDS, “Significant Risks” and in particular the section entitled “Suspension of trading in underlying asset of CFDs”.

Benchmark 7: Margin calls.

The Company maintains and applies a written policy setting out our margining practices which details:

(a) how we monitor client accounts to ensure we receive early notice of accounts likely to be on margin call;

(b) our rights we may exercise including the right to make a margin call and close out client positions

(c) when we may exercise our rights and what factors we consider when exercising our rights. All clients will be subject to margin obligations.


Positions are monitored by The Company on a mark to market basis to account for any market movements. If the value of the position moves against you then you will be required to “top up” the initial margin and, if so, you will be subject to a margin call i.e. to pay additional margin (automatically from your account to The Company account). Our margining policy requires us to take reasonable steps to notify clients before we close out a client’s position. Accordingly, margin calls are made by phone, email or SMS or in the case of clients using the MT4 platform the notification is electronic and via the platform.

Our margining policy is explained in clause 4 of Part 1 of this PDS entitled “Margin and Funding”.

The Company will attempt to provide you with sufficient notice of margin calls to enable you to meet them. However, please note that in certain market conditions such as extreme volatility this may not be possible and funds will need to be deposited with us to retain your open positions. Please note that it is your responsibility to actively monitor and manage your transactions and your obligations, including ensuring that you maintain the required account balance.

The Company reserves its rights to close out positions in relation to which margin calls have not been met.

We also reiterate that trading in our products carries a high level of risk. The risk of loss in trading can be substantial, and you can incur losses in excess of the capital you have invested. This means that you may lose more than you have deposited with us and you will be liable to us for the additional amount.

Accordingly, you should only trade with risk capital i.e. that if lost, it will not significantly affect your financial wellbeing.

2. ISSUER DETAILS

The Company is required to give you this PDS because it is the issuer of the financial products described in this PDS.

Our contact details are set out in clause 16 of Part 1 of this PDS.

3. THE FINANCIAL PRODUCTS

3.1 What Products

This is a PDS for foreign exchange products (being Margin Foreign Exchange Contracts – see Part 2) and for other derivatives (being Contracts for Difference – see Part 3). These financial products are provided by The Company as OTC contracts.

3.2 2 Foreign exchange contracts

Foreign exchange is essentially exchanging one currency for another. The exchange rate is the price of one currency in terms of another currency such as the price of the Australian dollar in terms of the US dollar. For example, if the current exchange rate for the Australian dollar as against the US dollar is AUD/USD 0.9900, this means that one Australian dollar is equal to, or can be exchanged for 99 US cents.


However, the foreign exchange products offered by The Company do not result in the physical delivery of the currency. The foreign exchange products offered by The Company are closed out by either you or us taking an offsetting position. The resultant profit or loss arising from the position being closed out will be credited or debited to your account. If a transaction is held to the nominated maturity date it will be cash adjusted or cash settled according to the closing price of the relevant currency, as quoted by us, on that particular day.

The foreign exchange products that The Company offers are Margin Foreign Exchange Derivatives (“Margin FX Derivatives”).

3.3 Contracts for Difference (“CFDs”)

A CFD is an agreement by which you can make a profit or loss from changes in the market price of the underlying asset of a CFD, without actually owning that underlying asset or having any indirect interest in it. A CFD is a derivative product because the value of the CFD is in part derived from the value of the underlying asset.

The Company currently offers CFD products with regard of several underlying assets. In the future, The Company may also offer CFD products on additional underlying assets. Should The Company offer additional CFD products we may amend this PDS or we may decide to notify Clients of the additional CFD products and provide a detailed description of such CFD products on our website.

Each transaction (irrespective of the product) which is agreed and entered into by The Company with a Client will be entered into by The Company as principal. The Company makes a market in its products as it regularly states the price at which it is prepared to deal with the Client as principal.

3.4 Dealing in our Products

When trading products offered by The Company you should be aware of the risks and benefits and review examples of how the products can be traded.

For further information including the purpose and significant features of about foreign exchange products, see Part 2 of this PDS. For further information including the purpose and significant features of CFD products, see Part 3 of this PDS.

Further information about The Company’s financial services and products is also available on our website or by contacting us.

3.5 5 How are The Company’s Products Traded?

Clients primarily transact using our online Trading Platform which gives Clients direct access to the rates/prices at which The Company is prepared to deal.

Thus, Clients are provided with direct access to our quoted rates/prices over the internet. We have provided some examples in Annexure A to this PDS to help illustrate how these products work and can be traded. These examples are illustrations only and actual results may differ.


4 MARGINS and FUNDING

4.1 1 Margins

Trading takes place on a “margined” or “leveraged” basis. This means that Clients will be required to lodge sufficient funds as security with The Company (initial margin) and may also need to cover adverse market movement which may arise against open contracts if they wish to continue to hold such contracts. Open positions will be accounted for on a mark-to-market basis whereby the Client’s account is either debited for unfavourable market movements or credited for favourable market movements.

Open positions will be monitored by The Company. If the value of an open position moves against a Client you will be required to “top up” your margin, or you may choose to close the open transaction. Please note that OCM does not specifically make a margin call to request you to top up your account to cover any adverse market movement. It is your responsibility to monitor your open positions via the Trading Platform and the impact of market movements on the account balance.

As the face value of your transaction will constantly change due to changing market conditions, your margin requirement will also change resulting in margin variations. The amount of your margin obligation at any time will be displayed on the Trading Platform. Without instructions from you, The Company will automatically apply funds which you have deposited with The Company to meet your margin requirements in the event of adverse market movements, in order to keep the position open. For this reason you must ensure that you have sufficient funds on deposit with The Company to meet these changing margin requirements.

If you do not have sufficient funds deposited with The Company to meet your margin obligations then The Company may at any time, in its absolute discretion and without prior reference to you, close out any open transactions, and any resulting loss will be debited to your account. If the available funds in your account are not sufficient to fully satisfy your obligations to The Company, you will be required to pay the shortfall, as well as any costs or charges which we may incur in recovering the shortfall from you. This means that you may lose more than you have deposited with us and you will be liable to us for the additional amount. To be clear, you should be aware that your losses are not limited the amount of funds you have lodged with us. Should your open position not be able to be closed when your account balance has reached zero then the account balance will become negative.

All relevant information about your account balance and margin requirements is available on the Trading Platform.

4.2 Initial Margin and Account Balance

Your account must always be funded with at least the required initial margin for a proposed transaction. This amount must be lodged or be available in the Client’s account balance prior to a transaction being entered into (refer to clause 4.3 of Part 1 of this PDS for more information).

The amount of the initial margin applicable to each transaction is determined by The Company in its sole discretion and current levels for each product are available using our secure MyAccount feature. It is


typically 5% of the transaction value but may be less or more depending on the volatility of the relevant underlying market. The amount of the initial margin can be varied by The Company at any time at in its absolute discretion. OCM may vary the amount of the initial margin after taking into consideration many factors such as market volatility, economic conditions and liquidity. The current amount of the initial margin for each product is available using our secure MyAccount feature.

In the case where the margin is equal or less than 5% (five percent), all positions may automatically be closed at market price. The Company may vary the initial margin rate at any time at its sole discretion. Notice of such variation will usually be given by email and any such notice will be deemed to have been received by the Client. Such variation will also be posted to The Company’s Trading Platform.

It is your responsibility to actively monitor and manage your transactions and your obligations, including ensuring that you maintain the required account balance. It is also your responsibility to ensure you are aware of any changes in the required account balance (to cover the required margin including any variations in the initial margin, whether specifically notified to you or not and also to cover any additional margin required to cover adverse market movements). The Company is under no obligation to contact you in the event of any change to the required account balance or any actual or potential shortfalls in your account (refer clause 4.1 of Part 1 of this PDS for an explanation as to how a shortfall can arise).

4.3 Cleared funds

Only cleared funds which have been identified by The Company as money paid by or for a Client will be recognised for the purpose of determining the Client’s account balance and thus, being available to meet margin requirements. In the absence of such cleared and identified funds, they will not be treated as having been paid to the credit of the Client’s account until such time the funds are cleared and identified. It may take The Company a number of days to identify a Client deposit and credit that payment to the Client’s account.

Accepted Australian banking practice typically requires 3 Business Days’ clearance for personal cheques and 1 Business Day’s clearance for direct non-ASB deposits (depending on the timing of your transfer). Any delay in crediting your account payments is at your risk.

Only cleared funds may be used to enter into transactions. As described above in clause 4.2 of Part 1 of this PDS, your account must always be funded with at least the required margin for a proposed transaction. Any funds held in your account in excess of your minimum margins can be applied to meet future margin requirements or can be withdrawn by you. Any excess funds held in your account will be retained by OCM and held in its client trust account (refer clause 6 of Part 1 of this PDS for additional information).


5. LIMITING RISKS

5.1 Stop-loss, take profit and limit orders

The Company may offer you a way of managing both adverse and favourable movements by using stop- loss, take profit and limit orders. This allows you to place orders which potentially enable you to protect yourself against adverse market swings, yet secure enhanced prices or exchange rates, when favourable upside market movements occur. If you have such an order in place, then usually your transaction will be closed out if the rate or price reaches the level specified by you when placing an order. You can use stop-loss, take profit and limit orders at no additional cost to you.

However The Company cannot guarantee that your transaction will always be closed out at the level specified by you, if the market gaps, for example in highly volatile trading conditions or in circumstances where the movement occurs outside our Trading Hours.

6 CLIENT MONIES

6.1 Client trust account

Money paid to OCM in connection with a financial service or a product offered by us will be paid into an account designated as a client trust account, with an Australian bank, no later than the next business day after it is received. The client money is taken to be held in trust by OCM for the benefit of the client.

This means that Client funds deposited with us are held in safe keeping and segregated from our own funds. Those funds are not available to pay our general creditors in the event of receivership or liquidation of OCM. Monies lodged or deposited with us to meet margin requirements, are not treated as funds belonging to OCM but are treated as funds belonging to the Clients.

Client funds will be held in a client trust account in accordance with the Corporations Act. The funds in the client trust account will be held, used and withdrawn in accordance with the Corporations Act requirements and our Client Agreement. All interest that may accrue on the client trust account is retained by The Company and will not be available to clients. This means that the client waives the right to any interest on funds deposited in our client trust account. Money may also be invested from our client trust account in accordance with the Corporations Act. Any income generated from such investments will also be retained by and for the benefit of OCM and will not be available to clients.

For money deposited in our client trust accounts, you should be aware that:

• individual Client accounts are not separated from each other;

• all Clients’ funds are co-mingled into the one account;

• the client money provisions of the Corporations Act may not insulate individual Client’s funds from a default in our client trust account if such a default were to occur. Such a default may arise from any Clients’ trading i.e. by a Client failing to pay for all losses incurred on their account; and


• assets in the client trust account belonging to non-defaulting Clients are potentially at risk, even though they did not cause the default.

Because of the above, Clients are exposed to the risk that they may not receive all money owed to them, if there is a deficiency in the client trust account and OCM becomes insolvent or otherwise unable to meet the deficiency. It is possible that any potential hedging counterparty which may be used by OCM may become insolvent and fail to return Client money that OCM has lodged with them to meet its hedging obligations.

OCM is entitled to withdraw, deduct or apply any amounts payable to OCM under the terms of this PDS or the Client Agreement or the Corporations Act. These amounts will generally only be debited from the client trust account when a client closes their positions in loss.

Payments may be made out of or withdrawn from the client trust account in limited circumstances, including:

a. payments in accordance with any written direction of the client including a direction included in the Client Agreement to pay fees and other expenses relating to transactions and to settle transactions and to otherwise execute Client instructions;

b. when a financial product is issued or transferred according to Client instructions;

c. to meet proper charges;

d. to pay OCM money to which it is entitled;

e. to return monies to the Client;

f. to make payments otherwise authorised by Law; and

g. making certain investments authorised by the Corporations Act or Corporations Regulations (for example, an investment on deposit at interest with an Australian authorised deposit-taking institution).

We are also permitted to use money belonging to a Client to meet the margin obligations of other Clients and for our own hedging positions (where we choose to do so). Thus, one Client’s money deposited in the client trust account may be used to satisfy obligations arising from dealing on behalf of another Client (or OCM itself) which exposes each Client to counterparty risk i.e. the risk that they may not receive all of the money held by us on their behalf in the client trust account if there is a deficit in the client trust account and we become insolvent or otherwise unable to pay the deficiency.

Please contact OCM if you have further questions about the operation of the client trust account or how Client funds are handled.


6.2 Client monies to which OCM is entitled

Where a Client incurs a loss as a result of entering into a transaction in a product offered by OCM, then at the time that loss is realised (i.e. when the open position is closed out) OCM is entitled to the amount of funds held in the client trust account equivalent to the value of the loss.

Following is a description of the timing of cash flows during a typical transaction and when the funds are held as client money and when the funds cease to be held as client money (note this is a simplified example and disregards any fees or charges which may apply):

This example is for a Client trading in Gold CFDs offered by us. Our quotes for Gold CFDs are based on, and with reference to, the underlying Futures Contract (which, for Gold CFDs, is a gold Futures Contract traded on ICE). The minimum contract size is 10 ounces of gold.

Day 1:

(i) Client A opens an account and deposits $10,000.

(ii) OCM deposits the $10,000 in its client trust account.

(iii) The balance of the client trust account is $10,000.

Day 2:

(i) Client A decides to buy Gold contracts. Our quote is 1550.10/1550.70. The value of a movement from 1550.10 to 1551.10 is US$10 as the minimum contract size is 10 ounces of gold.

(ii) Client A opens a transaction, say buy 5 contracts at a price of $1550.70 per ounce. This represents a notional value of US$77,535 (being: buy price (US$1,550.70) x US$10 x 5 (number of contracts)). Let’s say the margin obligation is the equivalent of A$4,000.

(iii) As counterparty to the transaction, OCM sells 5 contracts to Client A at a price of US$1550.70.

(iv) OCM will not always hedge its exposure. However, where the transaction is in excess of a certain amount (that is determined by OCM at its discretion) it may be hedged with a hedging counterparty. In circumstances where it is considered appropriate to hedge, OCM will enter into a transaction with a hedging counterparty.


In this example, if OCM does not hedge the risk then there will be no obligation to any counterparty and OCM will monitor the open position and its risk. Client A’s $10,000 will remain in the client trust account.

If however, OCM chooses to hedge its exposure, OCM would buy 5 contracts from the hedging counterparty (in OCM’s name) at a price of US$1550.70 and would have a margin obligation to that hedging counterparty of say, $4,000. OCM may withdraw money from the client trust account to meets its obligation to the hedging counterparty (or it may use its own money but is entitled to use Client money). At this point, the money remains Client money but OCM may use that money for the purpose of meeting obligations incurred by OCM (or other Clients). The balance of the client trust account is now $6,000 (with the remaining $4,000 deposited with OCM’s hedging counterparty).

Days 3 to 7:

(i) Client A continues to hold an open position;

(ii) The underlying price of gold has decreased and our quote is 1510.20/1510.80 on Day 7.

(iii) The notional value of Client A’s open positions is now US$75,510 (being: sell price (US$1510.20) x US$10 x 5 (number of contracts)). Thus, Client A’s margin obligation has increased by US$2,025 (being the unrealised loss on the open positions namely, US$77,535 less US$75,510 = US$2,025 which, at an exchange rate of 1.05, equals A$1,928.57).

In this example, if OCM did not hedge the risk then there will be no obligation to any counterparty for the variation margin obligation. Client A’s $10,000 will remain in the client trust account.

If however, OCM chose to hedge its exposure, OCM has additional margin obligation to its hedging counterparty (representing the value of the unrealised loss of A$1,928.57). Similar to Day 2, OCM would withdraw money from the client trust account to meet its obligation to the hedging counterparty. At this point, the money still remains Client money but OCM is using that money for the purpose of meeting obligations incurred by OCM. The balance of the client trust account is now $4,071.43 (being

$6,000 less $1,928.57 with the remaining deposited with OCM’s hedging counterparty).

Day 8:

(i) The underlying price of gold has decreased further and our quote is now 1500.20/1500.80.

(ii) Client A enters into a transaction to close the open positions (by selling 5 contracts to OCM at a price of US$1500.20) and realises a loss of US$2,525 (as Client A had originally bought at a price of US$1550.70) which, at an exchange rate of 1.05, equals A$2,404.76.


Client A’s account would be debited with the A$2,404.76 loss reducing the account balance to

$7,595.24.

OCM has made a profit of A$2,404.76 (as it had sold to Client A at US$1550.70 and bought from Client A at US$1500.20).

At this point, OCM is entitled to the A$2,404.76 which Client A has lost.

(i) If OCM had chosen not to hedge its exposure to its position with Client A, the A$2,404.76 would still be held in the client trust account but be money to which OCM is entitled i.e. it would no longer constitute Client money but it would be money belonging to OCM. OCM is then entitled to withdraw the money from the client trust account. The current balance of the client trust account is

$10,000 of which Client A is entitled to $7,595.24 and OCM is entitled to A$2,404.76.

(ii) If OCM had chosen to hedge its exposure then OCM closes the position it has with its hedging counterparty (by selling 5 contracts at a price of US$1500.20). Thus, OCM would realise a loss with its counterparty of A$2,404.76. The hedging counterparty would only return $3,523.84 to OCM (being the initial margin amount of $4,000 plus the additional margin obligation of A$1,928.57 less the realised loss of A$2,404.76. The balance of the client trust account on Day 7 was $4,071.43. The deposit of $3,523.84 received from OCM’s hedging counterparty would be deposited in the client trust account bring the current balance to $7,595.24 all of which OCM is holding for the benefit of Client A.

Day 10:

(i) Client A notifies OCM it wishes to close its account. The balance of the account would be $7,595.24 (being the original deposit of $10,000 less the loss of A$2,404.76).

(ii) OCM transfers $7,595.24 to Client A form the client trust account.

Client A is exposed to the risk that they may not receive all money owed to them, if there is a deficiency in the client trust account, and OCM becomes insolvent or otherwise unable to meet the deficiency. It is possible that the hedging counterparty used by OCM may become insolvent and fail to return client money that OCM has lodged with them to meet OCM’s hedging obligations. In this example, should the hedging counterparty fail to return the $3,523.84, the balance of the client trust account would be only

$4,071.43 and yet Client A is entitled to $7,595.24.


Provided OCM remains solvent it will pay from its own funds any shortfall which was to arise. However, if OCM was not solvent, the client would receive $4,071.43 from the client trust account and represent an unsecured creditor for the remaining balance of $3,523.84.

6.3 Counterparty dealings

As noted in clause 6.1 and 6.2 of Part 1 of this PDS, OCM may use the funds in its client trust accounts to manage its own dealings with its hedging counterparty if it determines to hedge some or all of its exposures.

For example, once an order is received from a Client and executed between the Client and OCM as principal, OCM may, at or about the same time and in its discretion, determine to hedge the transaction entered into with the Client so that OCM has limited exposure.

As such, OCM may be required to deposit monies with the hedging counterparty to maintain the open position.

As described in clause 6.2 of Part 1 of this PDS, it is possible that the hedging counterparty may become insolvent. It is also possible that another of OCM’s clients might go into deficit. Therefore, any funds you may have paid to OCM may not be protected if there is a default in the overall client trust account balance.

If this occurred, OCM would use its best endeavours to retrieve your funds and the funds of other clients. However, if OCM was not able to retrieve your funds it would have to source funds to match the amount in deficit.

However, if OCM was not able to source these funds it could be that OCM itself was insolvent and unable to provide financial services.

You could therefore become an unsecured creditor to OCM, as OCM would be to the insolvent hedging counterparty. For more information on counterparty risk see clause 9 of Part 1 of this PDS).

Therefore, you should be aware of the hedging counterparty with whom OCM deals and consider their financial credentials before deciding to deposit your money with OCM. The identity of our hedging counterparty is available on request.

7 CLIENT AGREEMENT

The Client Agreement governs the contractual relationship between The Company and the Client (including but not limited to the consequences of events of default). The Client Agreement sets out the basis on which transactions will take place and the obligations of both The Company and the Client when accessing and trading on the Trading Platform. However, entering into the Client Agreement does not itself constitute a trade or in any way oblige you to enter into future transactions. You must confirm via the website that you accept the terms and conditions set out in the Client Agreement before you can enter into transactions with us.


The Company’s Client Agreement is incorporated by reference into this PDS and is available on our website domain. Paper copies are available free on request.

8 HOW ORDERS ARE EXECUTED AND CONFIRMED

8.1 How transactions are carried out

You must follow the following steps to effect transactions with The Company:

(a) read this PDS and our FSG;

(b) read, acknowledge and accept the terms and conditions set out in the Client Agreement contained on our website domain;

(c) set up an account with The Company in accordance with the steps contained on our website;

(d) ) to begin executing transactions your account must be funded;

(e) based on quotations, you will enter into a transaction with The Company using the Trading Platform. The Company will quote a “bid” price and an “ask” price. This means that you can buy at our ask price and sell at our bid price. When trading using the Trading Platform, you will be able to conduct day trading, enter limit orders or use the Quick Deal function. You will receive a confirmation via a “pop up” window when you have entered into a transaction. This confirmation will set out the quantity of each currency bought and sold and the relevant exchange rate and thus, this is the point at which a contract is formed between you and us. In the event that the Trading Platform is unavailable due to a systems disruption, then orders and instructions may be given to us by telephone. An OCM representative will confirm the transaction has been entered into and this is the point at which the contract is formed;

(f) you can access details of your account online via our Trading Platform.

8.2 2 How transactions are confirmed to you

The Company will maintain accurate records of all Client orders and trades executed. The Company will provide you with documentation to confirm the transactions you have executed. We will provide electronic access to all trade confirmations to you automatically via the Trading Platform or, in the event of a system failure, within 24 hours of execution of the transaction, if feasible. You can access your account or call a The Company representative at any time to view and/or obtain details of your transactions, account balances and open positions.

You must review any confirmation or statement to ensure its accuracy and you must report any discrepancies to us as soon as reasonably practical. Confirmations are deemed to be conclusive and binding on you if not objected to in writing within one Business Day of the transaction being entered into.


9. SIGNIFICANT RISKS

Trading in margin foreign exchange contracts and CFD products involves risks. It is important that you carefully consider whether trading our products is appropriate for you in light of your investment objectives, financial situation and needs.

• Market risk – The value of your position may change as a result of a movement in the underlying market price on which our products are based. For example, you will suffer a loss if the underlying foreign exchange rate or market price of the Futures Contract on which a CFD is based moves unfavourably. There is no guarantee or assurance that you will make profits, or not make losses, or that any unrealised profits or losses will remain unchanged. You should note that information about rates or prices may come from a number of sources and may not necessarily be current when provided to you. Rates and prices depend on a number of factors including for example, interest rates, changes in demand and supply, changes in economic climate and potentially, the actions of governments including law reform. It is impossible to guarantee prices based on a snap shot of your open positions until they are closed out and the price is determined.

• Substantial losses - Despite trying to close out open positions, your loss on a transaction could be substantial and could be more than the amount of funds you have lodged in your account. If exchange rate or the price or value of an underlying Futures Contract on which the CFD is based moves against your position, you will be required to top up your account with sufficient funds to maintain your position. If you fail to maintain the required account balance your position may be closed out by The Company with resultant loss. You could sustain a total loss of the net amount that you deposit with The Company to establish or maintain a position (including “top up” amounts). If the equity in your account declines to zero or moves into deficit, you will also be liable for the resulting deficit. As explained in clause 4.1 of Part 1 of this PDS this means that you may lose more than you have deposited with us and you will be liable to us for the additional amount. To be clear, you should be aware that your losses are not limited the amount of funds you have lodged with us. Should your open position not be able to be closed when your account balance has reached zero then the account balance will become negative.

• High volatility – In abnormal, high volatile market conditions it may become difficult or impossible for you to manage the risk of open positions by entering into opposite positions or by closing out existing positions and in those circumstances nominated stop-loss, take profit or limit order prices may be missed with transactions being closed out at the next available rate or price.

• Prices/rates – Prices/rates quoted may not necessarily reflect the broader underlying market. The Company will select closing prices to be used in determining margin requirements and in marking to market the positions in Client accounts. Although these prices can be expected to be reasonably related to those available on the relevant market, prices used may vary from those available to other participants in the market, and consequently The Company may exercise considerable discretion in setting prices and margin requirements.


• Not a regulated market - The financial products offered by The Company are OTC products and are not covered by the protections for exchange-traded products arising from any domestic or international exchange rules (such as guarantee or compensation funds). Contingent liability transactions which are not traded on or under the rules of a recognised or designated exchange, may expose you to substantially greater risk.

• Credit or Counterparty risk - Given you are dealing with The Company as counterparty to every transaction, you will have an exposure to us in relation to each transaction. This is common to all OTC financial products. The risk is that The Company may not be ready, willing or able to meet its obligations, for example, if The Company were to become insolvent. You can assess The Company’s financial ability to meet its counterparty obligations by reviewing its financial statements. Should you wish to be provided with a copy of the most recent audited financial accounts of OCM then please request this Information directly from us and we will provide it free of charge.

You are reliant on OCM’s ability to meet its counterparty obligations to you to settle the relevant transaction. If OCM were to become insolvent, then we may be unable to meet our obligations to you in full or at all. OCM may limit this exposure by, in its discretion, hedging some or all of its exposure with another party so that the hedged transaction will be offset or matched with a similar trade (in terms of price and quantity) with the hedging party. In that case, we would then be exposed to counterparty risk to that party. It is possible that the hedging counterparty may become insolvent while controlling client money. Therefore any funds paid by clients to OCM may not be protected if there is a default in the overall client trust account. Refer to clause 6 of Part 1 of this PDS for further information.

• Leverage - The financial products offered by The Company carry a leverage risk. These products enable the Client to outlay a relatively small amount (or initial margin) to secure an exposure to the underlying currency or asset without having to pay the full price of holding the physical currency or asset. Trading on a margined basis is one of the riskiest forms of investment available in the financial markets. Leverage gives the user the ability to take a greater level of risk for a smaller initial outlay, thus amplifying the risks and rewards. However, leverage also increases risks and can magnify losses. Given the possibility of losing an entire investment speculation (or more) in the foreign exchange market or CFD’s should only be conducted with risk capital, that if lost will not significantly affect your financial wellbeing.

• Liquidity – In some conditions it may be difficult or impossible for you to close out a position. This can happen, for example when there is a significant change in the price, value or rate of an underlying asset or currency over a short period of time which may give rise to substantial losses.

• Electronic Trading Platform - There are a number of risks associated with using internet-based trading platforms. Such risks include, but are not limited to, risks related to the use of software and/or telecommunications systems such as software errors and bugs, delays in telecommunications systems, connection or system failures, network down time, interrupted service, data supply errors, faults or inaccuracies and security breaches.


O.C.M. Online Capital Markets Ltd (The Company’s parent company) or one of its associates will provide The Company with the use of its automated electronic Trading Platform, and The Company will make it available to Clients. A disruption to the Trading Platform could mean you are unable to trade in a Margin FX Derivatives or CFDs offered by The Company and that you may suffer a financial loss or an opportunity loss as a result.

These risks and the occurrence of disruptive events are generally outside the control of The Company and, accordingly, you will have no recourse against The Company in relation to the use or availability of the Trading Platform or any errors in the software and/or related information systems.

• Use and access to the website - You are responsible for providing and maintaining the means by which to access The Company website. While the internet is generally reliable, technical problems or other conditions may delay or prevent you from accessing the website. If you are unable to access the internet and thus, the Trading Platform, it will mean you are unable to trade in a financial product offered by The Company when you wish to do so and you may suffer a financial loss or opportunity loss as a result. The Company is not responsible for any external disruptions such as your computer or internet service provider not being operational.

In unforeseen and extreme market situations, The Company reserves the right to suspend the operation of the Trading Platform. In such an event, The Company may, at its sole discretion (with or without notice), close out your open positions at rates/prices it considers fair and reasonable and is not responsible for any loss that arises.

• Trading Platform closed - Due to the dynamic nature of our financial products and markets, it is possible that the value of your open positions will change outside Trading Hours while the trading function of our Trading Platform is closed, and various markets may be closed, for example during weekends. In these situations, you will not be able to trade in Margin FX Derivatives or CFD’s offered by The Company such as to open a new transaction or close out an open transaction until Trading Hours resume and the trading function of the Trading Platform and/or the relevant market re-opens. You may suffer a financial loss or opportunity loss as a result. There is a risk that stop-loss, take profit or limited orders left to protect open positions where there is a major announcement or significant event, will be executed at levels significantly worse than the specified price/rate of the order.

• Trading Platform suspended temporarily - We may determine in our absolute discretion to not quote prices/rates on the Trading Platform for a period determined by us which means that you will not be able to enter into transactions during that period either to open transactions to take advantage of an opportunity or to close positions to realize a profit or limit a loss. Where we can, we will provide clients with notice of any proposed suspended trading period but this cannot be guaranteed.

• Client Money – Clients’ funds are held in a client trust account but are not separated from each other. Accordingly, individual Client’s funds may not be insulated from a default in our client trust account and therefore, assets in the client trust account belonging to non-defaulting Clients are potentially at risk even though they do not cause the default.


• Suspension of trading in underlying asset of CFDs – the underlying asset of a CFD offered by OCM is a Futures Contract traded on a relevant futures exchange. Trading halts or suspensions of trading in the Futures Contract on which a particular CFD is based are unlikely to arise (other than in limited circumstances such as a failure in the relevant exchange’s systems). However, it is possible that such an event may arise. In such an event, OCM does not permit Clients to open new positions. If the CFD is over a Futures Contract which ceases to be quoted on the relevant exchange, or is suspended from quotation for five (5) consecutive business days (or such lesser period as may be agreed with you), OCM may elect to close out the CFD and/or call additional margin as determined by OCM. If OCM elects to close out the CFD, OCM will determine, in its discretion, the closing price and in making such determination, will have regard to a number of factors including the last traded price of the underlying Futures Contract and the reasons for any suspension.

• Fees and Charges – The Company reserves the right to charge fees for services provided outside the standard Trading Platform functionality (for example for accepting an instruction over the telephone). The Company may also charge for services or features which may be introduced in the future.

• Manifest Errors – A manifest error arises where a manifest or obvious misquote by us or other source on which we have relied in connection with a Transaction. In case of a manifest error we may modify the affected transaction to reflect what we in our sole and absolute discretion consider to be the correct or fair terms of such transaction in the absence of the manifest error or we may declare that any or all affected transactions are void in which case the transactions concerned will be deemed not to have been entered into. The Company is not liable for any loss which may be sustained in those circumstances.

• Other - Changes in taxation and other laws, government, fiscal, monetary and regulatory policies may have a material adverse effect on your trading in the financial products offered by The Company.

10. TRADING HOURS

The Company provides trading facilities via its Trading Platform from Sunday 22:00 GMT (Monday morning Sydney time) to Friday 22:00 GMT (Saturday morning Sydney time). In the event that the Trading Platform is unavailable due to a systems disruption, then these services will be provided via the telephone.

This means that you will be able to view live prices and place live orders during these hours. Outside these hours, you may still access the Trading Platform and view your account, market information, research and our other services. However, there will not be any live prices quoted and thus, you will not be able to enter into transactions. Any changes to operating hours will be displayed on our website.


11. TAXATION IMPLICATIONS

Trading in foreign exchange and CFD products offered by The Company has the potential for generating substantial profits and losses. The tax implications of such profits or losses may be significant depending on the personal circumstances of each individual Client. The Company does not provide tax advice and we recommend that you seek your own professional tax advice as to the impact that any profits or losses generated from trading may have on your overall tax position.

The Australian Taxation Office has released Taxation Ruling 2005/15 which describes the income tax and capital gains tax consequences of dealing in CFD products. A copy is available at the ATO’s website www.ato.gov.au.

You should note that this is a public ruling for the purpose of Part IVAAA of the Taxation Administration Act 1953, and therefore, if the ruling applies to an investor, the Commissioner of Taxation is bound to assess that investor on the basis outlined in the ruling. Penalties may apply where the treatment outlined in a taxation ruling is not followed and the investor has a tax shortfall.

The Company does not collect tax for any authority in any form or manner unless required by law in which event The Company is authorised to deduct from any monies in the Client’s account or held by The Company for the Client to pay any taxes as requested by the appropriate revenue or other authority. Without limiting the foregoing, it is the Client’s obligation alone to calculate and pay all taxes applicable to the Client in the Client’s country of residence or otherwise as a result of the Client’s trading activity using the services of The Company.

12. COOLING-OFF ARRANGEMENTS

There are no cooling-off arrangements for the foreign exchange or CFD products offered by The Company. This means that when you enter a transaction with The Company you do not have a right to return the product and you do not have the right to request The Company to repay the money you have paid to acquire a product. Should you change your mind after entering into a transaction with The Company, you should close out your position by entering into an offsetting and opposite transaction.

13. COMPLAINTS

We want to know about any problems or concerns you may have with our advice or services so we can take steps to resolve the issue. We have internal and external dispute resolution procedures to resolve complaints from Clients. A copy of these procedures may be obtained by contacting us and requesting a copy.

Initially, all complaints will be handled and investigated internally. Should you still feel dissatisfied with the outcome, you have the ability to escalate your concerns to an external body for a resolution.


If you have a complaint about the financial services provided to you, please take the following steps:

1. Contact The Company to inform us about your complaint. You may do this by telephone, in person, facsimile, email or letter. We will investigate your complaint promptly. We will try to resolve your complaint quickly and fairly.

2. If you are dissatisfied with the outcome of our investigation, you have the right to complain to the Australian Financial Ombudsman Service Limited (“FOS”) who may be contacted on 1300 780 808 or in writing at G.P.O. Box 3, Melbourne VIC 3001.

The Company is a member of this complaints resolution scheme and our membership number is [14885]. There are some circumstances that need to take place - please attend to their website for further information at http://fos.org.au/centric/home_page.jsp.

3. You can contact ASIC in Australia on 1300 300 630. This is a Freecall Infoline. This is another alternative that you may use to make a complaint and obtain information about your rights.

14. FEES AND COSTS

14.1 No Commission

The Company does not charge fees or commission such as brokerage to its clients. We are aware that some market makers charge a “market making fee”. OCM does not do so.

14.2 Hedging counterparties

If any commission is received from a hedging counterparty this is payable by that hedging counterparty direct to us and is not an additional charge to the Client. Any such commission from hedging counterparties may be based on volumes of business transacted with the hedging counterparty.

14.3 Spread

The prices and rates quoted by The Company in respect of our financial products will include a spread in favour of The Company from which it generates its income. The prices and rates quoted to clients may differ from prices available in the primary or underlying markets. This is due to the spread favouring OCM in the price or rate calculation. OCM acts as a market maker (and not a broker) and generates its income from the spreads that are embedded in the rates and prices quoted. The spread is the difference between the prices and rates at which we buy or sell products with our hedging counterparties (where applicable) and the prices and rates at which we buy and sell products with our clients. Different spreads may also be applied depending on the value of the transaction and the underlying prevailing market conditions. This spread is factored into the prices and rates quoted to Clients and there is no additional charge to the Client.

For example, we may be offered the following quote in the underlying market:


AUD:USD 1.0510:1.0512

We may add our spread such that the quote offered to you is 1.0509:1.0513. Due to the difference in the buying and selling price, the price of a CFD or rate for a MarginFX contract on your position must move favourably before you can break even. In other words, if the price or does not move at all and you close out your position, you will make a loss to the extent of OCM’s spread and any Premium charges which apply to this position.

14.4 Premium

Holding a position open after a specific hour will enable IsDeposit to add a funding Premium or subtract it to/from your account. This will cover the benefit/cost of the associated funding. The Premium Time will be about 22:00GMT (21:00DST).

To view the funding Premium per day for a specific instrument, select the instrument desired and the Premium per day will be displayed with that specific instrument.

The settlement day will be two days after the trading day as deals are settled the next two business days (T+2) from the trading day (opening/closure of a position). This day is also called the value day. For example, if your deal was opened on Wednesday the 23rd of April the value day will be the 25th of April. If the deal was opened on Wednesday and closed on Thursday, then automatically the system will charge for 3 nights Premium as the value date of the opened deal was Friday and of the closed deal was Monday (next week). Therefore the charge will be 3 times the price of the Premium. In case of weekends and holidays, the Premium is multiplied by the number of these days.

14.5 Telephone

The Company may charge you a fee, at its sole discretion, as published from time to time on our website for accepting an instruction from you over the telephone, but this fee will not be charged in the event that the Trading Platform is not available. As at the date of this PDS, OCM does not charge such a fee but we reserve the right to do so.

14.6 Inactivity fees

If there is no trading activity for a period of one year on a client account, we reserve the right to charge a fixed fee of $10 per year for you to maintain the account. If there are insufficient funds in the account for this purpose, The Company reserves the right to charge a lower administrative fee and/or to close the account.

14.7 Review of Charges

The Company reserves the right to review its charges where a service is outside the standard Trading Platform functionality.

15 OTHER INFORMATION

Other information about The Company may be obtained by accessing our website at the website domain or by contacting us.

16 HOW TO CONTACT US

You can contact us by the following means: Telephone

Call us on +61 290 372997 Mail

Write to us at O.C.M. Online Capital Markets Ltd. Level 2 19-21 Hunter St. Sydney, NSW, 2000 Australia Fax


Send us a fax to +

Email

Send us an email to In person

Visit our offices at Level 2 19-21 Hunter St. Sydney, NSW, 2000 Australia Visit our Website at isdeposit.com

17 GLOSSARY

In this PDS, the following words and expressions have the meanings set opposite them below: ASIC - Australian Securities and Investments Commission.

Business Day:

(a) for the purpose of foreign exchange contracts dealt with in Part 2, a day on which foreign exchange markets are open for business in New York, U.S.A.; and

(b) for the purpose of CFDs referred to in Part 3 of this PDS, a day when the markets in the underlying assets to which the CFD relates, are open for the conduct of business in London.

Client – the party who accepts the terms of and agrees to the Client Agreement.

Client Agreement - the Client Agreement which you will be required to accept on our website before opening an account with us which agreement governs each transaction entered into between you and The Company.

Contract for Difference (“CFD”) - an agreement between you and The Company to trade the difference arising from movements in the price or value of an underlying asset.

Corporations Act - the Corporations Act 2001 (Cth). Dollars or $ - US dollars, unless otherwise expressly stated.

Futures Contract - an agreement, listed and traded on a derivatives exchange, to deliver or take delivery of a specified standard amount of a security, financial instrument, asset, stock index or a commodity of a given grade or quality, or to make a cash adjustment based on a change in the price of the security, financial instrument, asset, stock index or commodity, at an agreed time in the future.

GMT - Greenwich Mean Time.


Margin Foreign Exchange Derivative (“Margin FX Derivative”) - a rolling spot foreign exchange contract between a Client and The Company in relation to an agreed currency pair.

Over the Counter (“OTC”) contract - a contract (or product) that is traded off-market as opposed to on an exchange such as a stock exchange or futures exchange.

Trading Hours - means the period commencing at 22:00 Sunday GMT (Monday morning Sydney time) and ending at 22:00 Friday GMT (Saturday morning Sydney time), but excluding specified holiday periods, as notified in advance by The Company or its Website, from time to time.

Trading Platform - our online trading and account review facility.


O.C.M. Online Capital Markets Pty Ltd ACN 140 899 476

Level 2 19-21 Hunter St. Sydney

NSW 2000

Australia

PRODUCT DISCLOSURE STATEMENT PART 2: FOREIGN EXCHANGE PRODUCTS

AUSTRALIAN FINANCIAL SERVICES LICENCE NO: 343628

DATE: 1 May, 2014

This is Part 2 of the Product Disclosure Statement contains information about foreign exchange products


Table of Contents PART 2

18. IMPORTANT NOTICE AND DISCLAIMER

19. RELEVANT DOCUMENT

20. PRODUCTS COVERED IN THIS PART

21. SIGNIFICANT FEATURES OF FOREIGN EXCHANGE PPRODUCTS

22. PURPOSE OF THE COMPANY’S FOREIGN EXCHANGE PRODUCTS

23. SIGNIFICANT BENEFITS OF FOREIGN EXCHANGE PRODUCTS

24. SIGNIFICANT RISKS OF FINANCIAL PRODUCTS OFFERED BY THE COMPANY

PRODUCT DISCLOSURE STATEMENT PART 2

18 IMPORTANT NOTICE AND DISCLAIMER

Decisions to enter into transactions involving foreign exchange products are very important. They often have significant risks and consequences. Please refer to clause 9 of Part 1 of this PDS – Significant Risks for more information about the significant risks in trading financial products including foreign exchange products.

It is your responsibility to ensure that you fully understand the products, how they are traded and the risks involved.

This document provides you with some basic information regarding trading foreign exchange products offered by The Company. This document may not contain all of the information that you need in order to fully understand the products and the risks.

In preparing this PDS, we have not considered your personal circumstances. This PDS only provides a summary of the significant features and risks of our foreign exchange products. You should obtain your own legal, financial and taxation advice to ensure that you fully understand foreign exchange products and that they are appropriate for you.

To the extent permitted by law, neither The Company nor its affiliates accepts any responsibility for errors or misstatements, negligent or otherwise, nor for any direct, indirect, consequential or other loss arising from any use of these documents and or/further communication in relation to them.

19 RELEVANT DOCUMENT

This is Part 2 of our PDS. You should also receive or request a copy of Part 1 and read both Parts, together with our Client Agreement and Financial Services Guide before deciding to trade in any foreign exchange product offered by The Company.

20 PRODUCTS COVERED IN THIS PART 2

This Part 2 of this PDS contains information about foreign exchange products offered by The Company. The foreign exchange products which The Company offers are Margin Foreign Exchange Derivatives (“Margin FX Derivatives”).

21 SIGNIFICANT FEATURES OF FOREIGN EXCHANGE PRODUCTS

21.1 What is a foreign exchange contract?


A foreign exchange contract is an agreement between two parties to exchange one currency for another currency at an agreed exchange rate on a predetermined date (being the ‘value date’ or ‘settlement date’ of the contract), where the date may range from either the same day or a date in the future.

Foreign exchange contract are available in most currencies. As foreign exchange is essentially about exchanging one currency for another at an agreed rate, in every exchange rate quotation, there are two currencies.

It should be noted that pursuant to the AFS Licence held by The Company:

• “foreign exchange contracts means “foreign exchange contracts” as defined in section 761A of the Corporations Act (including regulation 7.1.04 of the Corporations Regulations) and includes “derivatives”, as defined in section 761D of the Act, that are foreign exchange contracts”;

• “derivative means “derivatives” as defined in section 761D of the Corporations Act (including regulation 7.1.04 of the Corporations Regulations) and excludes “derivatives” that are “foreign exchange contracts” as defined in this licence.”

Technically, Margin FX Derivatives are derivatives (per section 761D of the Corporations Act). However, although there is no physical exchange of one currency for another currency in the products offered by The Company, they are deemed to be foreign exchange contracts for the purposes of licensing in Australia.

21.2 What is an OTC contract?

Unlike foreign exchange contracts traded on an exchange, OTC contracts are not standardised but are individually tailored to the particular requirements of the parties involved in the contract (subject to minimum contract values).

The terms involved in the negotiation of the foreign exchange contract are:

(a) the currencies to be traded;

(b) the amount of such currencies;

(c) the maturity date of the contract i.e. the end date; and

(d) the rate at which such currencies are to be exchanged.

21.3 How do The Company Margin FX Derivatives work?

A Margin FX Derivative is a rolling spot foreign exchange contract between a Client and The Company in relation to an agreed currency pair.

When you propose to enter into any Margin FX Derivative you will be asked to nominate an amount and the two currencies to be exchanged. In every Margin FX Derivative there are two currencies as follows:


1 fixed unit of a currency = X variable units of another currency.


The fixed currency is called the “base” currency and the variable currency is called the “terms” currency. Together, these are known as the currency pair. The currencies involved in any Margin FX Derivative must be currencies which are offered by The Company. As at the date of this PDS, The Company offers different currency pairs. To find out more about the different currency pairs The Company offers, we refer you to our website domain.

There is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening and one of them weakening.

The Margin FX Derivatives offered by The Company do not result in the physical delivery of the currency. The Margin FX Derivatives are closed out by either you or us (in limited circumstances as described in clause 4 of Part 1 of this PDS and in the Client Agreement) by taking an offsetting position or are cash adjusted or cash settled at the maturity date.

Other product issuers may offer foreign exchange contracts which do result in the person who acquired the contract converting one currency for another. In such cases, the person would also be asked to specify a date on which the exchange of currency will take place. This date is known as the “settlement date” and can be any Business Day on or after the date of the particular foreign exchange contract.

21.4 What exchange rate applies?

The Company acts as a market maker. The Company quotes rates at which it is willing to enter into a foreign exchange contract, as buyer or seller. The rates quoted are based on, and with reference to the underlying foreign exchange market on which the foreign exchange contract is based. The Company cannot predict future exchange rates and our rate/price quotations are not a forecast of where we believe a foreign exchange rate will be at a future date. The decision to transact at a particular rate will always be the Client’s decision.

The rates quoted include a spread in favour of The Company being the difference between the rate quoted by The Company and the sale or purchase price (as the case may be) in respect of the particular foreign exchange contract i.e. the spread is the difference between the rate quoted by us and the rate at which we buy or sell the foreign exchange to or from our Clients. This spread is factored into the rates quoted by

The Company to Clients and is not an additional charge to the Client.

21.5 How are The Company Margin FX Derivatives quoted?

The Company’s quotes are based on, and with reference to, the underlying foreign exchange market on which the Margin FX Derivative is based.

A foreign exchange quote e.g. AUD/USD "0.8910 / 0.8920" represents the bid/ask spread (in this case for AUD/USD). This quote means that you can:


(a) buy Australian Dollars at 0.8920 against the US dollar; and/or

(b) sell Australian Dollars at 0.8910 against the US dollar.

21.6 What is the minimum price movement quoted?

Currency pairs are quoted out to five digits, with the last two serving as the market bid and ask on which you can trade. The first three digits are known as "the big figure" and represent the full currency quote.

The Company's quotes are shortened so that the ask price is the last two digits of the quote (but this is not always the case, for example, the Japanese Yen is quoted to 2 decimal places). The last decimal place to which a particular exchange rate is usually quoted is referred to as a “point” or “pip”. Thus a pip is the minimum price increment. For example:

• In the quotation USD 1=AUD 0.9270, one point or one pip means AUD 0.0001. So the next price is 0.9271 or 0.9269.

• In the quotation USD 1=JPY 105.50, one point or one pip means JPY 0.01. So the next price is 105.51 or 105.49.

21.7 How are Margin FX Derivatives entered into?

Prior to entering into a trade or transaction, you must open an account with us and deposit a minimum of $100.00. This amount can be changed as per The Company’s sole discretion and may vary between the trading platforms or the relevant promotion.

When you propose to enter into a Margin FX Derivative, you will access the Trading Platform and determine which currency pair you wish to trade and consider the prices/rates being quoted by us. Should you decide to accept our price you will follow the steps on the Trading Platform. You must have lodged in your account sufficient money to meet the relevant initial margin for the proposed transaction.

The initial margin is the security deposit you are required to provide to The Company when you enter into a transaction with us and which must be maintained throughout the term of the relevant transaction. The amount of the initial margin applicable to each transaction is determined by The Company in its sole discretion and current levels for each product are available using our secure MyAccount feature. It is typically 5% of the transaction value but may be less or more depending on the volatility of the relevant underlying market and the liquidity of the underlying currency. The amount of the initial margin can be varied by The Company at any time at in its absolute discretion. OCM may vary the amount of the initial margin after taking into consideration many factors such as market volatility, economic conditions and liquidity. As noted, current amount of the initial margin for each product is available using our secure MyAccount feature.


In the case where the margin is equal or less than 5% (five percent), all positions may automatically closed by The Company.

Each transaction which is agreed and entered into by The Company with a Client will be entered into by The Company as principal. The Company makes a market in its products as it regularly states the price at which it is prepared to deal with the Client as principal.

Your Margin FX Derivative may be rolled until you decide to close out the transaction or it reaches the maturity date, provided that you continue to meet your margin requirements and maintain the required account balance.

The Company does not provide a market amongst, or between Clients. Each transaction by a Client is an individual agreement made between that Client and The Company, and is not transferrable, negotiable or assignable to or with any third party but The Company’s counter parties.

21.8 How are Margin FX Derivatives settled?

The Company’s products do not result in the physical delivery of the underlying currency to which the Margin FX Derivative applies. Rather, every trade is closed out by either you or us taking an offsetting position or are cash adjusted or cash settled at the maturity date. In other words, there is no physical payment in the foreign currency that is exchanged. Positions will always be closed out or cash settled and the Client’s account will be either credited or debited according to the profit or loss on the trade.

21.9 How are profits and losses calculated?

The profit or loss from a transaction is calculated by keeping the units of one of the currencies constant (the base currency) and determining the difference in the number of units of the other currency (the terms currency). The profit or loss will be expressed in the base currency. Accounts balance will be shown at USD unless otherwise specified by The Company.

We have provided some examples in Annexure A to this PDS to help illustrate how the Margin FX Derivatives offered by The Company work and can be traded. These examples are illustrations only and actual results may differ.

21.10 Important features of The Company’s Margin FX Derivatives

Where Clients experience adverse market movements against their open positions, they can close out the open position, top up the account or wait for The Company to close out or force liquidate the trade (see clause 4 of Part 1 of this PDS).

However it may not be possible to close out a position before the minimum margin requirement is breached or the account declines to zero, or falls into deficit. (for the reasons explained in clause 5 of Part 1 of this PDS).


The Company enables Clients to manage both adverse and favourable movement by using stop-loss, take profit and limit orders as part of their risk management strategy (see clause 5 of Part 1 of this PDS).

22 PURPOSE OF THE COMPANY’S FOREIGN EXCHANGE PRODUCTS

People who trade in foreign exchange products may do so for a variety of reasons. Some trade for speculative purposes i.e. you may take a view of a particular market or the markets in general and therefore invest in our products according to this belief with a view to profiting from anticipated exchange rate fluctuations e.g. a short-term trader who is looking to profit from intra-day and overnight changes and movements in the foreign exchange markets. Such traders are looking to profit from anticipated market movements in the currency pair in which they have traded.

Others trade foreign exchange products to hedge their foreign exchange exposures. For example, foreign exchange products can be used as a risk management tool to enable those with foreign currency exposures to protect themselves against adverse exchange rate movements. Foreign exchange products enable movements in future exchange rates to be hedged and provide certainty of exchange rates and thus, the impact on the currency exposures.

Foreign exchange exposures may arise from a number of different activities. For example:

1. Companies or individuals who are dependent on overseas trade are exposed to currency risk. This can be to purchase (or sell) physical assets (such as machinery) or even financial products (such as investing in securities listed on an international exchange);

2. An exporter who sells their product priced in foreign currency has the risk that if the value of that foreign currency falls then the revenues in the exporter's home currency will be lower;

3. An importer who buys goods priced in foreign currency has the risk that the foreign currency will appreciate thereby making the cost, in local currency terms, greater than expected; or

4. A person going on a holiday to another country has the risk that if that country's currency appreciates against their own, their trip will be more expensive.

In each of the above examples, the person or the company is exposed to currency risk.

The Company offers its Clients the facility to buy or sell Margin FX Derivatives to manage this risk.

This enables Clients to limit exposure and/or protect themselves against adverse currency swings, yet secure enhanced exchange rates when offered, thereby protecting the profit margin made during the business transaction relating to the foreign currency trade or protecting the cost of the international holiday, in the case of the traveler. This is commonly referred to as a hedge transaction.

23 SIGNIFICANT BENEFITS OF FOREIGN EXCHANGE PRODUCTS

Margin FX Derivatives provide important risk management tools for those who manage foreign currency exposures. The Company offers its Clients the ability to buy and sell its products which enable Clients to


protect themselves against adverse currency market swings. The significant benefits of using Margin FX Derivatives offered by The Company as a risk management tool are to protect your exchange rate and provide cash flow certainty.

In addition to using Margin FX Derivatives offered by The Company as a risk management tool, you can benefit by using them to speculate on changing exchange rate movements. You may take a view of a particular market, or the markets in general and therefore enter into transactions according to this belief in anticipation of making a profit.

These and other benefits are as follows:

• Exchange rate certainty – Locking in a certain exchange rate for the purchase or sale of foreign currency amounts will reduce or eliminate exchange rate uncertainty. This enables businesses and individuals who wish to pay for goods or services denominated in a foreign currency to reduce or minimise the negative impact of adverse movements in the currency market on their personal or business costs by entering into appropriate transactions. It also provides cash flow certainty.

• Risk management - The Company also offers you a way of managing adverse movements by using stop-loss orders and limit orders that enables you to potentially protect yourself against adverse market swings yet secure enhanced exchange rates when favourable upside market movements occur.

• Access to the foreign exchange markets 24 hours a day, 5 days a week - When using the Margin FX Derivatives offered by The Company, you gain access to a highly advanced and multi-levelled system which is active and provides you with the opportunity to trade 24 hours a day, 5 days a week, i.e. from Sunday 22:00 GMT (Monday morning Sydney time) to Friday 22:00GMT (Saturday morning Sydney time). This gives you an opportunity to react instantly to news that is affecting the underlying markets. It should be noted however, that trading in the various currency pairs may be restricted to hours where liquidity is available for any given currency.

• Profit potential in both rising and falling markets - Since the currency markets are constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. There is the potential for profit (and loss) in both rising and falling currency markets depending on the strategy you employ.

When you trade currencies, they literally work against each other. If the EUR/USD (the Euro and USD currency pair) declines, for example, it is because the USD gets stronger against the EURO. So, if you think the EUR/USD will decline (that is, that the Euro will weaken against the USD), you would sell EUR now and then later buy EUR back at a lower price and take your profits. The opposite trading scenario would occur if the EUR/USD appreciates.

• Superior liquidity - The foreign exchange market is generally very liquid so in most instances there are generally buyers and sellers trading enabling The Company to efficiently manage its risks by entering into transactions with its hedging counterparty (where we choose to so). The liquidity of the foreign exchange market, particularly with respect to that of the major currencies, helps to ensure price


stability. The liquidity comes mainly from banks that provide liquidity to investors, companies, institutions and other currency market players.

• Real time streaming quotes - The Trading Platform uses sophisticated technologies in order to offer you up-to-the-minute quotes. You may enter into Transactions 24 hours a day, 5 days a week (i.e. Monday morning to Saturday morning in Sydney).

• Access to your account information 24 hours a day, 7 days a week – You can access the Trading Platform at any time. You may check your account and positions in real time and you may do so 24 hours a day, 7 days a week. This enables you to closely monitor your positions.

• Flexible – A major benefit of entering into an OTC contract is that you are not bound by standardised contracts. Unlike exchange traded products, OTC contracts are not standardised. For example, The Company allows you to enter into transactions in small amounts (subject to any minimum contract value determined by The Company) with flexible settlement dates or maturity dates, whereas exchange traded products are a standard size and cannot be varied in duration. Margin FX Derivatives can be rolled indefinitely until you decide to close out the transaction or it reaches the maturity date, provided that you continue to meet your margin requirements and maintain the required account balance.

• Leverage – The use of the Margin FX Derivatives offered by The Company involves a high degree of leverage. These products enable the user to outlay a relatively small amount (or initial margin) to secure an exposure to the underlying currency without having to pay the full price of holding the physical currency. You can effectively take a position with the same result as purchasing or selling a currency for less outlay than the equivalent physical transaction and still potentially benefit from a price move.

Leverage gives the user the ability to take a greater level of risk for a smaller initial outlay, thus amplifying the risks and rewards. However, it is important to fully understand that leverage also increases risks and can magnify losses – see clause 9 of Part 1 of this PDS.

24 SIGNIFICANT RISKS OF FINANCIAL PRODUCTS OFFERED BY THE COMPANY

Trading in Margin FX Derivatives offered by The Company involves risks which are similar to investing in Futures Contracts. It is important that you carefully consider whether which trading is appropriate for you, in light of your investment objectives, financial position and needs. Please refer to clause 9 of Part 1 of this PDS for details of the various risks involved.

Foreign exchange products and CFD’s carry a high degree of risk involving fluctuations in exchange rates and prices. Derivative markets can be highly volatile. Any transaction involving currencies or commodities is exposed to, among other things, changes in a country’s political condition, economic climate, acts of nature and so on, which may substantially affect the price or availability of a given currency or asset.

The Company recommends that you do not risk money that you are not in a position to lose and that you adopt a philosophy of capital preservation and implement risk mitigation techniques (such as the use of stop-loss orders).


Table of Contents PART 3

26. IMPORTANT NOTICE AND DISCLAIMER

27. RELEVANT DOCUMENTS

28. PRODUCTS COVERED IN THIS PART

29. PURPOSE OF THE COMPANY’S CFD PRODUCTS

30. SIGNIFICANT FEATURES OF CFD’S

31. SIGNIFICANT BENEFITS OF CFD PRODUCTS

32. SIGNIFICANT RISKS OF CFD PRODUCTS OFFERED BY THE COMPANY

33. HOW IS THE CFD PRICE CALCULATED?

34. HOW ARE THE COMPANY’S CFD PRODUCTS TRADED?


PRODUCT DISCLOSURE STATEMENT PART 3

26 IMPORTANT NOTICE AND DISCLAIMER

Decisions to enter into transactions involving Contracts for Difference (“CFDs”) are very important. They often have significant risks and consequences. Please refer to Clause 9 of Part 1 of this PDS – Significant Risks for more information about the significant risks in trading financial products (including CFD products).

It is your responsibility to ensure that you fully understand the products, how they are traded and the risks involved.

This document provides you with some basic information regarding trading CFD products offered by The Company. This document may not contain all of the information that you need in order to fully understand the products and the risks.

In preparing this PDS, we have not considered your personal circumstances. This PDS only provides a summary of the significant features and risks of CFD products. You should obtain your own legal, financial and taxation advice to ensure that you fully understand CFD products and that they are appropriate for you.

To the extent permitted by law, neither The Company nor its affiliates accepts any responsibility for errors or misstatements, negligent or otherwise, nor for any direct, indirect, consequential or other loss arising from any use of these documents and or/further communication in relation to them.

27 RELEVANT DOCUMENTS

This is Part 3 of our PDS. This PDS is subject to the detailed provisions of the Client Agreement. Please ensure you have received, and read and fully understand the Client Agreement and Financial Services Guide, and both Part 1 and Part 3 of this PDS before deciding to invest in any CFD product offered by The Company.

28 PRODUCTS COVERED IN THIS PART

This Part 3 of the PDS contains information about Contracts for Difference (CFD) offered by The Company. The Company currently offers CFDs on commodities (e.g. gold, silver and oil) and Shares of selected companies from Global exchanges.

28.1 What is a CFD?

CFDs are derivatives, that is, financial products which derive their price from the fluctuations of the price of an underlying asset (which could be a financial product, an interest rate, an asset, an index or a commodity). The underlying asset may be traded on an exchange (such as securities or Futures


Contracts) or on any other type of market. CFD products allow you to receive many of the benefits of owning the underlying asset on which the CFD is based without physically owning it.

A CFD is essentially an agreement between you and The Company to trade the difference arising from movements in the price or value of an underlying asset. CFDs have no fixed expiry dates, are not standardised and have no fixed size. As a party to a CFD, you can be paid an amount of money (profit), or be required to pay an amount of money (loss) arising from movements in the price or value of the underlying asset. Therefore, CFDs are cash adjusted between you and The Company. CFD products will always be closed out with your account either credited or debited according to the profit or loss of the trade.

Trading a CFD product does not result in the ownership by you of any actual underlying asset and you will have none of the rights as an owner in the underlying asset.

Prices quoted for CFDs can only be traded during the open market hours on which the underlying asset is traded. In addition, The Company does not typically quote a price for a CFD on a particular underlying asset if that underlying asset is illiquid or in suspension (e.g. a particular Futures Contract may be suspended by the relevant exchange).

Each CFD which is agreed and entered into by The Company with a Client will be entered into by The Company as principal. The Company makes a market in its CFD products as it regularly states the price at which it is prepared to deal with the Client as principal.

28.2 What is an OTC contract?

Unlike financial products traded on an exchange, CFDs are OTC contracts which are not standardised but are individually tailored to the particular requirements of the parties involved in the contract i.e. The Company and the Client but subject to minimum contract values.

The terms involved in the negotiation of the contract (or transaction) are:

(a) the underlying assets to be traded;

(b) the amount of such assets;

(c) the maturity date of the contract; and

(d) the price at which the asset is to be traded.

28.3 How are transactions entered into?

Prior to entering into a transaction, you must open an account with us and deposit a minimum of

$100.00. This amount can be changed as per The Company’s sole discretion and may vary between the trading platforms or the relevant promotion.

When you propose to enter into a transaction, you will access the Trading Platform and determine which CFD product you wish to trade and consider the prices being quoted by us. Should you decide to accept our price you will follow the steps on the Trading Platform. You must have lodged in your account sufficient money to meet the relevant initial margin for the proposed transaction.


28.4 What margin is required?

In respect of each CFD product you will be required to pay initial margin. In addition, you may also be required to pay (or be entitled to receive from The Company) variation margin, which is the unrealised loss or profit on your open CFD position.

28.5 What is Initial Margin?

The initial margin is the security deposit you are required to provide to The Company when you enter into a transaction with us and which must be maintained throughout the term of the relevant transaction. The amount of the initial margin applicable to each transaction is determined by The Company in its sole discretion and current levels for each CFD product are available on our margin and pip calculator using our secure MyAccount feature. It is typically 5% of the transaction value but may be as high as 100% depending on the volatility of the relevant underlying market and the liquidity of the underlying asset. The Company may vary the initial margin rate at any time in its sole discretion. OCM may vary the amount of the initial margin after taking into consideration many factors such as market volatility, economic conditions and liquidity. As noted, the current amount of the initial margin for each product is available using our secure MyAccount feature.

28.6 Adjustment of Differences/Variation Margin

Open positions are accounted for in real time on a mark-to-market basis to determine the current value of the CFD on which the underlying asset is normally quoted. Based on this determination, your account will either be debited in relation to any unrealised losses or credited in relation to any unrealised profits.

If you hold a long (or bought) position and the current value increases, The Company will credit an amount equal to the increase in value. If the current value decreases, The Company will debit you an amount equal to the decrease in value.

If you hold a short (or sold) position and the current value increases, you will be debited an amount equal to the increase in value to The Company. If the current value decreases The Company will credit your account with an amount equal to the decrease in value.

These amounts owing by you to us or by us to you are what is known as the variation margin.

28.7 How are profits and losses on CFDs calculated?

The amount of any profit or loss made on the CFD will be calculated by reference to the difference between the price or value of the CFDs underlying asset when the CFD is opened and the price or value of the CFDs underlying asset when the CFD is closed out, multiplied by the number of the CFDs held. The calculation of profit or loss is also affected by funding charges and any other charges.


The Company’s quotes are based on, and with reference to, the underlying Futures Contract on which the CFD is based after allowing for The Company’s spread.

Example:

Assume the price of gold has been increasing and you consider that the price will continue to rise. You access the Trading Platform to review our Gold CFD quotes. Our quotes are based on, and with reference to, the underlying Futures Contract (which, in this example, is a gold Futures Contract traded on ICE).

Our quote is 1550.10/1550.70. The value of a movement from 1550.10 to 1551.10 of US$10 as the minimum contract size is 10 ounces of gold.

You buy 20 Gold CFDs at a price of US$1,550.70.

The underlying price of gold increases and our quote is now 1570.20/1570.80.

You decide to sell the CFDs at a price of US$1,570.20 and close out against the bought open position.

The resulting profit would be US$3,900 (less funding charge) being: Sale price ($1,570.20) less buy price ($1,550.70) x US$10 x 20 (number of CFDs).

We have provided some further examples in Annexure A to this PDS to help illustrate how the products offered by The Company work and can be traded. These examples are illustrations only and actual results may differ.

28.8 Important features of The Company’s CFD products

Where Clients experience adverse market movements against their open positions, they can close out the open position, top up the account or wait for The Company to automatically close out or force liquidate the trade (see clause 4 of Part 1 of this PDS).

However it may not be possible to close out a position before the minimum margin requirement is breached or the account declines to zero or falls into deficit. (See clause 5 of Part 1 of this PDS).

The Company enables Clients to manage both adverse and favourable movement by using stop-loss, take profit and limit orders as part of their risk management strategy (see clause 5 of Part 1 of this PDS).

28.9 Types of CFDs offered by The Company

The Company currently offers CFD products on commodities such as gold, silver and oil, as well as selected Share CFD’s.


CFDs derive their price ultimately from the real time fluctuations of the price of the underlying asset being a Futures Contract traded on the relevant futures exchange upon which that Futures Contract is traded, or on the underlying security being traded on the relevant stock exchange.

Prices are only quoted for CFDs, and can only be traded, during the open market hours of the relevant exchange on which the underlying Futures Contract or asset is traded. Open hours of the relevant exchanges are available by viewing the relevant exchange website. We do not quote a price on a CFD if the underlying Futures Contract or asset is illiquid or in suspension (e.g. a particular maturity date may be suspended by the ICE).

CFDs allow you to receive many of the benefits of owning the underlying asset on which the CFD is ultimately based (i.e. a Futures Contract) without physically owning it. The Company does not offer all Futures Contract listed for trading on global futures exchanges. However, there are several CFDs offered by The Company. For more information on which CFDs The Company offers, please refer to our website domain or contact a representative of The Company.

29 PURPOSE OF THE COMPANY’S CFD PRODUCTS

CFDs are generally used for one of two purposes – hedging or speculating.

CFDs can provide those who deal in the underlying asset with a facility for managing the risks associated with changing prices for those investments. This strategy is known as hedging.

CFDs are also traded by speculators, who trade in the anticipation of profiting purely from changing prices in the underlying asset.

Generally, trading CFDs allows you to leverage your positions to take a much greater exposure than if you were to purchase the underlying asset. Trading in CFDs does however, involve significant risk.

Transactions should only be entered into by traders and investors who understand the nature and extent of their rights, obligations and risks (for more information on risks see clause 9 of Part 1 of this PDS).

30 SIGNIFICANT FEATURES OF CFDS

The significant features of CFDs offered by The Company are:

• A CFD broadly replicates the price movement of the underlying asset i.e. if the price of the underlying asset changes, so will the value of the CFD.

• CFDs are products that provides the opportunity to profit (or incur loss) by dealing in the underlying asset without having to actually own the underlying asset.


• Unlike contracts traded on an exchange, OTC products are not standardised. The terms of a CFD are individually tailored to the particular requirements of the parties involved in the contract i.e. The Company and the Client but subject to minimum contract values.

• Because you do not own the underlying asset itself, you have none of the rights associated with owning the underlying asset.

• CFDs are OTC derivative products with The Company acting as counterparty (and principal) in its dealings with you. It is a transaction between you and The Company and can only be entered into with The Company and closed out with The Company. It is not possible to close out the CFD with any other party.

• CFDs are subject to account balance requirements and are marked to market to the current contract value on a real time basis.

• CFDs do not have an expiry date and will remain in place until either you or, in its discretion, The Company, close out the open position.

• Dividends payments are assessed on Share CFD positions. E.g. “Company XYZ” declares a dividend of $0.25. If you are holding a long position of 1,000 shares in XYZ CFD’s at the time the company goes “Ex Dividend”, your account will be credited with $250 and the market price for the CFD will be adjusted accordingly.

30.1 Quotes

A CFD quote e.g. where 1 Brent Crude Oil Futures Contract is the underlying asset (and the underlying quantity of the Futures Contract is 100 barrels), the CFD may be quoted as "52.70 / 52.77". This represents the bid/ask spread. This quote means that you can:

• buy the CFD at 52.77; and/or

• sell the CFD at 52.70.

30.2 Long and short positions

You can take both “long” and “short” CFD positions. If you enter into a long position (i.e. buy a CFDs), you will make a profit from a rise in the price of the underlying asset, and you will make a loss if the price of the underlying asset falls. Conversely, if you enter into take a short position (i.e. sell a CFD), you will make a profit from a fall in the price of the underlying asset and you will make a loss if the underlying asset’s price rises.

If you enter in to a long CFD position it is similar to borrowing funds from The Company to buy the underlying asset, and posting an amount of initial margin with us.

If you enter into a short CFD position it is similar to borrowing the underlying asset from The Company, selling it on the market with a view to repurchasing it at a future date, and in the meantime investing the proceeds of the initial sale in a bank account, with a proportion of these proceeds being held as margin by The Company.

31 SIGNIFICANT BENEFITS OF CFD PRODUCTS


CFDs provide a number of benefits which must be weighed against the risks of using them. These benefits include:

• Ability to use CFDs to hedge - You can use CFDs to hedge your exposure to an underlying asset.


• Ability to use CFDs to speculate - You can use CFDs for speculation, with a view to profiting from market fluctuations in the underlying asset. You may take a view of a particular underlying asset and therefore invest in our CFD products according to this belief in anticipation of making a profit. CFDs enable you to take a position with an exposure to a particular underlying asset without needing to buy or sell the actual underlying asset.

• Flexible – A major benefit of entering into an OTC contract (such as a CFD offered by The Company) is that you are not bound by standardised contracts. Unlike exchange traded products, OTC contracts are not standardised. For example, The Company allows you to enter into CFDs in small amounts (subject to minimum contract values required by The Company) whereas exchange traded products have a minimum transaction size.

• Real time streaming quotes - The Trading Platform uses sophisticated technologies in order to offer you real time streaming quotes. You may enter into transactions whenever the underlying market of an underlying asset is open.

• Access to your account information 24 hours a day, 7 days a week – You can access the Trading Platform at any time. You may check your account and positions in real time.

• Profit potential in both rising and falling markets - Since the prices in the underlying assets are constantly moving, there are always trading opportunities, whether the price of the particular underlying asset is increasing or decreasing. Because you are able to take long or short positions using CFDs, there is the potential for profit and loss in both rising and falling markets depending on the strategy you adopt.

• Leverage - The use of CFDs involves a high degree of leverage. These products enable a user to outlay a relatively small amount (in the form of the initial margin) to secure an exposure to the underlying asset without having to pay the full price of holding the underlying asset. You can effectively take a position with the same potential to incur a profit (or loss) as you would get from purchasing or selling the underlying asset, but for less initial outlay than the equivalent physical transaction.

Leverage gives the user the ability to take a greater level of risk for a smaller initial outlay, thus amplifying the risks and rewards. However, it is important to fully understand that leverage also increases risks and can magnify losses – see clause 9 of Part 1 of this PDS.

• Strategies - Strategies may be complex and will have different levels of risk associated with each strategy. Please contact a representative of The Company to assist you in different trading strategies available to you.


32 SIGNIFICANT RISKS OF CFD PRODUCTS OFFERED BY THE COMPANY

For detailed information about the significant risks of trading in CFD’s, please refer to clause 9 of Part 1 of this PDS.

33 HOW IS THE CFD PRICE CALCULATED?

As a market maker, The Company’s quotes are based on, and with reference to, the underlying Futures Contract on which the CFD product is based, after allowing for The Company’s spread.

The spread is the difference between the price quoted by The Company and the sale or purchase price (as the case may be) in respect of the particular CFD i.e. the spread is the difference between the price quoted by The Company and the rate of which The Company buys or sells the CFD to or from its Client’s. This spread is factored into the prices quoted by The Company to Client’s and is not an additional charge to the Client.

The Company cannot predict future market prices of underlying assets and our quotations are not a forecast of what we believe an underlying asset’s value will be at a future date. The decision to transact at a particular rate will always be the Client’s decision.

The Company does not provide a market amongst or between Clients. Each CFD product purchased (or sold) by a Client is an individual agreement made between that Client and The Company and is not transferable, negotiable or assignable to or with any third party.

34 HOW ARE THE COMPANY’S CFD PRODUCTS TRADED?

Clients primarily transact in our CFD products using the Trading Platform provided by The Company and in rare cases over the phone. Accordingly, Clients are provided with direct access to our quoted prices over the internet.

We have provided some examples in Annexure A to this PDS to help illustrate how the CFD products offered by The Company work. These examples are illustrations only and actual results may differ.


ANNEXURE A

1. TRADING EXAMPLES

Following are some examples to help illustrate how the products described in this PDS work and how they can be traded.

Note that for simplicity sake, we have not taken into consideration Premium for the period the positions in the examples were held open. Such Premium received or paid will alter the net profit or net loss calculation. Refer examples below in Point 2 which explain how Premium will impact on the overall return generated.

These examples are illustrations only and actual results may differ.

1.1 Opening a trade using a Market Order

A market order allows you to open a Margin fx derivative or CFD trade at the current market rate/price quoted by us on the Trading Platform.

For example, if the current AUD/USD rate quoted by us is 1.0680 – 1.0683, then opening an immediate trade at these rates would be a market order.

Let’s assume you expect the Australian dollar to rise against the US dollar and therefore, you decide to buy 100,000 Australian dollars of the AUD/USD pair.

If you wish to enter a market order to open a Margin FX derivative you will need to log onto the Trading Platform and access our current quotes. As you wish to “buy” then you need to click on our sell quote (or ask price) i.e. the price at which we are prepared to sell to you. In this example, you would buy from us at 1.0683.

Conversely, if you had wished to “sell” then you needed to click on our buy quote (or bid price)

i.e. the price at which we are prepared to buy from you. In this example, you would sell to us at 1.0680.

1.2 Closing a trade using a Market Order

The process to close a trade on the Trading Platform using a market order is the same as to open except that the Trading Platform will automatically match the two opposite positions and close the trade resulting in a profit or a loss (being the difference between the buy price and sell price).

Following on from the above example, let’s assume you have bought an AUD/USD Margin FX derivative at 1.0683. By doing that you are buying 106,830 USD (minimum value of contract 100,000 * 1.0683* 1 (number of contracts)).


The following day the AUD appreciates against the USD and now our quote is 1.0720 – 1.0723. You now choose to close your position by entering into a sell contract and you click on our buy quote (or bid price) i.e. the price at which we are prepared to buy from you. In this example, you would sell at 1.0720. Therefore, you sell 107,200 USD (being 100,000 * 1.0720 * 1).

Your account will show a debit of USD 106,830 and a credit of USD 107,200. This results in a profit of USD 370 (being sale price of USD 107,200 less buy price of USD 106,830).

Important note

Due to the difference in the buying and selling price quoted by us (i.e. our spread), the Margin FX rate or CFD price on your position must move favourably before you can even be in a break even position. In other words, in the above example, if the Margin FX rate quoted by us did not move at all and you closed out your position, you will make a loss to the extent of our spread i.e. the difference between our quote to buy and sell (and any Premium charges which apply to the position).

1.3 Opening a Trade using an Entry or Limit Order

In contrast to a market order, an entry order is where you request to buy or sell a Margin FX derivative or CFD at a specified rate/price, which may be some distance from the current rate/price quoted by us.

Let’s assume we are currently quoting a Gold CFD at US$1,560.28 - US $1,560.30 but you do not want to open a trade at those current rates. You expect the gold price to fall from its current level and then rise after that. You may elect to set a different price (say a lower price of US$1,550.70) using an entry order for say 5 contracts, so if the market price falls to US$1,550.70, 5 buy CFD contracts will be automatically opened by the Trading Platform.

1.4 Closing a Trade using a Stop Loss Order

Following on from the above example, let’s assume that you were right and the following week the gold price declined as you thought it would and your entry order is triggered i.e. the Trading Platform automatically opens 5 bought Gold CFD contracts at US$1,550.70. This represents a notional value of US$77,535 (being: buy price (US$1,550.70) * US$10 * 5 (number of contracts)).

Let’s assume that you wanted to limit your potential losses, so you enter a stop loss order into the Trading Platform at a price of US$1,530.70 i.e. you are prepared to lose US$1,000 (being US$20 * US$10 * 5 (number of contracts). In this example we will assume that the price fell.

Your stop loss order would be automatically triggered by the Trading Platform and the trade closed out at US$1,530.70 being a loss of US$20 per contract US$1,550.70 - US$1,530.70). The total loss in this instance would be US$1,000 (US$20 *US$10 * 5 contracts).

As described in clause 5.1 of this PDS, we cannot guarantee that your transaction will always be closed out at the level specified by you in a stop loss order, if the market gaps, for example in highly volatile trading conditions or in circumstances where the movement occurs outside our Trading Hours.


Let’s look at an example where the underlying market is volatile and your stop loss order is triggered but at a different price to the order level.

Following on from this example, where you have an open bought positions (5 Gold CFDs at a price of US$1,550.70). Let’s assume that the price of the underlying futures contract on ICE (i.e. the relevant exchange is experiencing volatile trading conditions. This will mean our Gold CFD prices will also be volatile. Let’s assume the price of the Gold CFD gapped through the predefined stop loss price of US$1,530.70 and the next available price was US$1,525.70. This would result in a loss of US$25 per contract or a total of US$1,250 (US$25 x US$10 x 5 contracts). This means that you would lose US$250 more than you had expected when you placed the stop loss order at a predefined price of US$1,530.70.

1.5 Closing a Trade using a Take Profit Order

Let’s assume that when you opened the Gold CFD positions at US$1,550.70, you set a profit target of US$1,500. You would enter a take profit order into the Trading Platform at a price of US$1,580.70 (with the resultant profit being US$30 * US$10 * 5 contracts). We will also assume that on the same day the price increased to US$1,580.70. Your take profit order price would be automatically triggered by the Trading Platform and your open Gold CFDs would be closed out at US$1,580.70. This would mean that you made a total profit of US$1,500 (being US$30 * US$10 * 5 contracts).

Similarly to the stop loss order example above, if the Gold CFD price gapped from say US$1,578.200 to US$1,585.70 i.e. through your take profit order price of US$1,580.70, then the Trading Platform would close the open positions at the next available price at US$1,585.70 for a profit of US$35 per contract thereby resulting in a greater profit that you expected i.e. a profit of

$1,750 ((being US$35 * US$10 * 5 contracts) rather that US$1,500.

1.6 Receiving Premium and where you have made a profit

We refer to the examples above in points 101 and 1.2 where you sold 1,000,000 British pounds of the GBP/AUD pair.

Our quote is GBP/AUD 1.8400 – 1.8406 and you sell GBP at 1.8400 against AUD. The following day the GBP drops against the AUD and our quote is GBP/AUD 1.8390 – 1.8396. You close your position at 1.8396 and make a profit of AU$400.

Now let’s assume the overnight Premium for the GBP/AUD Margin FX derivative were as follows:

Currency Pair

Premium Sell (in pips)

Premium Buy (in pips)

GBP/AUD

0.1

-2.5

As described in clause 3.6 of this PDS, a “pip” is the minimum price increment in our quoted process.

Due to the fact that you held the position over night and the Premium of the selling position is positive you are entitled to receive a funding Premium calculated as follows:

AU$100 (pip value) × 0.1 = AU$10

Thus, Total Profit on the transaction is calculated as follows:

AU$400 (difference between buy and sell rate) + AU$10 (Premium) = AU$410

This means your net profit is higher because you were entitled to receive Premium which is added to your profit on the trade.

1.7 Receiving Premium and where you have made a loss

In this example, let’s assume you decide to sell 1,000,000 British pounds of the GBP/AUD pair

Our quote is GBP/AUD 1.8400 – 1.8406 and you and you sell GBP at 1.8400 against AUD. The following day the GBP depreciates against the AUD and our quote is GBP/AUD 1.8401 – 1.8407. You close your position at 1.8407 and lose AU$700.

The overnight Premium for the GBP/AUD Margin FX derivative were as follows (same as in example 2.1):

Currency Pair

Premium Sell (in pips)

Premium Buy (in pips)

GBP/AUD

0.1

-2.5


Due to the fact that you held the position over night and the Premium of the selling position is positive you are entitled to receive a funding Premium calculated as follows:

AU$100 (pip value) × 0.1 = AU$10

Thus, Total Loss on the transaction is calculated as follows:

Loss of AU$700 (difference between buy and sell rate) + AU$10 (Premium) = AU$690

This means your net loss is lower because you were entitled to receive Premium which is offset against your loss on the trade.

1.8 Paying Premium and where you have made a loss

In this example, let’s assume you decide to sell 100,000 Australian dollars of the AUD/USD pair.

Our quote is AUD/USD 1.0680 – 1.0683 and you sell AUD at 1.0680 against USD. The following day the AUD appreciates against the USD and our quote is AUD/USD 1.0710 – 1.0713. You close you position at 1.0713 and lose US$330.

The overnight Premium for the AUD/USD Margin FX derivative were as follows (same as in example 2.1):

Currency Pair

Premium Sell (in pips)

Premium Buy (in pips)

AUD/USD

-1.5

-1.1

Due to the fact that you held the position over night and the Premium of the selling position is negative you are entitled to pay a funding Premium calculated as follows:

US$10 (pip value) × 1.5 = US$15 USD

Thus, Total Loss on the transaction is calculated as follows:

Loss of US$330 (difference between buy and sell rate) - US$15 (Premium) = US$345

This means your total loss is greater because you were required to pay Premium which is added to your loss on the trade.


1.9 Paying Premium and where you have made a profit

In this example, let’s assume you decide to sell 100,000 Australian dollars of the AUD/USD pair.

Our quote is AUD/USD 1.0680 – 1.0683 and you sell AUD at 1.0680 against USD. The following day the AUD depreciates against the USD and our quote is AUD/USD 1.0637 – 1.0640. You close your position at 1.0640 and make a profit of US$400.

The overnight Premium for the AUD/USD Margin FX derivative were as follows (same as in example 2.1):

Currency Pair

Premium Sell (in pips)

Premium Buy (in pips)

AUD/USD

-1.5

-1.1

Due to the fact that you held the position over night and the Premium of the selling position is negative you are entitled to pay a funding Premium calculated as follows:

US$10 (pip value) × 1.5 = US15

Thus, Total Profit on the transaction is calculated as follows:

US$400 (difference between buy and sell rate) - US$15 (Premium) = US$385

This means your net profit is less because you were required to pay Premium which is deducted from your profit on the trade.