Transcription
Product Disclosure StatementIssuer: HiFX LimitedAn offer of a Derivative Foreign Exchange Swap Contract(s) (FX Swap(s))Date: 12 September 2018This is a replacement PDS, whichreplaces the PDS dated 18 October 2016This document provides important information about HiFX Limited’s Foreign Exchange Swap contracts (FXSwap(s)) to help you decide whether you want to enter into this derivative. There is other useful informationabout this offer at www.companies.govt.nz/disclose.Many derivatives are complex and high-risk financial products that are not suitable for most retail investors.If you do not fully understand the derivative as described in this document and the risks associated with it,you should not enter into it. You can also seek advice from a financial adviser to help you make yourdecision. You should ask if that adviser has experience with this type of derivative.HiFX Limited has prepared this document in accordance with the Financial Markets Conduct Act 2013.
Powering you.1. KEY INFORMATION SUMMARYWHAT IS THIS?This is a product disclosure statement for foreignexchange swap contracts (FX Swaps) provided byHiFX Limited (HiFX).FX Swaps are derivatives which are contractsbetween you and HiFX for the exchange of onecurrency for another currency on one day and there-exchange of those currencies at a later datethat may require you or HiFX to make a paymentin an agreed currency. The amounts that must bepaid or received will depend on the rate andamount of the underlying currencies. The contractspecifies the terms on which those payments mustbe made.WARNINGWHICH DERIVATIVES ARECOVERED BY THIS PDS?This PDS covers: FX SwapsUnder a FX Swap you exchange one currency foranother at an agreed foreign exchange rate, byundertaking a Spot FX Transaction, and at thesame time agree to re-exchange those currenciesback again on a future date (at an agreed forwardexchange rate). Simply put, it is a contract inwhich two foreign exchange contracts – a Spot FXTransaction and a FEC - are packaged together.FX Swaps are often used by companies to helpfund their foreign exchange requirements whilemanaging exposure to adverse currencymovements.Your liability to make margin paymentsHiFX may require you to make additionalpayments (being Margin payments) to contributetowards your future obligations under a FX Swap.These payments may be required at short noticeand can be substantial. You should carefully readsection 2.1.1, “Payment of Initial Margin” andsection 2.1.3 “Margin Call Obligations”, aboutyour obligations.Risks arising from issuer’s creditworthinessWhen you enter into derivatives with HiFX, youare exposed to a risk that HiFX cannot makepayments or deliver a currency as required. Youshould carefully read section 3 of this PDS, “Risksof These Derivatives”, and consider HiFX’screditworthiness. If HiFX runs into financialdifficulty, the Margin you provide may be lost.ABOUT HIFX LIMITEDHiFX is a provider of various foreign exchangeproducts including non-derivative products (suchas spot foreign exchange contracts) andderivative products (such as forward foreignexchange contracts (FECs), foreign exchangeoptions (FX Options) and FX Swaps) delivered viaits online transactional platform, by email or overthe telephone.1
Powering you.CONTENTS1. KEY INFORMATION SUMMARY12. KEY FEATURES OF THE DERIVATIVES32.1. KEY FEATURES OF A FX SWAP32.2. ENTERING INTO A FX SWAP62.3. RIGHTS TO ALTER TERMS OR TERMINATE A FX SWAP73. RISKS OF THESE DERIVATIVES83.1. PRODUCT RISKS83.2. ISSUER RISKS83.3. RISKS WHEN ENTERING OR SETTLING THE DERIVATIVES94. FEES104.1. TRANSFER FEE104.2. THIRD PARTY FEES114.3. INTEREST115. HOW HIFX TREATS FUNDS AND PROPERTY RECEIVED FROM YOU126. ABOUT HIFX137. ADDITIONAL CLIENT PROTECTION PROVIDED BY HIFX FOR CLIENT PAYMENTS148. HOW TO COMPLAIN169. WHERE YOU CAN YOU FIND MORE INFORMATION1710. HOW YOU ENTER INTO A CLIENT AGREEMENT1811. GLOSSARY OF TERMS192
Powering you.2. KEY FEATURES OF THE DERIVATIVE2.1. KEY FEATURES OF A FX SWAPA FX Swap is an effective and efficient cashmanagement tool for companies that have assetsand liabilities denominated in differentcurrencies. They allow you to utilise the funds youhave in one currency to fund obligationsdenominated in a different currency whilemanaging exposure to adverse currencymovements.You may use a FX Swap if you need to exchangeone currency for another currency on one dayand then re-exchange those currencies at a laterdate. A FX Swap may be used as an alternative todepositing or borrowing in foreign currency.A FX Swap has two legs or stages (near leg dateand a far leg date).On the near leg date, you swap one currency foranother at an agreed spot foreign exchange rateand agree to swap the same currencies backagain on a future date (far leg date) at a forwardforeign exchange rate.Simply put, a FX Swap is a contract in which twoforeign exchange contracts - a Spot FXTransaction and a FEC - are packaged together tooffset each other (albeit with different settlementdates and exchange rates).The exchange rates offered by HiFX in a FX Swapare determined by: The amount of the currencies being swapped; The exchange rates on offer in the foreignexchange market place for the currenciesinvolved; The future date (far leg date) which you agreeto swap the currencies back again (up to 24months in the future); and The forward foreign exchange rate. This iscalculated by adjusting the spot foreignexchange rate used in the near leg date of theFX Swap by a forward point adjustment. Theforward point adjustment represents theinterest rate differential between the countriesof the currencies involved and compensates theseller of the currency of the far leg date with thehigher interest rate, for the interest differentialof the currencies involved that the seller couldhave earned (in the wholesale financial markets)if the swap transaction had not occurred (refersection 2.1.2 below for an example of howforward points are calculated).The key benefits or main uses of a FX SwapA FX Swap allows you to offset foreign exchangecommitments where you will be receiving acurrency on one date but need to make apayment in that currency at a later date.A FX Swap guards against unexpectedmovements in exchange rates, and provides adegree of certainty in accounting and budgetforecasts. It will reduce FX risk however interestrate risk is not eliminated.FX Swaps can be undertaken in all the majorcurrencies (GBP, USD, AUD, NZD, EUR, JPY,CAD, CHF) as well as a number of minorcurrencies. Please refer to HiFX’s website(www.hifx.co.nz) for the full list of currenciesavailable.The term of a FX Swap and how the term is setThe term and amounts for FX Swaps can betailored to suit your particular needs and areagreed at the time you enter into a FX Swap.The amounts payable and the method ofcalculating the amounts payable for a FX SwapAs stated above, a FX Swap has two legs (nearleg and far leg dates) and always involves onecurrency being exchanged for another i.e.swapped. On the near leg date, you swap an amount ofone currency for an amount of another at anagreed foreign exchange rate (Spot Rate) whichwill be determined by the foreign exchangerate on offer at the time of undertaking thecontract. At the far leg date you agree to swap thecurrencies back again at an agreed forwardforeign exchange rate again determined at thetime of undertaking the contract.The difference between the Spot Rate and theforward foreign exchange rate reflects the3
Powering you.interest rate differentials between the countriesof the two currencies, represented by forwardpoints, as determined by HiFX. (Refer section2.1.2 below for an example of how forwardpoints are calculated).The foreign exchange rates offered by HiFX inrespect of both the near leg and far leg dates aredetermined by: the amount of the Sold Currency andBought Currency; the exchange rates on offer in the foreignexchange market place for the currenciesinvolved; and the date you wish to deliver your SoldCurrency and receive your Bought Currency(up to 24 months in the future).2.1.1. Payment of Initial MarginAfter you enter into a FX Swap, HiFX will requireyou to immediately pay an amount (normally anamount between 0% - 20% of the total amount ofthe currency you are selling on the near leg date)called an Initial Margin, as advised at the time youentered into a FX Swap, and may requiresubsequent Margin payments (referred to asMargin Calls – see section 2.1.3) if the exchangerates of the far leg date of your FX Swap moveadversely.Initial Margin is a part payment of the SoldCurrency (being the currency you agree to payHiFX for the currency you are buying) and acts assecurity for your FX Swap.When you pay Initial Margin to HiFX, we recordthe payment in your Account with HiFX and, forNew Zealand Retail Clients only, we hold thisamount on trust for you in a separate“Derivatives Investor Money Account” until yousettle your FX Swap (refer to Section 5 for furtherinformation on how HiFX treats funds andproperty received from you).You must be in a position to pay the Initial Marginimmediately after the FX Swap is agreed. If theInitial Margin required is not received within 2Business Days your contract may be terminatedand Closed Out with you being responsible for(and bearing) any loss arising from the contractbeing Closed Out (refer section 2.3 below forfurther information on closing out a FX Swap).2.1.2. FX Swap example:A New Zealand company has NZD 1.5 million ina company bank account in New Zealand and hasa requirement to fund AUD 1 million for itsoperations in Australia over the next three monthperiod.Rather than borrow AUD from its bank at a retaillending rate of say 5% (which would cost AUD 12,602.74 (based on borrowing for 92 days at5%) it decides to use its New Zealand dollars tofund this requirement using a FX Swap at a costof NZD 5,431.10 (being the loss of interestreceivable of NZD 9,537.21 less the Swapbenefit received of NZD 4,106.11 as describedbelow).The company enters into a FX Swap selling itsNew Zealand dollars (NZD) and receivingAustralian dollars (AUD) and vice versa in 3months time.Transaction date 4 September 2018 for spotvalue date 6 September 2018NZD/ AUD exchange rates at 4 September 2018Spot exchange rate0.9144Forward exchange rate*0.9138*three months (4 December 2018) 92 daysForward points Spot rate - Forward rateSpot rate0.9144Forward rate0.9138Forward points benefit-0.0006Interest Rates (365 day basis) as at 4 September 2018AUD1.50%NZD1.75%The forward rate is calculated as follows:The forward rate is calculated as follows: In caseswhere your surplus funds are in a currency withhigher interest rates (e.g. New Zealand) and yourfunding need is in a country with a lower interestrate environment (Australia), the forward pointswill be “a benefit to you” for lending the higherinterest bearing currency and vice versa.AUD InvestedAUD 1m x 1.5% x 92 days AUD 3,780.82NZD InvestedNZD 1,093,613.30 x 0.9144 AUD 1mNZD 1,093,613.30 x 1.75% x 92 days NZD 4,823.88HiFX does not pay interest on Margin payments.4
Powering you.Forward rate(AUD 1,000,000.00 AUD 3,780.82) /(NZD 1,093,613.30 NZD 4,823.88) 0.9138In this example the company would receive a FXSwap Confirmation note as follows:Deal typeTransaction DateContract NumberValue dateYou have soldYou have boughtSpot RateInitial Margin payableSwap near leg date4 September 2018C1234566 September 2018*NZD 1,093,613.30AUD 1,000,000.000.9144NZD 54,716.57Deal TypeContract NumberValue dateYou have soldYou have boughtForward RateSwap far leg dateC123457December 2018*AUD 1,000,000.00NZD 1,094,331.360.9138*(being 2 days after the date you undertook thetransaction)*(being 92 days after 4 September 2018)An Initial Margin payment of say 5% of thebought currency (NZD 1,094,331.36 x 5% NZD 54,716.57) will be required which acts as asecurity for the forward element of the swapcontract.The company would need to pay HiFXNZD 1,093,613.30plusamarginofNZD 54,716.57 on or before 6 September 2018and would in return receive AUD 1m.Three months later the company would pay HiFXAUD 1,000,000.00 and would receive backNZD 1,094,331.36 plus the Initial Margin ofNZD 54,716.57.The above example provides an example of onesituation only and does not reflect the specificcircumstances or the obligations that may ariseunder a derivative entered into by you.2.1.3. Margin Call ObligationsA FX Swap is subject to ongoing Marginobligations (Margin Calls) imposed by HiFX whichact as security for your FX Swap (specifically forthe swap far leg date of your FX Swap). You areliable to meet all Margin Calls to HiFX up to thetotal amount of the Sold Currency. Margin Callpayments are credited to your Account with HiFXand are part payment of the Sold Currency.Your Account balance must be more than theminimum amount of Margin cover required byHiFX for your FX Swap(s). If not, a Margin Callmay be made at any time (normally Margin Callsare determined daily) and you are obliged tomeet Margin Calls by paying the requiredamount by the time stipulated in the Margin Call,normally within 2 business days (but may bepayable immediately). If the Margin Call requiredis not received within 2 Business Days some or allof your FX Swaps may be terminated and ClosedOut with you being responsible for (and bearing)any loss arising from the contract being ClosedOut (refer section 2.3 below for furtherinformation on Closing Out FX Swaps). HiFX may,but need not, give you a grace period.It is your responsibility to pay Margin and meetMargin Calls, up to the full amount of the SoldCurrency (on the far leg date), on time and incleared funds, so please keep in mind thepossibility of delays in the banking and paymentssystems.The timing and amount of each Margin Call willdepend on movements in currency prices and thefactors that impact negatively on the marketprice of the currencies involved in your FX Swaps.There are no limits as to how often Margin Callsmay be made but typically Margin Calls areunlikely to be made more than daily.Margin Call exampleIn the example above, where thecompany has swapped NZD for AUD fora 3 month period. The company has paidHiFX NZD 54,716.57 as Initial Margin.For the purposes of this example let'sassume the NZD/AUD forward exchangerate subsequently depreciates to 0.8650.In this situation the far leg date of the FXSwap is said to be Out-Of-The-Money byNZD 61,738.005
Powering you.FEC cover NZD 1,094,331.362.1.5. Method of PaymentCurrent forward ratePayments by you to HiFX must be by way ofelectronic transfer only. HiFX does not acceptpayment by way of cash and/or cheques.AUD 1m / 0.8650 NZD 1,156,069.36Out-Of-The-Money NZD 61,738.00The company has only paid NZD 54,680.67Initial Margin. HiFX will therefore make a MarginCall for a further NZD 7,561.43 (more likely to berounded up to NZD 7,600.00) to ensure it hassufficient moneys from the company to securethe far leg of the FX Swap.The total Margin (once paid) held in respect ofthe FX Swap is NZD 62,316.57 ( 54,716.57 7,600.00) and will be repaid to the company onsettlement day – 4 December 2018.The above example provides an example of onesituation only and does not reflect the specificcircumstances or the obligations that may ariseunder a derivative entered into by you.2.1.4. Settling FX SwapsOn the day of you entering into a FX Swap, HiFXwill send you a Confirmation note which will setout the details of your FX Swap and will adviseyou of the amount(s), currencies and the date(s)upon which you will need to send money to HiFXfor each of the two legs of the FX Swap.When each leg of your FX Swap reaches theValue Date (i.e. the settlement date for your FXSwap), and HiFX has received the balance of yourSold Currency in cleared funds, HiFX theninstructs its bank to send the Bought Currency viainternational payment systems to yournominated account.Any outstanding balance of the Sold Currency tobe paid (once Initial Margin and any laterpayment of Margin, if any, has been taken intoaccount) must be paid to HiFX no later than thebanking cut-off time on the Business Day beforethe Value Date of the particular FX Swap.All transactions are effected electronically andHiFX retains detailed records of all settlementtransactions.2.2. ENTERING INTO A FX SWAP2.2.1. ENTERING INTO A FX SwapThe following steps describe how you can enterinto a FX Swap with HiFX.The particular terms of each FX Swap are agreedbetween you and HiFX before you enter into a FXSwap with HiFX.In order to transact with us you will first need toestablish an Account – refer to section 10. Oncean Account is opened you can purchase a FXSwap via telephone with the particular termsbeing agreed before you enter into a FX Swapwith HiFX. Contact your HiFX Dealer to discuss your FXSwap transaction. We endeavour to digitallyrecord telephone conversations at all times toensure that instructions can be verified in theevent of a dispute. Based on the quotations received, you willenter into a FX Swap with HiFX, when HiFXaccepts your Order. Once you have agreed with HiFX over thephone to buy a FX Swap, a Confirmation of thetransaction is subsequently sent to you. TheConfirmation gives details of the transactionincluding the amount of Bought Currency, SoldCurrency and the exchange rate for the near legand far leg dates, and the Value Dates of therespective legs. We will separately notify you ofany Initial Margin due. It is your obligation toreview the Confirmation(s) immediately toensure all details are accurate and to report anydiscrepancies within 24 hours. The contents ofthe Confirmation are deemed to have beenaccepted and cannot be disputed after 24hours of HiFX sending the Confirmation. You must provide us details of your ��s name and physical address) toenable the currency payment due to you to godirectly to your nominated destination.6
Powering you.2.3. RIGHTS TO ALTER TERMS ORTERMINATE A FX SWAP2.3.1 Earlier or later delivery of the FX SwapFar Leg dateHiFX may, in its absolute discretion: allow delivery of the far leg date element ofthe FX Swap earlier than the original ValueDate, however that will likely result in anadjustment to the exchange rate for the far legdate element of the FX Swap. allow an extension to the far leg date elementof the FX Swap, however, HiFX may eitheradjust the exchange rate or HiFX may CloseOut the far leg date of the FX Swap at theexisting exchange rate and enter into a newFEC (far leg date of the FX Swap) on agreedterms appropriate to the extension.2.3.2 Terminating a FX SwapA FX Swap can be terminated i.e. Closed Outbefore and up to the Value Date, by you enteringinto an equal and opposite transaction with HiFXusing the prevailing market rates in the followingcircumstances: as set out in the Terms; or by agreement between you and HiFX.Key Close Out events under the Terms include: a breach of a Term by you e.g. using a FXSwap for speculative purposes; your breach of a law e.g. anti-moneylaundering laws; your insolvency or bankruptcy; or your failure to comply with an obligation toHiFX e.g. failure to pay Initial Margin. HIFX determines that the value of all of yourFX Transactions represent a substantial netunrealised loss to you such that failure toterminate one or more of your FX Transactionswill (or is likely to) materially prejudice you oryour capacity to perform under the FXTransactions. This is a safety measure for youand us in the event that you are not monitoringa deteriorating position; HIFX determines there is a material risk of youbeing unable to comply with your obligations toHIFX as and when they fall due, which could bebased for example, on you telling us that youwill not be able to pay the remaining balance ofthe Sold Currency but that date has not yetoccurred; or HIFX considers termination of one or more ofyour FX Transactions is necessary or desirablefor HiFX’s own protection, for example whenvolatile market conditions exist.If we terminate your FX Swap
dates and exchange rates). The exchange rates offered by HiFX in a FX Swap are determined by: The amount of the currencies being swapped; The exchange rates on offer in the foreign exchange market place for the currencies involved; The future date (far leg date) wh
