Before investing with Fiduserve Asset Management Ltd (hereinafter ‘Fiduserve’) the Customer should understand and accept that:
Fiduserve does not and cannot guarantee the initial capital of the Customer’s Portfolio or its value at any time. In particular, the Customer accepts that he could lose some or all of the value of the Customer’s Portfolio if markets for the investments he has allowed move in an adverse fashion.
Past performance of the Customer’s Portfolio or the portfolios of investments of other customers is not a guide to or guarantee of the likely future performance of the Customer’s Portfolio.
No level of performance on the Customer’s Portfolio is, or can be, guaranteed by Fiduserve.
In exercising discretion in relation to the Customer’s Portfolio Fiduserve does not represent or warrant that it will achieve any particular level of return or appreciation for the Customer or avoid depreciations whether to any specified level or at all. In particular, no measure of relative performance (or benchmarking) applies to the Customer’s Portfolio and that Fiduserve does not seek to achieve returns equivalent to any indices, market or investment or that the investment performance of Fiduserve in relation to the Customer’s Portfolio will be similar to that of other customers.
Derivatives Risk Warning Notice
This notice does not disclose all of the risks and other significant aspects of derivatives products such as futures, options, and contracts for differences. You should not deal in derivatives unless you understand the nature of the contract you are entering into and the extent of your exposure to risk.You should also be satisfied that the contract is suitable for you in the light of your circumstances and financial position. Certain strategies, such as a “spread” position or a “straddle”, may be as risky as a simple “long” or “short” position.
Whilst derivative instruments can be utilised for the management of investment risk, some investments are unsuitable for many investors. Different instruments involve different levels of exposure to risk, and in deciding whether to trade in such instruments you should be aware of the following points.
1. Futures
Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle your position with cash. They carry a high degree of risk. The “gearing” or “leverage” often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small market movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements, which are set out in paragraph (6) below.
2. Options
There are many different types of options with different characteristics subject to different conditions:-
Buying options:
Buying options involves less risk than writing options because, if the price of the underlying asset moves against you, you can simply allow the option to lapse. The maximum loss is limited to the premium you paid to buy the option, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and you later exercise the option, you will acquire the future. This will expose you to the risks described under “futures” and “contingent liability transactions”.
Writing options:
If you write an option, the risk involved is considerably greater than buying options. You may be liable for margin to maintain your position and a loss may be sustained well in excess of any premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you, however far the market price has moved away from the exercise price. If you already own the underlying asset which you have contracted to sell (known as “covered call options”) the risk is reduced. In any other circumstance (such as writing “uncovered call options” or writing put options) the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure.
3. Contracts for differences (“CFDs”)
Futures and options contracts can also be referred to as a Contract for Differences. These can be options and futures on the FT-SE 100 index or any other index or individual stock, as well as currency and interest rate swaps. However, unlike other futures and options, these contracts can only be settled in cash. Investing in a contract for differences carries the same risk as investing in a future or an option and you should be aware of these as set out in paragraphs (1) and (2) respectively. Transactions in contracts for differences may also have a contingent liability and you should be aware of the implications of this as set out in the paragraph (6) below.
4. Off exchange transactions
It may not always be apparent whether or not a particular derivative is on or off-exchange. Your broker must make it clear to you if you are entering into an off-exchange derivative transaction.
Whilst some off-exchange markets are highly liquid, transactions in off-exchange or “non transferable” derivatives may involve greater risk than investing in on-exchange derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid and offer prices need not be quoted, and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price.
5. Foreign markets
Different foreign markets will involve different risks. In some cases the risks will be greater than the risks in markets with which you are familiar. On request, your broker must provide an explanation of the relevant risks and protections, (if any), which will operate in any relevant foreign markets, including the extent to which he will accept liability for any default of a foreign broker through whom he deals. The potential for profit or loss from transactions on foreign markets or in foreign denominated contracts will be affected by fluctuations in foreign exchange rates.
6. Contingent liability transactions
Contingent liability transactions which are margined require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately. If you trade in futures or contracts for differences or write options you may sustain a total loss of the margin you deposit with your broker to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be liable for any resulting deficit in your account. Your loss may exceed your total investment or value of your Portfolio.
Even if a transaction is not margined, it may still carry an obligation to make further payments in certain circumstances over and above any amount paid when you entered the contract. Contingent liability transactions which are not traded on or under the rules of a recognised or designated investment exchange may expose you to substantially greater risks.
7. Collateral
If you deposit collateral as security with your broker, the way in which it will be treated will vary according to the type of transaction and where it is traded. There could be significant differences in the treatment of your collateral depending on whether you are trading on a recognised or designated investment exchange, with the rules of that exchange (and associated clearing house) applying, or trading off exchange. Deposited collateral may lose its identity as your property once dealings on your behalf are undertaken. Even if your dealings should ultimately prove profitable, you may not get back the same assets which you deposited and may have to accept payment in cash. You should ascertain from your broker how your collateral will be dealt with.
8. Commissions
Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable. If any charges are not expressed in money terms (but, for example, as a percentage of contract value), you should obtain a clear written explanation, including appropriate examples, to establish what such charges are likely to mean in specific money terms. In the case of futures, when commission is charged as a percentage, it will normally be as a percentage of the total contract value, and not simply as a percentage of your initial payment.
9. Suspensions of trading
Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example, at times of rapid price movement if the price rises or falls in one trading session to such an extent that under the rules of the relevant exchange trading is suspended or restricted. Placing a stop-loss order will not necessarily limit your losses to the intended amounts, because market conditions may make it impossible to execute such an order at the stipulated price.
10. Clearing house protections
On many exchanges, the performance of a transaction by your broker (or the third party with whom he is dealing on your behalf) is “guaranteed” by the exchange or its clearing house. However, this guarantee is unlikely in most circumstances to cover you, the customer, and may not protect you if your broker or another party defaults on its obligations to you.On request, your broker must explain any protection provided to you under the clearing guarantee applicable to any on-exchange derivatives in which you are dealing. There is no clearing house for traditional options, nor normally for off-exchange instruments which are not traded under the rules of a recognised or designated investment exchange.
11. Insolvency
Your broker’s insolvency or default, or that of any other brokers involved with your transaction, may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral and you may have to accept any available payment in cash. On request, your broker must provide an explanation of the extent to which he will accept liability for any insolvency of, or default by, other brokers involved with your transactions.
Warrants Risk Warning Notice
This notice does not disclose all of the risks and other significant aspects of warrants. You should not deal in warrants unless you understand the nature of the transaction you are entering into and the extent of your exposure to potential loss. You should also be satisfied that warrants are suitable for you in the light of your circumstances and financial position.
In deciding whether to trade in warrants you should be aware of the following points.
1. Warrants
A warrant is a right to subscribe for shares, debentures, loan stock or government securities, and is exercisable against the original issuer of the securities. Warrants often involve a high degree of gearing, so that a relatively small movement in the price of the underlying security results in a disproportionately large movement in the price of the warrant. The prices of warrants can therefore be volatile. You should not buy a warrant unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges. Some other instruments are also called warrants but are actually options (for example, a right to acquire securities which is exercisable against someone other than the original issuer of the securities, often called a “covered warrant”).
2. Off-Exchange transactions
Transactions in off-exchange warrants may involve greater risk than investing in exchange-traded warrants because there is no exchange market on which to liquidate your position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid and offer prices need not be quoted, and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price.
3. Commissions
Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable.
4. Foreign markets
Different foreign markets will involve different risks. In some cases the risks will be greater than the risks in markets with which you are familiar. On request, your broker must provide an explanation of the relevant risks and protections, (if any), which will operate in any relevant foreign markets, including the extent to which he will accept liability for any default of a foreign broker through whom he deals. The potential for profit or loss from transactions on foreign markets or in foreign denominated contracts will be affected by fluctuations in foreign exchange rates.
Foreign Exchange Transaction and Currency Fluctuation Risk Warning
Fiduserve or its representatives may from time to time effect on your behalf transactions in the foreign exchange markets the effect of which will be to expose your Portfolio to the risk of adverse movements in currency exchange rates.
1. Investments in foreign currencies
From time to time, Fiduserve may instruct your Portfolio to make investments in securities, hold money, or become overdrawn in currencies which are denominated in currencies other than the Base Currency of your Portfolio. As a result, your Portfolio may be exposed to negative effects on its valuation when the value of assets or liabilities in other currencies is translated to the Base Currency.
2. Foreign Exchange speculation
From time to time if permitted by you, Fiduserve may speculate on currency fluctuations for your Portfolio utilizing both spot cash transactions and/or foreign exchange forward contracts not traded on any recognized investment exchange. Such transactions are deemed to be speculative where they do not relate to the management of cash required to purchase investments for your Portfolio or arising from the realisation of such investments and where they substantially exceed in size any likely currency exposure arising out of investment purchases and sales. Such transactions and forward contracts may have the effect of gearing the exposure of your Portfolio to currency fluctuations either positive or negative.
Dealing in Securities Subject To Stabilisation
Fiduserve or its representatives may from time to time recommend to you or effect on your behalf transactions in securities the price of which may have been influenced by bids made or transactions effected for the purpose of stabilising the price of those securities. You should read the explanation below carefully. Its purpose is to enable you to judge whether you wish your funds to be invested at all in such securities and, if you do, whether you wish to authorise Fiduserve generally to effect transactions in such securities on your behalf without further reference to you or whether you wish to be consulted before any particular transaction is effected on your behalf.
Stabilisation is a process whereby the market price of a security is pegged or fixed during the period in which a new issue of securities is sold to the public. Stabilisation may take place in the securities of the new issue or in other securities related to the new issue in such a way that the price of the other securities may affect the price of the new issue or vice versa.
The reason stabilisation is permitted is that when a new issue is brought to market the sudden glut will sometimes force the price lower for a period of time before buyers are found for the securities on offer.
As long as he obeys a strict set of rules, the “stabilising manager”, normally the issuing house chiefly responsible for bringing a new issue to market, is entitled to buy securities in the market that he has previously sold to investors or allotted to institutions who were included in the new issue but who have decided not to continue participating. The effect of this may be to keep the price at a higher level than would otherwise be the case during the period of stabilisation.
The statutory stabilisation rules limit the period in which a stabilising manager may stabilise a new issue, fix the price at which he may stabilise (in the case of shares and warrants but not bonds), and require him to disclose that he may be (but not that he is) stabilising.
The fact that a new issue or a related security is being stabilised does not in itself mean that investors are not interested in the issue, but neither should the existence of transactions in an issue where stabilisation may take place be relied upon as an indication that investors are interested in the new issue or interested in purchasing at the price at which transactions are taking place.
Risk Disclosure Statement – Dealings in Foreign Markets
In order to acquire, dispose of, hold, exercise rights in relation to, or otherwise execute transactions in investments in any country or foreign market on your behalf or on behalf of your Portfolio, it may be necessary for Fiduserve or the Custodian to make use of brokers, intermediate brokers, nominees, banks, exchanges and settlement systems in such countries or foreign markets who may be subject to different legal and regulatory requirements from those with which you may be familiar. When Fiduserve or the Custodian arranges to acquire, dispose of, hold or exercise rights in relation to investments overseas your money and investments may not benefit from protections equivalent to those with which you are familiar. Fiduserve or your Custodian can provide you with further information on this issue.
Risk Disclosure Statement – Short Selling Shares
Some custodians offer their customers the ability to “short sell” securities such as shares in listed companies. This would involve you/your Portfolio borrowing such shares (facilitated by the Custodian) which you do not own and selling them in the relevant market and collecting the appropriate proceeds. If the price of such shares subsequently falls, you will be able to buy an equal number of shares in the market, deliver them to the lender to discharge your original borrowing of shares and retain a profit representing the difference between the price of the original sale less the price of the subsequent purchase. Such speculation involves a theoretically unlimited risk to your Portfolio in the event that the price of the shares you have sold continues to rise. In such as case, the higher cost to purchase the shares you have sold could result in your Portfolio realizing a very substantial loss. Most Custodians will require you to maintain assets in your Portfolio as margin against this risk if you are dealing in short selling of shares.
Where permitted by you, Fiduserve will from time to time short sell shares for your Portfolio. Any losses from such transactions are for your own account and risk and you represents that you understand the risks involved.
Risk Disclosure Statement – Underwriting
Should you agree to participate in underwriting or sub-underwriting (that is agree to subscribe for investments in advance of their being issued) you accept the risk that the market for such investments after issue is not assured and it may not be possible to sell the investment concerned at the subscription price or at all.
Risk Disclosure Statement – Illiquid Investments
Should you permit Fiduserve to purchase on your behalf investments that may be illiquid (that is investments in which there is a limited market or no market at all) you accept the risk that the investment concerned may be difficult to value or sell and you may have to perform any obligations associated with owning it. Please note that in any market and in relation to any investment there can be changes in liquidity which may be sudden. If you do not want us to deal in illiquid investments we will not do so but we may deal in investments and markets which may subsequently become illiquid.