This page is intended to give you information on, and a warning of, the key risks associated with our investment products and services so that you are able to understand the most significant risks associated with the investment products and services being offered and, consequently, to take investment decisions on a more informed basis. You should consider this page carefully before deciding whether or not to invest in any of our investment products.
Risk factors may occur simultaneously and may compound each other resulting in an unpredictable effect on the value of any investment. The value of investments and the income from them can fall as well as rise and you might lose the original amount invested. Fluctuations in such value and income can result from factors such as market movements and variations in exchange rates. Past performance is not a reliable indicator of future results.
Products and investments
1. SHARES AND OTHER TYPES OF EQUITY INSTRUMENTS
1.2 Ordinary shares
1.3 Preference shares
1.4 Depositary receipts
1.5 Penny shares
A warrant is potentially subject to all of the ‘Generic Risk Types’ listed in Part III below.
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.
3. MONEY-MARKET INSTRUMENTS
4. DEBT INSTRUMENTS/ BONDS/DEBENTURES
4.1 All debt instruments are potentially exposed to all of the ‘Generic Risk Types’ listed in Part III below, in particular credit risk and interest rate risk. Debt securities may be subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer, general market liquidity, and other economic factors, amongst other issues. When interest rates rise, the value of corporate debt securities can be expected to decline. Fixed-rate transferable debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities.
5. UNITS IN COLLECTIVE INVESTMENT SCHEMES
5.1 Collective investment schemes and their underlying assets are potentially exposed to all of the ‘Generic Risk Types’ listed in Part III below.
Regulated collective investment schemes.
Some collective investment schemes are regulated, which means that there are rules about (and limits on) the types of underlying investments in which the collective investment scheme can invest and the frequency and price at which investments in the collective investment scheme can be redeemed. In particular, the rules applicable to regulated collective investment schemes limit the extent to which they can invest in derivatives or leverage their portfolios. Regulated collective investment schemes include authorised unit trusts, OEICs (open ended investment companies, which are the same as ICVCs – Investment Companies with Variable Capital); SICAV (Societe d’investissement a capital variable); and FCPs (Fonds communs de placement).
Unregulated collective investment schemes.
Other collective investment schemes are unregulated, which means that there are very few rules (or no rules) about the types of investments in which they can invest or the frequency at which they can be redeemed.
Four of the most common types of unregulated collective investment scheme are hedge funds and fund of funds (in relation to each of which see 6 below), private equity funds and real estate funds.
6. HEDGE FUND INVESTMENTS
The investment return may not closely mirror familiar market indices. The managers may buy and sell a wide variety of financial securities including bonds, equities, options and derivatives. The investment techniques employed may include selling securities not already owned with a view to buying them back at a lower price in the future (a technique referred to as short selling), insofar as this technique is permitted under the applicable regulatory regime. Managers may also borrow funds in order to facilitate transactions and to generate improved returns (known as gearing or leverage). These and other techniques introduce additional financial risks, which may not be present in other investments.
Sophisticated monitoring of the current investment positions by the hedge fund managers aims to limit the level of risk involved but unforeseen circumstances may result in part or total loss of your investment.
A “fund of funds” may invest in a portfolio of hedge funds and accounts managed by third party managers, utilising a variety of strategies. Hedge funds are potentially subject to all of the ‘Generic Risk Types’ listed in Part III below. They may also be subject to the following additional risk factors.
(a) Borrowing Effect. They use a variety of financial instruments, loans and short selling which can result in a substantial gearing effect. This gives rise to the possibility that small price movements can have a disproportionate affect on the fund value and sometimes a total loss of capital to the investor.
7. DERIVATIVES, INCLUDING OPTIONS, FUTURES, SWAPS, FORWARD RATE AGREEMENTS, DERIVATIVE INSTRUMENTS FOR THE TRANSFER OF CREDIT RISK, FINANCIAL CONTRACTS FOR DIFFERENCES
7.1 Derivatives Generally
7.2 Futures/Forwards/Forward rate agreements
Transactions in futures or forwards 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 the position with cash. They carry a high degree of risk. The ‘gearing’ or ‘leverage’ often obtainable in futures and forwards 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 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 and forwards transactions have a contingent liability, and you should be aware of the implications of this, in particular margining requirements: these are that, on a daily basis, with all exchange-traded, and most OTC off-exchange, futures and forwards, you will have to pay over in cash losses incurred on a daily basis and if you fail to, the contract may be terminated. See, further, 1 and 2 of Part IV below.
Buying options: Buying options involves less risk than selling 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, 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 must acquire the future. This will expose you to the risks described under ‘futures’ and ‘contingent liability investment transactions’.
Writing options: If you write an option, the risk involved is considerably greater than buying options.
7.4 Contracts for differences
8. COMBINED INSTRUMENTS
8.1 Any combined instrument, such as a bond with a warrant attached, is exposed to the risk of both those products and so combined products may contain a risk which is greater than those of its components generally, although certain combined instruments (such as principal protected instruments) may contain risk mitigation features.
Generic risk types
3. CREDIT RISK
4. MARKET RISK
4.2 Overseas markets
4.3 Emerging markets
5. CLEARING HOUSE PROTECTIONS
7. CURRENCY RISK
7.1 In respect of any foreign exchange transactions and transactions in derivatives and securities that are denominated in a currency other than that in which your account is denominated, a movement in exchange rates may have a favourable or an unfavourable effect on the gain or loss achieved on such transactions.
8. INTEREST RATE RISK
9. REGULATORY/LEGAL RISK
10. OPERATIONAL RISK
11. LIQUIDITY AND DISCRETIONARY INVESTMENT SERVICES ACCOUNTS
12. U.S. DEPOSITOR PREFERENCE
12.1 In the liquidation or other resolution of a U.S. insured depositary institution, deposits in U.S. offices and certain claims for administrative expenses and employee compensation are afforded a priority over other general unsecured claims, including deposits in offices outside the U.S.
Transaction and service risks
1. CONTINGENT LIABILITY INVESTMENT TRANSACTIONS
3. SHORT SALES
4. OFF-EXCHANGE TRANSACTIONS
4.1 Certain financial services authorities have categorised certain exchanges as recognised or designated investment exchanges. A list of these exchanges can be found on the relevant regulators website. Transactions which are traded elsewhere (i.e. “off-exchange”) may be exposed to substantially greater risks. Unless you instruct us otherwise, we may deal for you in circumstances in which the relevant transaction is off-exchange. Such transactions may not be subject to the same investor protection standards as transactions executed on a recognised or designated investment exchange.
5. LIMITED LIABILITY TRANSACTIONS
7. SUSPENSIONS OF TRADING AND GREY MARKET INVESTMENTS
8. DEPOSITED CASH AND PROPERTY
(a) limit the period when a stabilising manager may stabilise a new issue;
(b) fix the price at which he may stabilise (in the case of shares and warrants but not bonds); and
(c) require him to disclose that he may be stabilising but not that he is actually doing so.
The fact that a new issue or a related security is being stabilised should not be taken as any indication of the level of interest from investors, nor of the price at which they are prepared to buy the securities.
10. NON-READILY REALISABLE INVESTMENTS
11. LIFFE: EXCLUSION OF LIABILITY
11.1 Euronext LIFFE is the derivatives arm of the pan-European stock exchange Euronext.
- LIFFE has the power to suspend our access, or access via a particular ITM or ITMs, following a single warning, and to terminate our access under certain conditions;
- LIFFE will cancel all outstanding orders on our default;
- orders outside the price limits will be rejected automatically by the Trading Host;
- all orders (with the exception of GTC orders) will be cancelled automatically at Market Close or when the ITM under which the order was submitted is logged out without the order being transferred to an alternative ITM;
- all orders (including GTC orders) will be cancelled at close of business on the Last Trading Day of the expiry month to which they relate; and
- all orders (with the exception of GTC orders) will be cancelled automatically if the Trading Host fails.
12. STOCK LENDING/REPO
13.1 Particular investment strategies will carry their own particular risks. For example, certain strategies, such as ‘spread’ position or a ‘straddle’, may be as risky as a simple ‘long’ or ‘short’ position.
- transferable securities
- money market instruments
- units in collective investment undertakings
- options, futures, swaps, forward rate agreements and any other derivatives contracts relating to: commodities, whether cash or physical settled and whether or not traded on a regulated market or MTF, climatic variables, freight rates, commission allowances or inflation rates or other official economic statistics
- derivative instruments for the transfer of credit risk
- financial contracts for differences
- other derivative contracts
As for retail clients, we will send you a confirmation of each transaction undertaken with or for you, promptly after entering into that transaction with or for you. We will promptly send you the essential information concerning the execution of the order.
- credit risk
- market risk
- liquidity risk
- interest rate risk
- FX risk business, operational and insolvency risk
- the risks of OTC, as opposed to on exchange, trading, in terms of issues like the clearing house ‘guarantee’, transparency of prices and ability to close out positions
- contingent liability risk
- regulatory and legal risk
You must not rely on the above as investment advice based on your personal circumstances, nor as a recommendation to enter into any of the services or invest in any of the products listed above. Where you are unclear as to the meaning of any of the above disclosures or warnings, we would strongly recommend that you seek independent legal or financial advice.