RISK DISCLOSURES OF EXCHANGE TRADED PRODUCTS
ON LONDON STOCK EXCHANGE’S MAIN MARKET
1. WHAT IS ETPs
Exchange Traded Products (ETPs) such as Exchange Traded Commodities (ETCs) and Exchange Traded Notes (ETNs) are listed exchange traded securities structured as notes which track the performance of an underlying index or a single commodity. They trade on London Stock Exchange’s Main Market ensuring a high level of regulatory oversight. These securities trade and settle like ordinary shares with market makers providing continuous liquidity on both sides of the order book.
With these instruments, investors can gain exposure to the performance of various commodities, indices and even currencies. There are a variety of ETPs on London Stock Exchange offering access to previously difficult and expensive-to-reach markets.
It is important to note that ETPs are different to ETFs in a number of ways. ETPs such as ETCs and ETNs are not funds and therefore lie outside of the remit of UCITS – the Undertakings for Collective Investments in Transferable Securities.
ETPs offering daily leveraged or daily short exposures ("Leveraged ETPs") are products which feature specific risks that prospective investors should understand before investing in them. Any investment in short and/or leveraged products should be monitored on a daily basis to ensure consistency with your investment strategy. Investments in short and/or leveraged exchange-traded products held for a period of longer than one day may not provide returns equivalent to the return from the relevant unleveraged investment multiplied by the relevant leverage factor. Potential losses in short and/or leveraged exchange-traded products may be magnified in comparison to investments that do not incorporate these strategies. Please refer to the section 2 entitled "Risk Factors" for further details of these and other risks associated with an investment in ETPs.
Tiger may add or waive commissions on ETPs without prior notice. All ETPs are subject to internal management fees and expenses. Please visit Tiger’s website to get more information about commissions and fees.
More available information on ETPs Please visit the Disclosures on London Stock Exchange [YQ1] (https://www.lseg.com/sites/default/files/content/documents/ETPs%20for%20Private%20Investors.pdf)
2. RISK DISCLOSURES
2.1 GENERAL DISCLOSURES
ETPs are intended only for sophisticated and professional investors who understand the associated risks and are able to monitor their positions on an intraday basis. Investors should review the prospectus of each ETP issuer and ETP relevant educational materials carefully before considering the ETPs.
Each prospective investor should consider prior to making an investment in the ETPs. However, a prospective investor should, without any reliance on the Issuer, the Margin Account Provider or any Authorized Participant or any of their respective Affiliates, conduct its own thorough analysis (including its own accounting, legal and tax analysis) prior to deciding whether to invest in any ETPs. Any evaluation of the suitability for an investor of an investment in ETPs depends upon a prospective investor’s particular financial and other circumstances, as well as on specific terms of the relevant ETPs and, if it does not have experience in financial, business and investment matters sufficient to permit it to make such a determination, it should consult with its financial adviser prior to deciding whether or not to make an investment in the ETPs.
In particular, each potential investor should:
(1) be financially sophisticated in that it either (i) has the requisite knowledge and experience in financial, business and investment matters and of investing in investments offering a similar economic exposure to the ETPs, and access to, and knowledge of, appropriate resources, to evaluate the information contained in this document and the relevant Final Terms and the merits and risks of an investment in the ETPs in the context of such investors’ financial position and circumstances; or (ii) if it does not have such knowledge, experience and access, have consulted with appropriate advisers who do have such knowledge, experience and access;
(2) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the ETPs and the impact the ETPs will have on its overall investment portfolio;
(3) understand thoroughly the terms of the ETPs and be familiar with the behavior of the market of the Component Security and the Index relating to a particular Series of ETPs and any relevant indices and financial markets; and
(4) have an asset base sufficiently substantial as to enable it to sustain any loss that they might suffer as a result of an investment in the ETPs and have sufficient financial resources and liquidity to bear all of the risks of an investment in the ETPs including, without limitation, any currency exposure arising from the currency for payments being different to the prospective investor’s currency;
(5) have sufficient financial resources and liquidity to bear all of the risks of an investment in the relevant ETPs, including, without limitation, where the currency for payments is different from the potential investor’s currency, the associated currency exposure.
No offer or solicitation to buy or sell securities or futures products of any kind, or any type of recommendation or advice, is made, given or in any manner endorsed by Tiger. Additionally, Tiger provides a broking service (only) in relation to ETPs and is not an Issuer, Margin Account Provider or an Authorized Participant. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. The content of this Disclosure does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.
2.2 Risk Factors
2.2.1 Market price of ETPs
Investors should note that general movements in local and international markets and factors that affect the investor climate and investor sentiment may have different effects on each Series of ETPs. The ETPs Value and/or market price of the ETPs may be volatile and may fall rapidly and an investor may not be able to sell its ETPs quickly and/or at a price such that the investor is able to prevent or minimize any loss of its investment.
A. the value and volatility of the Index referenced by such Series of ETPs and the assets underlying that Index;
B. the degree of leverage applicable to such Series of ETPs;
C. market perception, interest rates, yields and foreign exchange rates;
D. whether or not any market disruption is subsisting;
E. the nature and value of any Collateral Assets relating to such Series of ETPs;
F. the creditworthiness of the Custodian and any Sub-Custodian; and
G. the liquidity in the ETPs.
Prospective investors should be aware that the ETPs Value and the secondary market price of the ETPs can go down as well as up throughout the term of the ETPs. Certain indices may be more volatile than other indices, and the secondary market price of the ETPs linked to such index may demonstrate similar volatility. Prospective investors should be aware that the ETP Security Value and market price of any ETPs on any Valuation Date may not reflect their prior or future performance. There can be no assurance as to the future value and market price of any ETPs. An investment ETPs investors involves a significant degree of risk and an investor may lose the value of its entire investment or part of it.
(1) Market-making by Authorized Participants
The price (if any) provided by an Authorized Participant for the purchase or sale of ETPs in the secondary market (whether in an on-exchange or off-exchange transaction), and the number of ETPs subject to any such offer, will be determined at the absolute discretion of that Authorized Participant by reference to such factors as it sees fit.
An Authorized Participant may maintain such bid/offer spread as it determines in its absolute discretion. The bid/offer spread is the difference between the bid price (i.e. the price at which a holder can sell ETPs to the Authorized Participant) and the offer price (i.e. the price at which a holder can buy ETPs from the Authorized Participant). Any price provided by an Authorized Participant or other secondary market price may take into account fees (including any dealing order fees charged by the Issuer to such Authorized Participant), charges, duties, taxes, commissions, liquidity, market spreads and/or other factors.
Prospective investors should note that:
A. not all market participants and Authorized Participants will determine the price of the ETPs of a Series in the same manner, and the variation between such valuations and prices quoted may be substantial;
B. the number of ETPs of a Series subject to any offer made by an Authorized Participant or otherwise in the secondary market may be affected by market demand for the ETPs of that Series, the number of ETPs of that Series in issue, whether the Margin Account Provider has requisite capacity to enter into margin account agreements in respect of any new ETPs, whether subscriptions can be processed and prevailing market conditions;
C. they may not be able to sell their ETPs quickly, easily or at prices that will provide them with a yield comparable to other similar investments;
D. any price at which the ETPs of a Series may be sold prior to the Final Redemption Date may be at a discount, which could be substantial, to the price at which such ETPs were acquired by the relevant investor; and
E. illiquidity may have a severely adverse effect on the ETP Security Value. Furthermore, because each Series of ETPs provides leveraged exposure to a single security, the impact of illiquidity of such security – particularly during an environment with significant price declines – is intensified due to the concentrated nature of the exposure of the ETPs.
Prospective investors should be aware that ETPs requested for issue and subscribed for by an Authorized Participant may be held on an inventory basis by such Authorized Participant and offered for sale and/or sold over a period of time. Investors should not assume that ETPs will automatically be placed with investors by the relevant Authorized Participant(s) immediately upon issue. To the extent that the Authorized Participants hold ETPs at any time, they may exercise their rights under them in such manner as they see fit in their own interests and need not have regard to the interests of other holders of ETPs or any other person. In particular, an Authorized Participant that is a holder of ETPs may vote at any meeting of holders of such ETPs or approve any resolution of such holders as it sees fit (including with respect to any changes to the terms of the ETPs proposed by the Issuer).
Prospective investors should be aware that in case the Component Security of the relevant Index for a Series of ETPs is denominated in a currency other than the currency in which the ETPs are listed, correlation risks may apply. These correlation risks depend on the degree of dependency of the currency fluctuations of the foreign currency of the Component Security of the relevant Index for a Series of ETPs to the currency in which the ETPs Value or the Redemption Amount of such Series of ETPs is calculated. Hedging transactions, if any, of the ETPs may not exclude these risks.
Each Series of ETPs provide leveraged exposure to a single security (the Component Security of the relevant Index for such Series of ETPs). Due to this concentrated leveraged exposure to a single security, prospective investors should be aware that there are risks deriving from such concentration, the most significant of which is the impact on the liquidity and the volatility of the ETPs.
In respect of liquidity, a concentrated leveraged exposure to a single security heightens the impact of the illiquidity of such security on the ETPs – particularly during an environment with significant price declines. Furthermore, the volatility of the ETPs is also intensified due to their concentrated leveraged exposure, as there is no other reference asset to counterbalance potential volatile movements on the Component Security of the relevant Index for a Series of ETPs.
Prospective investors should also be aware that leveraged exposure to the Component Security has a high degree of idiosyncratic (i.e., company-specific) risk, relative to a more diversified investment. Examples of idiosyncratic risk include, but are not limited to: company management expertise, capital allocation, labour and/or supply chain disruptions, theft, lawsuits and natural disasters.
Furthermore, because each ETP Security provides exposure to a single Component Security, the potential impact of corporate actions is more significant than in a diversified investment. Certain corporate actions, such as a merger or acquisition, could result in the eventual liquidation of an ETP Security.
(4) Tracking error in relation to Component Security
At any time, the price at which any Series of ETPs trade on the London Stock Exchange (or any other exchange or market on which they may be quoted or traded) may not reflect accurately the leveraged changes in the return of the Component Security which the relevant Index of such Series seeks to track. The application and redemption procedures for any Series of ETPs and the role of the Authorized Participant(s) as market-makers are intended to minimize this potential difference. However, such price at which any Series of ETPs trade will be a function of supply and demand amongst investors wishing to buy and sell such Series and the bid/offer spread that market-makers are willing to quote for such Series.
The Issuer’s ability to issue new ETPs of a Series is subject to the Margin Account Provider’s ability to increase the amount of margin provided under the Margin Account Agreement in connection with such Series. In the relevant Margin Account Agreement, the Margin Account Provider will agree limits on, amongst other things, the amount of margin to be provided in relation to each Series of ETPs and each Index. Such capacity limits will reference the Margin Account Provider’s exposure, pursuant to all Margin Account Agreements entered into by the Issuer with the Margin Account Provider in connection with any Series of ETPs, to the relevant Index, and accordingly the capacity limits for each Series of ETPs that reference the same Index will be interdependent. The Issuer will notify the ETP
Securityholders on the Issuer’s website of the then applicable Margin Account Provider capacity limits following the written request of any ETP Securityholder.
If the Issuer is unable to issue new ETPs of a Series due to Margin Account Provider capacity limits being breached, and there is high market demand for ETPs of such Series, then such ETPs may trade at a significant premium to their ETP Security Value. An investor who buys any such ETPs in such circumstances may incur a significant loss should either market demand falls or should the Margin Account Provider agree to increase its capacity limits with respect to the relevant Index in order that further ETPs of such Series may be issued. Such significant loss can even occur where the ETP Security Value has increased during the period of that investor’s holding of such ETPs.
In addition, each Series of ETPs has a principal protection component (the “Principal Protection Amount”) which is not reflected in the Index that such Series of ETPs seeks to track. Because the Leverage Factor for such Series of ETPs will not be applied to this Principal Protection Amount, the Leverage Factor of such Series will be marginally less than the Index Leverage Factor and will therefore contribute to daily tracking error.
(5) Issuer’s right to vary fees
The fees that are taken into account in calculating the ETP Security Value in respect of a Series on any Valuation Date (comprising the Arranger Fee and the Daily Margin Interest Rate applicable to such ETPs) may be varied upon the Issuer giving notice to the ETP Securityholders. Potential investors should note that the Issuer is not required to consider the interests of the ETP Securityholders in making any such variation.
Each Series of ETPs reference an Index whose methodology may take into account specific funding adjustments. Depending on market conditions, the Index Sponsor for the relevant Index may vary its funding adjustments from time to time without regard to the interests of the ETP Securityholders. Potential investors should note that the Issuer shall have no obligation to adjust the ETP Security Value, the calculation or the methodology of the relevant Series of ETPs so as to eliminate or reduce the impact of the funding adjustments made in the underlying Index of such Series of ETPs.
(7) Issuer’s right to make funding adjustments in the relevant Series of ETPs
Each Series of ETPs take into account specific funding adjustments, which may be varied by agreement between the Issuer and the relevant Margin Account Provider. Potential investors should note that the Issuer and the Margin Account Provider are not required to consider the interests of the ETP Securityholders in making any such variation.
(8) Issuer’s right to replace agents and providers
The Issuer could reserve the right to replace the Margin Account Provider, the Portfolio Administrator, the Custodian, the Trustee (only in accordance with the Trust Deed), the Issuing and Paying Agent, the Registrar, the CREST Settlement Agent and any other agents or providers herein at its sole discretion in order to ensure the efficient operation of related ETP Programme.
(9) Optional redemption
Only Authorized Participants may deal with the Issuer in subscribing for or requiring the Issuer to redeem outstanding ETPs, save in relation to Optional Redemptions at any time following notification by the Issuer that redemption requests from ETP Securityholders which are not Authorized Participants will be permitted.
Prospective purchasers should note that the Optional Redemption Amount payable by the Issuer to an ETP Securityholder in respect of an ETP Security will be reduced on account of any amounts owing to the Margin Account Provider. As such, the amount due to an ETP Securityholder in respect of each ETP Security held by it on the Optional Redemption Settlement Date may be less than the ETP Security Value in respect of such ETPs.
The amount of any Optional Redemption is subject to the Maximum Daily Redemption Limit, being a maximum limit (if applicable) on the redemption number of ETPs of a Series on any Optional Redemption Pricing Date, as may be amended by the Margin Account Provider from time to time in accordance with the terms of the Operating Procedures Agreement.
Prospective investors should be aware that it is possible that the Maximum Daily Redemption Limit could cause the ETPs to trade at a higher premium or result in a discount to the ETP Security Value. An investor who buys ETPs in such circumstances may incur a significant loss should market demand change. Significant loss could occur even where the ETP Security has increased in price during the investor’s holding period. The Maximum Daily Redemption Limit could also lead to higher trading spreads for the ETPs in the secondary market, which could increase the execution costs for an investor purchasing the ETPs in the secondary market.
In the event that an investor is not able to immediately redeem their ETPs due to a breach of the Maximum Daily Redemption Limit, such investor will be subject to market risk (i.e. that the value of the ETPs will decline prior to redemption and therefore reduce the redemption amount). As a result, it is possible that the redemption amount could be reduced due to a decline in the price of the Component Security (which would consequently impact the value of the ETPs).
In addition, prospective investors should be aware that if trading in the Component Securities in respect of a Series of ETPs is suspended, any Optional Redemption would be delayed. As a result, any redemption request relating to the relevant ETPs placed on the day upon which the relevant Component Security is suspended from trading would be delayed and such suspension from trading of the relevant Component Securities could ultimately lead to a Disruption Event Redemption. Investors would therefore be subject to market risk (i.e. that the value of the ETPs will decline prior to redemption and therefore reduce the redemption amount). As a result, it is possible that the redemption amount could be reduced due to a decline in the price of the Component Security (which would consequently impact the value of the ETPs).
2.2.2 Risks relating to the Indices
(1) Index-linked securities
The ETPs are index-linked securities. Prospective investors should note that the amount payable on the redemption of the ETPs of any Series will be linked to the daily performance of the Index referenced by that Series.
Prospective investors should be aware that the level of an Index can go down as well as up and that the past performance of an Index will not be indicative of its future performance. There can be no assurance as to the future performance of any Index to which the ETPs are linked. The ETPs may trade differently from the performance of the Index and changes in the level of the Index may not result in a comparable change in the market value of the ETPs or in the ETP Security Value.
Prospective investors should be aware that, in addition to any Arranger Fees or other expenses deducted in the calculation of the ETP Security Value, fees and other adjustments may be deducted in the calculation of the level of the Index by the relevant Index Sponsor. Prospective investors should carry out their own detailed review of the composition and calculation of the applicable Index and the rules relating thereto and ensure that they understand the fees and adjustments and any other amounts deducted from (or added to) the Index, the impact such fees may have on the level of the Index and the circumstances in which any such fees and adjustments may change.
Accordingly, before investing in any ETPs, prospective investors should carefully consider whether an investment based on the performance of the applicable Index is suitable for them and in all cases an investor in ETPs should carry out its own detailed review of the applicable Index and the rules relating thereto.
(2) Equity risk
Each Series of ETPs provide leveraged exposure to the daily performance of a single equity security and therefore is subject to general and specific market movements and changes in the market rates or prices such as interest rates, credit spreads, foreign exchange rates, commodities and equity prices.
(3) Purpose of the Index
The purpose of the Index in respect of each Series of ETPs is to provide leveraged exposure to the Component Security of such Index, which will be adjusted daily in accordance with the performance of the Component Security. As such, any negative or positive changes in the price of such Component Security will be multiplied by the applicable Index Leverage Factor for the relevant Series of ETPs.
Based on the daily leveraged valuation of the Component Security provided by the Index and in accordance with the Leverage Factor for the relevant Series of ETPs, Collateral Assets will be acquired or disposed from the Margin Account. Potential Investors should note that they will have no entitlement to the relevant Index or the Component Security of such Index, but solely to the proceeds from the liquidation of the Collateral Assets (after deduction of all costs and expenses incurred by the Issuer in connection with the liquidation of such Collateral Assets and repayment of a pro rata proportion of the Margin Loan (and any interest accrued thereon) held in the Margin Account.
(4) Risks associated with indices generally
A. Factors affecting the performance of indices may adversely affect the value of the ETPs.
The performance of an Index in respect of each Series of ETPs is dependent upon the macroeconomic factors relating to the share that comprises such Index, which may include interest rates and price levels on the capital markets, currency developments, political factors and company-specific factors such as earnings position, market position, risk situation, shareholder structure and distribution policy.
B. The returns on the ETPs may not reflect a direct investment in the assets comprised in the applicable Index.
The return payable on ETPs linked to an Index may not reflect the return an investor would realise if it actually owned the relevant Component Security of such Index. For example, holders of the ETPs linked to an Index will not receive any dividends paid on the Component Security of the relevant Index and will not participate in the return on those dividends other than through the effect that these dividends might have on the Redemption Amount of the ETPs, as any dividends held in the Margin Account in respect of a Series of ETPs would increase the Collateral Assets in respect of such Series. Similarly, the holders of such ETPs will not have any voting rights in the Component Security of such Index. Accordingly, investors in ETPs may receive a lower payment upon settlement or redemption of such ETPs than such investor would have received if it had invested in the Component Security of the Index to which such ETPs are linked.
C. The actions of the Index Sponsor, including any change in the composition or discontinuance of an Index, could adversely affect the market value of the ETPs referencing such Index
The sponsor of each Index is responsible for the calculation and maintenance of that Index. The sponsor of any Index can make methodological changes that could affect the composition, calculation and/or maintenance of such Index, which would affect the payments made by the Issuer to the investors in the ETPs referencing such Index. The sponsor of any Index may effect intraday rebalancing of the Index due to volatility of the relevant Component Security of such Index, which may make the Index Level differ from the market price of the Component Security multiplied by the relevant Index Leverage Factor. The sponsor of any such Index may also alter, discontinue or suspend calculation or dissemination of such Index. The sponsor of an Index will have no involvement in the offer and sale of the ETPs and will have no obligation to any investor in such ETPs. The sponsor of an Index may take any actions in respect of such Index without regard to the interests of the investor in the ETPs, and any of these actions could adversely affect the market value of the ETPs.
The Issuer is not affiliated with the sponsor of any Index in any way (except for the agreements and licensing arrangements described in the Prospectus of the ETP) and has no ability to control or predict their actions, including any errors in or discontinuation of disclosure regarding its methods or policies relating to the calculation of any Index or related Indices. ETP Securityholders will have no recourse against the sponsor of any Index, or the underlying components of such Index.
D. Disruption Events/Adjustment Events/Change in Law
Any Valuation Date of a Series of ETPs may become subject to disruption due to occurrence of certain events including, without limitation:
a) any applicable Exchange or Related Exchange failing to open for its regular trading session, or suspends or limits trading of any components of such index, or an event occurs that impairs trading or valuation on the Exchange of, any components of such index;
b) the performance of an Index falling overnight by more than the applicable threshold;
c) the performance of an Index falling within a day by more than the applicable threshold;
d) the Index Sponsor permanently cancelling the Index;
e) the Index Sponsor announcing that it will make a material change in the formula for, or the method of, calculating the Index or in any other way materially modifying the Index;
f) the Index Sponsor failing to calculate and announce the level of the Index; or
g) a change in any applicable law or regulation that causes it to become illegal for the Margin Account Provider to hold, acquire or dispose of hedging transactions in respect of its obligations under a Margin Account Agreement, or causing the Margin Account Provider to incur materially increased costs in maintaining or hedging its obligations under a Margin Account Agreement.
The consequences of such events may include, variously, disruptions or delays to pricing of ETPs, the postponement of subscriptions for, and redemptions of, ETPs, adjustments to the terms of the ETPs and the designation of a Successor Index. Ultimately, the occurrence of any such event may trigger the mandatory redemption of the affected Series of ETPs. In this eventuality, the amount which an ETP Securityholder may receive in respect of each ETP Security subject to such redemption may be lower than the ETP Security Value.
Pursuant to the European Referendum Act 2015, a referendum on the United Kingdom’s membership of the EU (the “UK’s EU Referendum”) was held on 23 June 2016 with the majority voting to leave the EU. On 29 March 2017, the UK Government exercised its right under Article 50 of the Lisbon Treaty to leave the EU. There is now expected to be a 2-year period of negotiations between the UK Government and the Governments of the other EU Member States which will determine the manner of the UK’s departure from the EU.
Whilst the medium to long-term consequences of the decision to leave the EU remain uncertain, there could be short-term volatility which could have a negative impact on general economic conditions in the UK and business and consumer confidence in the UK, which may in turn have a negative impact elsewhere in the EU and more widely. The longer-term consequences may be affected by the length of time it takes for the UK to leave the EU and the terms of any future arrangements the UK has with the remaining member states of the EU. Among other things, the UK’s decision to leave the EU could lead to instability in the foreign exchange markets, including volatility in the value of the pound sterling or the euro.
Deteriorating business, consumer or investor confidence could lead to (i) reduced levels of business activity; (ii) higher levels of default rates and impairment; and (iii) mark to market losses in trading portfolios resulting from changes in credit ratings, share prices and solvency of counterparties.
No assurance can be given that such matters would not adversely affect the market value and/or the liquidity of the ETPs in the secondary market.
The London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) and other interest rates or other types of rates and indices which are deemed to be “benchmarks” are the subject of ongoing national and international regulatory reform, including the implementation of the European regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, which entered into force on June 30, 2016 as well as proposals such as the IOSCO Principles for Financial Market Benchmarks (July 2013). Following the implementation of any such potential reforms, the manner of administration of benchmarks may change, with the result that they may perform differently than in the past, or benchmarks could be eliminated entirely, or there could be other consequences which cannot be predicted. On July 27, 2017, the UK Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021, and indicated that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. The potential elimination of the LIBOR benchmark or any other benchmark, or changes in the manner of administration of any benchmark, could result in the applicable interest rate for any calculation that are linked to LIBOR (including the calculation of the Daily Margin Interest Rate) or another benchmark becoming fixed or other adverse consequences which could adversely affect the return on the ETPs, the value of the ETPs and the trading market for the ETPs. At this time, no consensus exists as to what rates or indices may become accepted alternatives to LIBOR or other benchmarks and it is impossible to predict the effect that any such alternative may have on the value of the ETPs that are linked to existing benchmarks. Any such consequence could have a material adverse effect on the return on, value of and market for the ETPs.
2.2.3 Risks relating to an investment in leveraged ETPs
At any given time, the price at which any Series of ETPs trade in the secondary market may be significantly different from the Index Level of the relevant Index of such Series. Additionally, the performance of any Series of ETPs may significantly differ from the performance of the relevant Index of such Series.
Accordingly, there is a risk that the return on any Series of ETPs may differ from the actual return that investors would obtain from the relevant Index tracked by such Series. Therefore, investors may receive a return under the ETPs that is significantly lower than the return that they would receive if it was possible for investors to invest in the relevant Index directly.
(2) Magnified losses
Each Series of ETPs seek to achieve a return which is a multiple of the daily return of the Component Security of the relevant Index for such Series (excluding the effects of any applicable fees and adjustments). Thus, the ETPs will magnify losses in market environments adverse to their objective compared to similar exchange traded products that are not leveraged. In addition, losses will be magnified as the amount of leverage increases.
Investing in ETPs is not the same as being long in the Component Security or in the relevant Index and is different from a long futures position.
Investing in ETPs is not the same as making a leveraged investment in the Component Security of the relevant Index. The return from holding ETPs is not the same as the return from buying the Component Security of the relevant Index and is not the same as being long in a comparable position in futures contracts related to such Component Security.
The return from holding ETPs is not the same as the return generated from the relevant Index and is not the same as being long in a comparable position in futures contracts related to such Index.
(3) Daily leverage
Due to the ETPs’ daily investment goal, an ETP Security’s return over holding periods longer than one day will likely differ from the return of the relevant Index, and this difference will become more significant as the holding period increases in length.
The return on ETPs over a period longer than one day is the result of the return for each day compounded over all days in that period and the effects of daily rebalancing. As a consequence of the daily leverage exposure of ETPs, over periods longer than one day, the redemption entitlement of an ETP Security will fall if the relevant Index’s performance is flat (i.e. has a zero or close to zero return).
(4) Factors affecting leverage risk
Higher leverage, higher volatility and longer holding periods will increase the risk from investing in ETPs.
Government or regulatory intervention in the financial markets could result in the Issuer being unable to enter into, or maintain, transactions in relation to any Series of ETPs. If, due to a change in any applicable law or regulation, it becomes illegal for the Issuer or the Margin Account Provider to perform its obligations under a Margin Account Agreement, that Margin Account Agreement will terminate. If the Issuer is unable to enter into a replacement margin account agreement the ETPs of the relevant Series will fall for mandatory early redemption.
2.2.5 Risks relating to the early redemption of the ETPs
(1) Issuer call option
The Issuer may at any time, in its sole and absolute discretion, elect to redeem all or some only of the ETPs of a Series. In exercising such discretion, the Issuer will have no regard to the interests of the ETP Securityholders, and ETP Securityholders may receive less, or substantially less, than their initial investment.
(2) Mandatory Redemption Events and Events of Default
The ETPs of a Series may become due and payable prior to their Final Redemption Date, in connection with the occurrence of an Event of Default (including an event of default with respect to the Issuer or the Margin Account Provider under any applicable Margin Account Agreement) or a Mandatory Redemption Event.
(3) Consequences of a Mandatory Redemption Event or an Event of Default
Following the occurrence, in respect of a Series of ETPs, of:
A. a Mandatory Redemption Event, each ETP Security of such Series will become due and payable on the relevant Mandatory Redemption Settlement Date at its Mandatory Redemption Amount (equal to the greater of (i) the Principal Protection Amount of such ETP Security and (ii) the Pro- rata Liquidation).
B. an Event of Default, the Trustee may, and will, if so directed in writing by the holders of at least a majority of the ETPs, declare such ETPs immediately due and payable at their Final Redemption Amount.
(4) Risk of intraday rebalancing
There is a possibility of intraday rebalancing in the event of a significant decline in the price of the relevant Component Security for such Series. On a day in which an intraday rebalance is triggered, the daily return of the relevant Series of ETPs will not be equal to the Leverage Factor of such Series multiplied by the daily return of the respective Component Security. Such intraday adjustment seeks to protect the holder of Leveraged ETPs in the event of extreme market movements on any single Valuation Date (since the last Price per ETP Security was calculated) by crystallising the losses incurred up to that point.
As a result of the intraday rebalancing, a Series of ETPs may not track what an investor might expect on such day. If the price of the relevant Component Security was to reverse its fall after the intraday rebalancing, then the holder of the relevant ETP Security will not benefit from the reversal of the price of the Component Security to the same extent that it might have if the intraday rebalancing had not occurred. However, if the price of the relevant Component Security continues to fall, then the holder of such ETP Security will not suffer a loss to the same extent as if the intraday rebalancing had not occurred.
At the end of a Valuation Date on which an intraday rebalancing occurs, the relevant ETP Security will rebalance once more as if it were the end of a normal Valuation Date.
The laws of certain jurisdictions may affect some or all of the assets comprising the Collateral Assets. In the event that the laws of a jurisdiction do not recognize the security granted by the Trust Deed, such security may not be effective in relation to assets deemed located in that jurisdiction and/or such assets may be subject to claims which would otherwise rank after claims secured by the Trust Deed.
The obligations of the Issuer in respect of a Series of ETPs are secured by the Trust Deed in respect of such Series of ETPs. Pursuant to such Trust Deed, the Issuer will create security in respect of that Series in favour of the Trustee (for the benefit of the Secured Creditors) over (i) all of the Issuer’s rights, title, interest and benefit to the extent that they relate to the ETPs; (ii) all sums held now or in the future by or on behalf of the Issuer (including, without limitation, by the Issuing and Paying Agent and/or the Registrar and/or the CREST Settlement Agent) to meet payments due in respect of the obligations and duties of the Issuer under the Trust Deed and the ETPs, (iii) the Collateral Assets and any sums of money, securities, financial instruments or other property received or receivable now or in the future by or on behalf of the Issuer under the Margin Account Agreement and the Portfolio Administration Agreement and (iv) all of the Issuer’s rights as against the Margin Account Provider, the Custodian and/or any Sub-Custodian in respect of any sum or property now or in the future standing to the credit of the relevant accounts of the Issuer with the Custodian or of the Custodian (on behalf of the Issuer) with any Sub-Custodian relating to the ETPs, in each case, to the extent that they relate to the ETPs.
Following the enforcement of the security, the Trustee will apply the proceeds derived from the realization of the assets that are the subject of the security constituted by a Trust Deed in the applicable order of priority under which amounts due to the ETP Securityholders will be subordinated to all costs, fees, expenses and all other amounts including (without limitation) the costs of enforcing and/or realizing any security due to the Trustee itself and any receiver(s), and amounts arising to the Margin Account Provider, in each case in relation to the ETPs.
In respect of the ETPs of any Series, the Secured Creditors will have recourse only to the Secured Property in respect of such ETPs, subject always to the Security, and not to any other assets of the Issuer. If, following realization in full of the Secured Property (whether by way of liquidation or enforcement) and application of available cash in accordance with the applicable orders of priority and the Trust Deed, any outstanding claim against the Issuer in respect of the Secured Obligations remains unpaid, then such outstanding claim will be extinguished and no debt, liability or obligation will be owed by the Issuer in respect thereof. Following such extinguishment, none of the ETP Programme Parties, the ETP Securityholders of any relevant Series or any other person acting on behalf of any of them or any other person acting on behalf of any of them will be entitled to take any further steps against the Issuer or any of its officers, shareholders, corporate service providers or directors to recover any further sum in respect of the extinguished claim and no debt, liability or obligation will be owed to any such persons by the Issuer in respect of such further sum.
None of the ETP Programme Parties, the ETP Securityholders or any person acting on behalf of any of them may, at any time, bring, institute or join with any other person in bringing, instituting or joining insolvency, administration, bankruptcy, winding-up, examinership or any other similar proceedings (whether court- based or otherwise) in relation to the Issuer or any of its assets, and none of them will have any claim arising with respect to the sums, assets and/or property attributable to any other securities issued by the Issuer (save for any further securities which form a single Series with the ETPs).
There is also the risk that the Issuer may become subject to claims or other liabilities (whether or not in respect of the ETPs) which are not themselves subject to limited recourse or non-petition limitations.
No person other than the Issuer will be obliged to make payments on the ETPs of any Series and the ETPs issued under the ETP Programme will not be guaranteed by, or be the responsibility of, any other entity. In particular, the ETPs (i) do not represent an interest in and will not be obligations of, or insured or guaranteed by, any ETP Programme Party or any Affiliate or any company associated with any of them, (ii) will not have the status of a bank deposit and will not be within the scope of any deposit protection scheme and (iii) are not insured or guaranteed by any government, government agency or other body.
Meetings of the holders of a Series of ETPs may be convened to consider any matter affecting their interests. These provisions permit specified majorities of the ETP Securityholders attending or represented at any such meeting to pass resolutions binding all holders of such Series of ETPs, including holders who did not attend or vote at such meeting, or who voted against the passing of such resolutions.
The Conditions of each Series of ETPs permit the holders of a majority or more of the outstanding number of ETPs of a Series following the occurrence of an Event of Default, certain events which would, upon delivery of the requisite notice, constitute Mandatory Redemption Events and at any time after the Security has become enforceable to direct the Trustee in writing to deliver a notice or take such other action in accordance with the Conditions, whereupon each ETP Security of such Series will become due and payable at its Final Redemption Amount or Mandatory Redemption Amount (as applicable) immediately upon the delivery of such notice (in the case of an Event of Default) or on the Mandatory Redemption Settlement Date (in the case of a Mandatory Redemption Event) and/or the Security will be enforced by the Trustee, as applicable. The Trustee will not however be obliged to take any step or action or to act in accordance with any such direction unless the Trustee has been pre-funded and/or secured and/or indemnified to its satisfaction by one or more ETP Securityholders in accordance with the Trust Deed.
2.2.8 Amendment and waiver without the consent of the ETP Securityholders
The Trustee may agree, without the consent of the ETP Securityholders to (i) any modification to the Conditions, any Trust Deed, a Margin Account Agreement and/or any other ETP Programme Document to which it is a party which is of a formal, minor or technical nature or is made to correct a manifest error, and (ii) any other modification, and any waiver or authorization of any breach or proposed breach of the Conditions, any Trust Deed, a Margin Account Agreement and/or any other ETP Programme Document that is in the opinion of the Trustee not materially prejudicial to the interests of the ETP Securityholders.
2.2.9 Risk factors relating to the Issuer
The contracts which may be entered into by the Issuer (such as any Margin Account Agreement entered into by the Issuer in relation to one or more Series of ETPs) and the payments of the Issuer and the parties thereunder are structured to have the capacity to provide the Issuer with funds to service payments due and payable in respect of the ETPs and on any redemption by the Issuer of the ETPs.
(2) Regulation of the Issuer by any regulatory authority
Whether the Issuer is required to be licensed or authorized under any current securities, commodities or banking laws depends on the laws and regulations of its jurisdiction of incorporation. The Issuer may not be required to be licensed or authorized or operate without supervision by any authority, however, there is no assurance that regulatory authorities in one or more jurisdictions would not take a contrary view regarding the applicability of any such laws to the Issuer. The taking of a contrary view by such regulatory authority could have an adverse impact on the Issuer or the holders of the ETPs.
Any issue of ETP Securities must be on terms that provide for the claims of the ETP Securityholders and the ETP Programme Parties in respect of such ETP Securities to be limited to the proceeds of the assets on which such ETP Securities are secured (see "Risk factors relating to the early redemption of the ETP Securities - Limited recourse obligations, non-petition and related risks" above). In addition, there are restrictions on the ETP Securityholders and ETP Programme Parties bringing insolvency proceedings against the Issuer. If such provisions are upheld, it would be unlikely that the Issuer could become insolvent.
However, notwithstanding the restrictions and limited recourse and non-petition provisions, should the Issuer have outstanding liabilities to third parties which it is unable to discharge or should the limited recourse or non-petition provisions be found to be non-enforceable in a particular jurisdiction and as a result the Issuer becomes or is declared insolvent according to the law of any country having jurisdiction over it or any of its assets, the insolvency laws of that country may determine the validity of the claims of ETP Securityholders and may prevent ETP Securityholders from enforcing their rights with respect to any ETPs held by it or delay such enforcement. In particular, depending on the jurisdiction concerned and the nature of the assets and security, the Security created in favor of the Trustee in respect of such Series of ETPs may be set aside or ranked behind certain other creditors and the assets subject to such Security may be transferred to another person free of such Security.
In addition, certain jurisdictions have procedures designed to facilitate the survival of companies in financial difficulties. In such jurisdictions, the rights of the Trustee or of the Issuer to enforce the Security created pursuant to any Security Document may be limited or delayed by such procedures.
(4) Tax consequences of an investment in the ETPs
None of the Issuer or any ETP Programme Party make any representation or warranty as to the tax consequences to any investor of the acquisition, holding or disposal of the ETPs. The tax consequences for each investor in the ETPs can be different and therefore investors are advised to consult with their tax advisers as to their specific consequences.
Each ETP Securityholder will assume and be solely responsible for any and all Taxes of any jurisdiction or governmental or regulatory authority, including, without limitation, any state or local Taxes or other like assessment or charges that may be applicable to any payment to it in respect of the ETPs. In the event that any withholding or deduction for or on account of Tax is imposed on payments on the ETPs, the ETP Securityholders will be subject to such Tax or deduction and will not be entitled to receive amounts to compensate for such withholding or deduction. No Event of Default will occur as a result of any such withholding or deduction.
The Issuer may become liable for Tax charges whether by direct assessment or withholding. If any such event occurs as a result of a change in law or regulation that materially increases the cost to the Issuer of performing its obligations under the ETPs or the Margin Account Agreement or makes it illegal for the Issuer to do the same or to hold, acquire or dispose of the Collateral Assets, the ETPs may become subject to early redemption.
(5) Change of law
No assurance can be given as to the impact of any possible judicial decision or change to the laws or administrative practice under the jurisdiction of the Issuer after the date of issue of the relevant ETPs.
None of the Issuer, the Arranger, the Trustee, the Margin Account Provider, the Authorized Participants or any Affiliate of such persons have or assume responsibility for the lawfulness of the acquisition of the ETPs by a prospective purchaser of the ETPs (whether for its own account or for the account of any third party), whether under the laws of the jurisdiction of its incorporation or the jurisdiction in which it operates (if different), or for compliance by that prospective purchaser (or any such third party) with any law, regulation or regulatory policy applicable to it.
(7) Recharacterization risk
The Issuer has been advised that, for United Kingdom regulatory purposes, the ETPs are treated as debt securities with a minimum repayment amount and do not take the form of a collective investment scheme. The ETPs described in this document are not units in an Authorized collective investment scheme for the purposes of the FSMA. There can be no assurance that the courts or regulatory authorities in any jurisdiction would not recharacterize the ETPs as units in a collective investment scheme. Any recharacterization of the ETPs as units in a collective investment scheme may have adverse consequences (including, without limitation, adverse tax consequences) for an investor.
Prospective investors should consult their professional advisers on the implications, and in particular the tax and accounting implications, of investment in the ETPs and the risk that the ETPs may be recharacterized as contracts for differences for United Kingdom regulatory purposes.
Prospective investors comprising a scheme which is an undertaking for collective investment in transferable securities subject to the Council Directive of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities (No 85/611/EEC) (the "UCITS Directive"), as amended, need to satisfy themselves that an investment in the ETPs would comply with any regulations and/or guidelines applicable to them pursuant to the UCITS Directive and any laws, regulations or guidelines of their jurisdiction of incorporation and would be in line with their individual investment objectives.
(9) Alternative Investment Fund Managers Directive
EU Directive 2011/61/EU on Alternative Investment Fund Managers ("AIFMD") provides, among other things, that all alternative investment funds ("AIFs") must have a designated alternative investment fund manager ("AIFM") with responsibility for portfolio and risk management.
The requirements of AIFMD have, in general, taken effect from 22 July 2013. If, AIFMD were to apply to the Issuer, the Issuer would need to be appropriately regulated. AIFMD and any other changes to the regulation or regulatory treatment of the ETPs for some or all investors may negatively impact the regulatory position of individual investors and, in addition, have a negative impact on the price and liquidity of the ETPs affected by such rules in the secondary market.
2.2.10 Risks related to the Margin Account Provider and the Collateral Assets
(1) Risks relating to the Margin Account Provider
Under the terms of the Margin Account Agreement entered into by the Issuer in connection with a Series of ETPs, the Issuer will pay the entire proceeds from the issue of such Series of ETPs to the Margin Account Provider upon receipt and the Margin Account Provider will extend moneys by way of credit to the Issuer which will be invested, in accordance with the Portfolio Administration Agreement, in securities which will be held in the Margin Account in order to replicate (to the degree practicable) the return on the Index referenced by such Series. On a daily basis the Margin Account will be reconstituted, in accordance with the Portfolio Administration Agreement, in order to track the performance of the Index, by the purchase of additional securities or the sale of existing securities held in the Margin Account. If additional securities are required to be purchased, the Margin Account Provider will extend moneys by way of credit to the Issuer in order to fund such purchases. Successful daily tracking will therefore be dependent upon the credit of the Margin Account Provider.
(2) ETP Securityholders have no direct ownership interest or right to delivery of the Collateral Assets
Investing in the ETPs will not make an investor the owner of any Collateral Assets. Any amounts payable on the ETPs will be made in cash and the holders of the ETPs will have no right to receive delivery of any Collateral Assets at any time.
(3) Provision of information
None of the Issuer, any ETP Programme Party or any Affiliate of any such persons makes any representation as to the credit quality of the Margin Account Provider or any Collateral Assets. Any of such persons may have acquired, or during the term of the ETPs may acquire, non-public information in relation to the Margin Account Provider and/or the Collateral Assets. None of such persons are under any obligation to make such information directly available to ETP Securityholders. None of the Issuer, any ETP Programme Party or any Affiliate of any such persons are under any obligation to make available any information relating to, or keep under review on the ETP Securityholders’ behalf, the business, financial conditions, prospects, creditworthiness or state of affairs of the Margin Account Provider or any issuer/obligor in relation to any Collateral Assets or conduct any investigation or due diligence thereon or to monitor such Margin Account Provider.
The Margin Account Provider and any of its Affiliates may have existing or future business relationships with any Authorized Participant (including, but not limited to, lending, depository, risk management, advisory and banking relationships) and will pursue actions and take steps that they deem or it deems necessary or appropriate to protect their or its interests arising therefrom without regard to the consequences for an ETP Securityholder. In addition, the Margin Account Provider and any of its Affiliates may make a market or hold positions in respect of any of the ETPs. From time to time, the Margin Account Provider and its Affiliates may own significant amounts of ETPs issued under the ETP Programme.
There are no restrictions on the future business operations or activities of the Margin Account Provider, and, accordingly, the ability of the Margin Account Provider to meet its obligations under the Margin Account Agreement may be adversely affected depending on such future business operations or activities.
The Margin Account Provider and/or any of its Affiliates may engage in trading for their proprietary accounts, for other accounts under their management or to facilitate transactions, including block transactions, on behalf of customers relating to one or more assets that underlie the Index to which a series of ETPs is linked. Any of these activities in which the Margin Account Provider and/or its Affiliates engage could have an adverse impact on the value of the ETPs by affecting the price of such constituent assets(s).
The Margin Account Provider and its Affiliates may actively trade futures contracts and options on assets that underlie the Indices linked to Series of ETPs, over-the-counter contracts on those assets and other instruments and derivative products based on such assets. Any such trading by the Margin Account Provider and its Affiliates and unaffiliated third parties could adversely affect the value of the Indices to which certain Series of ETPs are linked, which could in turn affect the return on, and the value of, such Series of ETPs.
The Margin Account Provider and/or its Affiliates may also issue or underwrite other securities or financial or derivative instruments linked to the commodity indices or equity indices referenced by certain Series of ETPs, which might compete with the ETPs of such Series. By introducing competing products into the marketplace in this manner, the Margin Account Provider and/or its Affiliates could adversely affect the market value of certain ETPs, and therefore the amount payable on such ETPs on the stated maturity date or any early redemption date, as applicable, and the value of such ETPs before that date. To the extent that the Margin Account Provider and/or its Affiliates serve as issuer, agent or underwriter of, or as margin account providers in relation to, those securities or other similar instruments, their interests with respect to those products may be adverse to the interests of an ETP Securityholder.
The Margin Account Provider and its Affiliates may in the future publish research reports with respect to some or all of the Indices linked to certain Series of ETPs or the assets underling such Indices. This research may be modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the ETPs. The research should not be viewed as a recommendation or endorsement of the ETPs in any way and investors must make their own independent investigation of the merits of this investment. Any of these activities by the Margin Account Provider or any of its Affiliates may affect the market price of the Indices to which certain Series of ETPs are linked or their components and the value of such commodity indices or such equity indices and, therefore, the market value of such ETPs.
The Margin Account Provider and its Affiliates may act in a number of capacities in respect of ETPs issued under the ETP Programme including, without limitation, Portfolio Administrator. The Margin Account Provider and its Affiliates acting in such capacities in connection with such ETPs will have only the duties and responsibilities expressly agreed to by such entities in the relevant capacity and will not, by virtue of acting in any other capacity, be deemed to have other duties or responsibilities or be deemed to hold a standard of care other than as expressly provided with respect to each such capacity. The Margin Account Provider and its Affiliates in their various capacities in connection with the ETPs may enter into business dealings, from which they may derive revenues and profits in addition to any fees, without any duty to account therefor.
2.2.11 Risks relating to the Custodian
(1) Custodian risk
Collateral Assets in the form of cash or transferable securities will be held in an account of the Custodian in the name of the Issuer. Where the Collateral Assets consist of assets other than cash or transferable securities, it may be held in the name of the Issuer or under the control of the Custodian.
The ability of the Issuer to meet its obligations with respect to the ETPs may be dependent upon receipt by the Issuer of payments from the Custodian under the Portfolio Administration Agreement for the Series (if the Collateral is so held). Consequently, the ETP Securityholders are relying not only on the creditworthiness of the Collateral Assets, but also on the creditworthiness of the Custodian in respect of the performance of its obligations under the Portfolio Administration Agreement for such Series of ETPs.
Any cash deposited with the Custodian by the Issuer and any cash received by the Custodian for the account of the Issuer in relation to a Series of ETPs will be held by the Custodian as broker and not as trustee. Accordingly, such cash will not be held as client money and will represent only an unsecured claim against the Custodian’s assets.
(2) Sub-Custodians, depositaries and clearing systems
A. Credit risk
Under the Margin Account Agreement, the Issuer authorizes the Custodian to hold the Collateral Assets in the Custodian’s account or accounts with any Sub-Custodian (other than a Clearing System) properly appointed for the safe-keeping, administration, clearance and settlement of the Collateral Assets. Where the Collateral Assets are held with a Sub-Custodian that is an affiliate of the Custodian, the Consequently, the ETP Securityholders are relying not only on the creditworthiness of the Collateral Assets and the Custodian in respect of the performance of its obligations under the Portfolio Administration Agreement and the Margin Account Agreement for such Series of ETPs (and any obligations of any Sub- Custodian under or pursuant to the Margin Account Agreement or otherwise), but also on the creditworthiness of any Sub-Custodian.
B. Lien/Right of set-off
Pursuant to their terms of engagement, Sub-Custodians may have liens or rights of set-off with respect to the Collateral Assets held with them in relation to any of their fees and/or expenses. If, for whatever reason, the Custodian fails to pay such fees and/or expenses, the relevant Sub-Custodian may exercise such lien or right of set-off, which may result in the Issuer failing to receive any payments due to it in respect of the Collateral Assets, and thereby adversely affecting the ability of the Issuer to meet its obligations with respect to the Series of ETPs.
Therefore, the ability of the Issuer to meet its obligations with respect to the Series of ETPs will not only be dependent upon receipt by the Issuer of payments from the Custodian under the Portfolio Administration Agreement for the Series of ETPs (if the Collateral Assets are so held) but will also be dependent on any Sub-Custodian not exercising any lien or right of set-off in respect of any Collateral Assets that it holds. Consequently, the ETP Securityholders are relying not only on the creditworthiness of the Collateral Assets, but also on the creditworthiness of the Custodian in paying when due any fees or expenses of such Sub-Custodian (or the ability of the Issuer to pay such amounts due to the Custodian and/or the Sub-Custodians).
2.2.12 Risks related to other ETP Programme Parties
(1) Other business activities of Authorized Participants
The Authorized Participants and/or their respective Affiliates may be active traders in equities and/or commodities markets, including in the physical markets for commodities, in the futures markets and the over-the-counter markets. These trading activities may present a conflict between the interests of holders of the ETPs and the interests of the Authorized Participants and their respective Affiliates may have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the value of an Index to which a Series of ETPs is linked, could be adverse to the interests of the ETP Securityholders. The Authorized Participants and their respective Affiliates may also issue or underwrite additional securities or trade other products the return on which is linked to the value of an Index linked to a Series of ETPs or other similar strategies. An increased level of investment in these products may negatively affect the level of an Index to which a Series of ETPs is linked and therefore the amount payable in respect of such Series of ETPs on their stated maturity date or any prior redemption date, as applicable, and the market value of such ETPs.
These activities could give rise to conflicts of interest which are adverse to the interests of the ETP Securityholders and could adversely affect the market value of such ETPs. With respect to any of the activities described above, none of the Authorized Participants or any of their respective Affiliates has any obligation to the Issuer to take the needs of any buyers, sellers or holders of the ETPs into consideration at any time.
(2) Portfolio Administrator
Interactive Brokers (UK) Limited ("IBUK") and its Affiliates may act in a number of capacities in respect of ETPs issued including, without limitation, Portfolio Administrator and Margin Account Provider. IBUK and its Affiliates acting in such capacities in connection with the ETPs will have only the duties and responsibilities expressly agreed to by such entities in the relevant capacity and will not, by virtue of acting in any other capacity, be deemed to have other duties or responsibilities or be deemed to hold a standard of care other than as expressly provided with respect to each such capacity. IBUK and its Affiliates in their various capacities in connection with the ETPs may enter into business dealings, from which they may derive revenues and profits in addition to any fees, without any duty to account therefor.
(3) Determination Agent
Determination Agent under the ETPs will pursuant to the provisions of the Determination Agency Agreement, the Operating Procedures Agreement and the Conditions, make various non-discretionary calculations, that affect the ETPs, including calculating, among other things, the ETP Security Value and the Final Redemption Amount, the Optional Redemption Amount or the Mandatory Redemption Amount. The value of the ETPs could be adversely affected by such calculations. In making such calculations the Determination Agent will depend upon timely and accurate provision of information and certain constituent values of the relevant formulae which are provided to the Determination Agent by various parties, including, but not limited to, the Margin Account Provider, the relevant Index Sponsor and the Issuer. Any consequent variation in the value of the amounts required to be calculated by the Determination Agent could result in a change to value of the ETPs.
In connection with the exercise of its functions, the Trustee will have regard to the interests of the ETP Securityholders as a class and will not have regard to the consequences of such exercise for individual
ETP Securityholders and the Trustee will not be entitled to require, nor will any ETP Securityholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise upon individual ETP Securityholders.
2.2.13 Exchange rate risks and exchange controls
The Issuer will satisfy its payment obligations in respect of the ETP Securities in the currency of determination of the ETP Securities. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the "Investor’s Currency") other than the specified currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the specified currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the specified currency would decrease (i) the Investor’s Currency equivalent value of the payment payable on the ETP Securities and (ii) the Investor’s Currency equivalent market value of the ETP Securities.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less payment than expected and may receive no payment.