FINANCIAL INSTRUMENTS AND INVESTMENT RISKS
Investments in financial instruments entail risks. Despite the fact that the escalation of such risks differs, according to several factors that will be described briefly below, performing investments on financial instruments always implies exposures to risks that cannot be fully covered. Such risks include, in general, a decline in the value of the investment or even the loss of the invested amount. Under certain circumstances specifically, the Client may be obliged to provide further amounts in addition to those initially invested, to cover a loss that may arise.
The Client’s attention is particularly drawn on the need to carefully study this document and to considerably take into account the contexts hereof when making investment decisions, and also to avoid any investment and transaction, for which he/she considers that he lacks the necessary knowledge or necessary experience.
- General investment risks
These risks are characterized as general because they are inherent to the way the capital market operates and in general the financial system, while they emerge under circumstances that cannot be predicted or excluded by anyone.
They are linked to the operation of the financial system in general, of financial institutions, Investment Firms and issuers issuing financial instruments, which are the object of the investment, while they consist of factors that affect one or more of such amounts, the change of which affects the value of an investment. International organizations, central banks and many other bodies apply significant and systematic efforts to shield the financial system and markets and to protect markets from the realization of such risks. However, despite efforts, such risks may be realized and may have both a general and a specific character, namely the risks may be linked to specific financial instruments or to specific financial bodies. The following list of risks is indicative and is displayed to facilitate comprehension of the manner in which capital markets operate and the general factors that affect the value and price of an investment.
- Systemic risk
The inability of a financial institution to meet its obligations when due may lead to inability of other financial institutions (including investment firms) or companies to fulfill their obligations as well. Thus a domino effect is created due to the transmission of insolvency, specifically in the context of the operation of payment systems and transaction clearing on securities, in a series of financial institutions. The activity of any Investment Firm in the financial sector thus exposes it to systemic risks, which if realized may affect its clients as well.
- Political risk
International developments on a political, diplomatic and military level affect the course of money markets and capital markets. Political developments in one country may (i.e. political anomalies, election of government and specific governmental choices in critical sectors of social and economic life), therefore affect the price of financial instruments that are traded in such a country or of companies that are based or operate there.
- Inflation risk
The course of the Consumer Price Index affects the real value of the invested capital and expected returns.
- Foreign exchange risk
Changes in foreign exchange rates affect the value of an investment in a currency other than the investor’s base currency, as well as the liabilities or receivables of companies.
- Interest rate risk
The evolution of interest rates may affect the market price of financial instruments, such as bonds and financial derivatives whose underlying asset is affected by such changes (i.e. Bond Futures).
- Credit risk
Such refers to the possibility of a loss incurred as a result of default of a contractual party in relation to its contractual obligations. The effect of credit risk is multiple: I may concern an issuer – and therefore the issuer’s financial instruments – a financial institution or investment firm – and therefore, may affect their solvency – etc.
- Market risk
Market risk refers to the risk that the value of a financial instrument may decrease due to changes in the market. Moreover, it consists of the risks of financial activities linked directly or indirectly to the relevant market. The four most common factors of market risk are the following:
- Equity risk, namely the risk that share prices will change as a result of several factors, a fact that may affect the fulfillment of obligations of financial bodies.
- Interest rate risk (see No. 5 above).
- Foreign exchange risk, namely the risk of change of foreign exchange rates (see No. 4 above).
- Commodities risk, which concerns the risk of price changes of commodities, such as metals or wheat.
The change in equity indices or other indices is also a factor taken into account when assessing market risk.
- Liquidity risk
Liquidity risk is a financial risk and is caused by a possible lack of liquidity in the market as regards to one or more financial instruments. The non-expression of demand and supply affects the marketability of financial instruments and renders such instruments vulnerable to speculation and manipulation, thus adversely affecting the achievement of a “fair price”. Liquidity risk is mainly present in emerging markets or markets with low transaction volumes (“shallow markets”).
- Operational risk
Operational risk emanates mainly from inadequate or failed internal procedures, staff and informational or communication systems, as well as from external factors such as natural disasters or terrorist attacks, that set the transaction settlement systems out of operation or decrease the value of assets that are traded (i.e. risk that the technical systems of a regulated market or an investment firm collapse, risk of inadequate management of a company with shares listed on a stock exchange etc.). Operational risk also includes legal risk.
- Regulatory and legal risk
This risk emanates:
- a) from changes in the legal and regulatory framework that governs markets, transactions in such markets, taxation of investments carried out in a specific market. Such changes may affect investments in multiple ways.
- b) from the inability to execute agreements due to legal issues etc. This may occur due to a false legal assessment and also from uncertainty on prevailing law mainly arising due to ambiguous, vague and general legal provisions. Therefore, contracts or other agreements may be judged as ineffective, contrary to the initial assessment of companies, with considerably adverse financial effects for counterparties.
- Risk of trading systems
The Trading Systems through which trading takes place in regulated markets or Multilateral Trading Facilities (MTF) (article 2 of law 3606/2007) is subject to the risk of a temporary damage or disruption in operation. Therefore, when trading is ineffective for a considerable time period, then the smooth operation of the market may be disrupted with damages to the interests of investors, especially in the case where an investor wishes to close his open position.
- Settlement risk
This is a special form of credit risk and results from the non-proper fulfillment of the counterparties’ obligations during their participation in payment systems and transaction clearing systems on financial instruments, i.e. when one counterparty does not delivery the securities it has sold and was obligated to deliver or in case of purchase, when the purchase amount for the securities was not deposited.
- Concentration risk
This is the risk undertaken by the investor that places all of his/her investments in only one financial instrument. It is the opposite of risk diversification, when the investor places his/her capital in more financial instruments with different characteristics, which also have complementarity.
Briefly, we present the basic characteristic features of equity shares. It is noted however that such characteristics depend on the law that governs the issuer company, without excluding deviations from the information contained hereunder. On companies governed by foreign law, therefore further reading is required.
A share is a fraction of a societe anonyme company’s share capital. The share, as a security, incorporates the shareholder’s rights that emanate from his participation in the societe anonyme company. Such rights usually correspond to the number of share owned by the shareholder. Indicatively rights that emanate from ownership of shares include the right to receive dividends from the company’s distributed earnings (if such are distributed) as well as the respective percentage on the company’s assets in case of liquidation. Shares can be common, preferred, registered or bearer, with voting right or not, traded on a stock exchange or not traded.
Common shares are the most usual type of shares and include all the basic rights of a shareholder, such as the right to participate in the earnings, in the issue of new shares, the product of liquidation, as well as a voting right at the company’s General Meeting and participation in its management.
Preferred shares offer an advantage (preference) against common shares that lies in the privileged collection of dividends and or the privileged right on the product of liquidation in case the company is resolved, but usually it excludes voting rights and participation in the management of the company.
Depending on the course and results of the company, shareholders can receive dividends from the company’s possible earnings and may benefit from a possible increase in the intrinsic value of the company’s shares. However the above facts are uncertain.
Investments in equity shares may include indicatively the following risks:
- Volatility risk: The price of a share that is traded on regulated markets and MTF is subject to unpredictable fluctuations, which are not necessarily liked by causality with the financial developments of the issuer. Therefore there is risk that part or even – under certain circumstances – all of the capital invested may be lost.
It is noted that it is never possible to predict neither the upward or downward movement of a share nor the duration of such a trend. It is particularly noted that the course of a share’s market value is a function of many factors and does not depend only on the company’s financial data, as for example such is reflected based on the principles of fundamental analysis.
- Risk of issuer company: The shares, as fractions of the issuer’s capital, are affected by the course and prospects of the issuer, whose possible losses or earnings cannot easily be predicted. The largest risk arises in the case where the issuer of the shares goes bankrupt, and therefore the investor may lose his/her total investment.
- Dividend risk: Dividend payments depend on the existence of earnings of the issuer company and the dividend distribution policy applied by the issuer based also on the relevant decisions by the General Meeting of its shareholders. Therefore, it is in no way certain that investments in shares will be followed by income from dividends.
- Other risks: The market course of a share depends also on many external factors, such as macroeconomic developments, political factors, conditions of capital markets etc. Also, it depends on factors such as tradability of the share, market liquidity as well as developments that concern the share itself, such as takeovers, possibility that the share will be delisted etc. It is noted that in any case of an equity investment, the general investment risks analyzed above under section II should be taken into account.
- General note – recommendation
We recommend to our Client, before performing any equity transaction, to a) study the annual financial report, or according to the case, the semi-annual financial reports and quarterly financial statements published by the issuer company in fulfilling its obligations for interim informing of investors and b) to search for possible publications / announcements of significant events, issued by the issuer in order to provide urgent information to the public, usually online on the website of the exchange on which the shares are listed or on the website of the issuer.
- Definition – characteristics
A bond is a security that incorporates a pledge, monetary or other, of the issuer towards the beneficiary of the bond, mainly the bondholder. This obligation usually consists in paying the principal capital of the bond at maturity and the coupon during the periods defined in the issue terms.
The basic characteristics of bonds are as follows:
- a) the nominal value of the bond, which does not necessarily coincide with its trading price, but is the amount the issuer must pay at the maturity of the bond,
- b) the interest/coupon and
- c) the bond maturity.
Bonds can be issued either by governments (sovereign bonds) or by companies (corporate bonds). According to this definition, bonds are a form of government or corporate borrowing.
- Types of bonds
- a) Unsecured bonds: Bondholders have a claim against the issuer as do other creditors of such issuer, on the total assets of the issuer.
- b) Secured bonds linked to collateral provided in favor of bondholders:
The claim of bondholders is secured in this case i) by collateral in favor of such bondholders that is placed on specific assets of the issuer, ii) by third party guarantees, iii) by assignment of receivables etc. Furthermore, bondholders may enjoy additional protection as a result of specific agreements with the issuer or due to their privileged placement against other bondholders or creditors.
- c) Subordinated bonds: In case of default of the issuer the bondholder is redeemed after all other creditors of the issuer – if there are remaining assets – , as specifically defined in the bond loan.
- d) Convertible bonds: such bonds entail the right for conversion in shares or other financial instruments or the right for exchange with other financial instruments.
Issuers undertake the obligation to pay a coupon that may be a) fixed, b) floating based on a generally accepted interest rate (i.e. EURIBOR, FIBOR, LIBOR etc.)
Particular attention should be given to the so called structured bonds, namely those whose coupons are linked to indices that depend on derivatives. Such indices, that define the coupon rate based on financial derivatives, are thus embedded in this way in the structure of the bond. Such bonds are included in the category of synthetic financial instruments and investment in such requires exceptionally large attention and specialization. It is highly noted that the market value of such bonds is substantially affected by the derivative indices embedded in such, and which define the coupon rate. Therefore, such structured bonds are not recommended for non-specialized investors.
The coupon is usually paid at predefined intervals (monthly, semi-annually, quarterly, annually and or at maturity of the bond).
Zero coupon bonds are also issued. In such bonds, the interest is incorporated in the value of the bond. Namely, investors do not receive interest or coupon payments throughout the duration of the bond but acquire the bond at a discount to its nominal value, whereas this discount corresponds to the interest.
Investments in bonds include risks such as:
- Insolvency risk: The bond issuer may be become temporarily or permanently insolvent and as a result may be unable to pay its creditors coupons or even the principal capital of the bonds. Specifically for subordinated bonds, investors should review the bond’s classification, when examining a possible investment in such and in comparison to other bonds of the same issuer, given that in case of insolvency of the issuer the investor will be faced with the risk to lose his/her entire investment.
- Interest rate risk: see also above par. II.5. The larger the duration of a bond, the more it is affected by possible increases in interest rates, especially if the bond has a small coupon. It is noted that interest rate changes may significantly affect the bond’s market price. For example in case of an interest rate increase, prices of bonds of previous issues with lower coupons fall.
- Credit risk: see also above par. II.6. The value of a bond declines in case the crediting rating of the issuer decreases.
- Early repayment risk: It is possible that issuers of bonds include the option for early repayment in the bond loan program in case of an interest rate fall, when the expected profit from the bonds changes.
- Liquidity risk: This risk is important in case the investor wishes to liquidate the bond prior to its maturity. In this case, due to a lack of liquidity, a price lower than the nominal value of the bond (and in some cases much lower) may be achieved.
It is noted that in any case of investments in bonds, the general investment risks analyzed above under section II should be taken into account.
- General note – recommendation
The Client is advised, prior to performing any bond transaction, to a) study the annual financial report, or according to the case, the semi-annual financial reports and quarterly financial statements published by the issuer company in fulfilling its obligations for interim informing of investors and the possible prospectus issued for the bond the Client is exploring investing in and b) to search for possible publications / announcements of significant events, issued by the issuer in order to provide urgent information to the public, usually online on the website of the exchange on which the bonds are listed or on the website of the issuer.
Derivatives are complicated and complex financial instruments, the characteristics of which vary depending on the “underlying instruments”, namely the financial instruments on which the derivatives are structured. A derivative may include a broad range of underlying instruments, with different variations and combinations. This means that there is an indefinite number of types of derivatives that exist and that can be created. Derivatives usually are created in the form of contracts between counterparties, under which mutually undertaken obligations are to be fulfilled on one or more predefined future dates. The value of derivatives depends on the value of the underlying instruments, which may be shares, securities, exchange rates, interest rates, commodities and financial indices and any combination of such. The basic types of derivatives are futures or forward contracts, options and swaps. The aforementioned basic types of derivatives are described briefly below.
- Basic types of derivatives
Futures are standardized contracts for the purchase or sale of a defined quantity and quality of an underlying instrument on a future date and at a agreed price, which are specified when the contract is concluded. Based on the above, a party undertakes the obligation to sell to the other counterparty a specific quantity of a financial instrument (i.e. a share) and/or a currency or commodity on a specific future date at a predefined price. A corresponding obligation is undertaken by the buyer. Therefore, the date the transaction is made differs from the date the obligation is fulfilled (i.e. delivery of financial instruments and payment of their value). Often futures contracts state that at maturity there is no delivery of financial instruments and payment of their overall value, but only the difference in the price compared to the time the contract was purchased, is paid. Forward prices are usually defined based on the spot rate on two days, the day the contract is made and on the maturity date. A premium or discount is added or deducted from this price according to expectations for the evolution of the future price in the market.
Underlying assets may include, among others, shares, exchange rates, interest rates, bonds, equity indices. Both counterparties are obliged to fulfill the obligations that emanate from the contract on the settlement date.
Options provide to a party the right to purchase or sell a specific underlying instrument at a predefined price on a predefined future date. This right of such party corresponds to an obligation of the other counterparty to place the agreed transaction if the former exercises his right. Underlying instruments may include currencies, interest rates, equity indices, shares, securities and money market instruments.
In contrast to futures, the buyer of the option has the right, but not the obligation to proceed with the specific transaction in the future. He purchases this right for a price, namely the right to proceed with the transaction in the future. On the other hand, the other counterparty, the seller (writer of the option) has the obligation to fulfill his obligations which result from the contract, if the other party (the buyer of the option) exercises his right.
The value of an option may be determined based on more techniques that are developed by specialized product engineers and analysts. Such methods may also specify the manner in which the value of an option may be affected by a possible change in specific conditions related to the option.
Therefore it is possible to understand and handle the risks connected to investing in options and holding such options accurately.
Swaps include the purchase of a financial asset at a spot price and the simultaneous agreement to sell this asset at a predefined date at a forward price.
There are two legs in a swap: a) a spot rate transaction, usually on two days (short leg) and b) a forward transaction (long leg) that reverses the first transaction. Usually, swaps include an agreement to swap financial flows. This derivative is often used to cover risks that result from changes in prices, interest rates or for expectations on changes in the underlying prices.
Derivatives present particular technical characteristics, while transactions on derivatives include increased risk for reduction or loss of the initially invested capital or even of a multiple of such.
Therefore transactions on derivatives are appropriate only for specific categories of investors, which have the relevant experience and understand how such instruments operate as well as the risks undertaken each time. The basic risks linked to transactions on derivatives are described below.
- Product risk
- i) Futures – forward contracts: Leverage
Transactions on futures include a high degree of risk, which emanates from leverage: Namely the characteristic of futures is that the investment of a specific amount in such future can achieve results, which in the spot market would be achieved with multiple amounts. Given therefore that the amount of security (margin) required to be paid by the Client to participate in a futures contract by opening a “position” is small compared to the total value of the contract, a small change in the value of the contract will have a proportionately very larger effect on the capital invested (in the form of margin) and/or more capital will be required to maintain the position.
Specifically, in cases of large adverse changes in the value of the contract the Client must pay an additional amount, which is required for the daily settlement, and to supplement the required margin in order to maintain his open position and not to lose the entire invested amount. Moreover, it is possible a larger security (higher margin) may be specified by the Central Counterparty (i.e. the Athens Derivative Exchange Clearing House of ATHEX “ADEX”) or the relevant derivatives market clearer as a condition to maintain open positions. In this case the Client must pay the additional amount to keep his position from closing and to prevent losing the entire invested amount. If the Client does not fulfill his obligations timely, the position is closed and the Client is liable for fulfilling all the obligations from the settlement of transactions he has placed on derivatives. This means that he may lose not only the invested amount – and therefore lose the expectation for profit, if in the future market conditions are reversed and at maturity of the future the position that had been taken would have become profitable to him – but he may also be required to pay additional amounts to cover the loss. Client orders that aim at limiting possible losses, such as “stop-limit” orders or “stop-loss” orders may be ineffective due to market conditions that may not allow their execution. Synthetic position strategies (i.e. “straddles” or “strangles”) may include the same risk as plain vanilla “long” or “short” positions.
- ii) Options: risk diversification
Transactions on Options include a high degree of risk, which in any case depends on the option type. The distinction between call options and put options is of particular importance as well as the distinction between “American type” options, which may be exercised at any time from the purchase until maturity, and “European type” options that can be exercised only at the specific maturity of the option. To evaluate the profitability of a specific position, the various expenses and commissions applied on the relevant transactions must be taken into account, as well as the price of the options (option premiums) that has been paid to the seller.
The buyer of an Option has the ability to exercise the Option or to let it expire. In case where the Options are exercised, they are settled either in cash or by physical delivery (put options) / receipt (call options) of the underlying assets. If the underlying asset corresponds to a Futures Contract, then the buyer will buy, if the option is exercised, a position in a Futures Contract with all the corresponding obligations to pay or supplement the margin and the daily or final settlement of this position, in which case the aforementioned under par. a. i) apply. In case where the option expires without being exercised, the Client incurs total loss of the invested capital, which consists of the option premium, and any relevant expenses and commissions.
The seller (writer) of an option is exposed to a much larger risk than the buyer. While the Premium paid to the option’s writer is fixed, the extent of the loss he may incur is much larger than this amount. Specifically, in case of a large adverse change in the value of the Option, the seller is obliged to supplement the required margin. Moreover, if a larger security (higher margin) is set by the Central Counterparty (i.e. ADEX) or the relevant derivatives market clearer, the seller is obliged to pay the additional amount. If the seller does not fulfill these obligations timely, the Firm or Central Counterparty or Clearer/Settlement agent close the Client’s/seller’s position, and the latter is liable for fulfilling all possible additional obligations from the clearing of such transactions. Also, the seller is exposed to the risk that the option will be exercised by the buyer. The downside risk of the seller may be unlimited, if he has not placed transactions to hedge and cover such risk.
- Market risks
The financial conditions of the derivatives market (i.e. existence or lack of liquidity) and the rules under which this market operates (i.e. safety nets for smooth operation of the market: temporary disruption of sessions, suspension of derivatives trading, write-off of derivative) may place difficulty on or render the placement of effective transactions on derivatives impossible, thus increasing the risk of loss of the invested capital.
- Deviation of the derivatives market from the spot market
Prices of financial derivatives do not necessarily correspond to prices of the underlying assets. This deviation may be due to the conditions (i.e. demand) or the operation rules (i.e. price limit) of the derivatives market or the market of underlying assets.
- Risk of incomplete hedge
The Client is subject to this risk when the transactions on derivatives aim at hedging his risk from transactions on the underlying asset, but his position in derivatives is not completely matched with the position in the underlying asset (i.e. in case of a Future on the FTSE index when the Client does not have a position in all shares that comprise the FTSE index with the corresponding weights of each share in the index.)
- Cash or property deposit risk
The blocking of cash or property deposits may entail credit risk in the case where the trustee does not fully fulfill his obligations when such obligations become due or subsequently.
- Legal risk, including the risk from amendment of provisions.
Apart from what is stated above under par. II.10., it is noted that the fulfillment of claims and the satisfaction of the Client’s rights on derivative contracts also depend on the legal rules that govern the Payment and Transaction Clearings / Settlement System of the market in which the derivative transactions are placed, and the claims and rights of the Client depend on such rules mainly in case of insolvency of a member of the aforementioned systems. It is noted that foreign law, mainly of countries that are not members of the European Union, that governs transactions on derivatives, may provide less protection to the Client than that provided by Greek law and the law of European Union state members. Furthermore, a possible amendment of rules that govern the obligations of counterparties in a derivatives market (i.e. conditions for performing transactions, terms and process for clearing and settlement of transactions, increase of margin) may affect the Client’s interests. The above factors may expose the Client’s invested capital to additional risks.
- Currency risk
Apart from the aforementioned under par. II. 4., it is noted that the profit or loss that results from transactions on derivatives that are valued in foreign currency (regardless of whether such are traded on the domestic or on a foreign market) will be affected from exchange rate changes when the derivative must be converted from one currency to another and specifically to the currency under which the Client’s assets are valued.
- Replacement cost risk.
This risk arises in the case where the Client’s counterparty is not in a position to fulfill his due obligations. In this case, the Client will be obliged to open a new position at a current price in the relevant market, namely at the replacement value, whereas an amount will be added to this price depending on the time remaining until maturity of the derivative (add-on).
- General risks
In any case, the risks described under par. II General Risks must also be taken into account.
- Risks related to investment services and related services
- Definition of investment and related services
- Article 4 of Law 3606/2007 includes definitions of investment services and related services. Bellow we present the definitions that concern our Firm in its relationships with private clients.
(a) Reception and transmission of orders: The reception and transmission of orders on behalf of clients, for performing transactions on financial instruments.
(b) Execution of orders on behalf of clients: This refers to making deals for purchasing/acquiring or selling/liquidating one or more financial instruments on behalf of clients.
(c) Proprietary trading: When an investment firm trades on one or more financial instruments with own funds for placing transactions on such.
(d) Portfolio management: The discretionary management of client portfolios, based on their order, that include one or more financial instruments.
(e) Provision of investment advisory services: The provision of personal advice to a client, either after a relevant request is submitted by the client or on the investment firm’s own initiative, regarding one or more transactions on financial instruments.
(f) the safekeeping and administrative management of financial instruments on behalf of clients, including the provision of safekeeping services and related trustee services such as cash management or management of provided collateral.
(g) Provision of credits or loans to an investor for placing a transaction on one or more financial instruments, with the Investment Firm as intermediary which provides the credit or loan. The purchase of financial instruments with credit of the value includes increased risks of reduction or loss of the initially invested capital, given that with the provided credit the Client invests amounts that exceed the capital that he pays through the Firm. Therefore the Client is exposed to larger risk than he would be exposed to in case he had purchased financial instruments without credit. These risks may be included, inter alia, indicatively, in changes of market conditions, counterparty risk, liquidity risk in the stock market etc. Therefore the Client must draw his attention to the need for adequate experience and to understanding how the purchasing of financial instruments on credit operates, as well as the characteristics of the risks undertaken each time when receiving credit for performing transactions on financial instruments.
- During the provision of such services, the General Investment Risks described under par. II above may arise to a larger or smaller degree according to the case.
- Evaluating the compatibility of services and financial instruments with the Client’s characteristics
2.1 The Client must inform the Firm as to the knowledge and experience he has in investments, by completing and sending to the Firm the attached Appendix. This information is necessary in order for the Firm to serve the Client’s interests in the best possible way in the context of services provided on financial instruments that constitute the object of the Client’s investments, taking particularly into account the complexity and risks that such instrument include. The Firm relies on the reliability of the information provided to it when providing services to the Client. If the Client has already submitted a respective questionnaire, the Firm relies on such questionnaire, however it is recommended to the Client to also fill out the attached questionnaire.
2.2 The Firm particularly draws the Client’s attention to the fact that it will not evaluate the data concerning the identity, experience and knowledge of the individual and in general all the information provided via the attached Questionnaire or with other Questionnaires, that the Client has filled out in the past, given a) that the Firm provides the service to the Client on the initiative of the Client and b) the services exclusively refer to the execution of orders or the reception and transmission for executing Client orders on non-complex financial instruments (article 15 Decision 1/452/1.11.2007 by the Hellenic Capital Market Commissions on the Rules of Conduct of Investment Firms). Such financial instruments include:
- a) Shares listed and traded on a regulated market or an equivalent market in a third country, certificates of deposits on such, money market instruments, bonds or other forms of securitized debt (with the exception of bonds or other securitized debt with embedded derivatives) and investments in UCITS.
- b) Financial instruments not included in the category of transferable assets of sub-paragraph (c) of case 13 of article 2 of Law 3606/2007 or in the category of derivatives set out in sub-paragraphs (d) to (j) of article 5 of the same law, provided that the following conditions are also met cumulatively:
- aa) Possibilities are frequently provided to sell, repurchase or in any other way liquidate the aforementioned financial instruments at prices that are announced to the market participants and are either market prices or prices that are defined or confirmed through valuation systems independently from the issuer.
- bb) The financial instruments are not linked with an actual or possible financial obligation of the Client, that exceeds their acquisition cost.
- cc) Adequate information on the characteristics of the financial instrument in which constitutes the object of the investment is published and available to the public and such information may easily be understood by the Client, in order for the Client to decide on a substantiated basis on placing a transaction on the specific financial instrument.
2.3 In the above cases, the Firm does not assess the compatibility either of the services provided to the Client or of the financial instrument on which a transaction is performed in relation to the Client’s characteristics (level of investment knowledge, education, experience etc.). Therefore in such cases the protection that emanates from the rules of professional conduct is not provided to the Client as regards to the evaluation of the compatibility and suitability of the services and financial instruments in relation to his characteristics.
INFORMATION REGARDING THE SAFEKEEPING OF CLIENT’S FINANCIAL INSTRUMENTS
Safekeeping of securities
EUROCORP GROUP may deposit financial instruments, which it holds on behalf of its clients, in an account or accounts opened in a third party/Trustee under the condition that it acts with the due capacity, care and diligence during the selection, appointment and periodic review of the third party and the arrangement applied by the third party for holding and safekeeping the financial instruments.
EUROCORP SECURITIES S.A. maintains the safekeeping accounts for Athens Stock Exchange Market for the EUROCORP GROUP’S clients according to its license and the capacity as Member of the Athens Stock Exchange. EUROCORP SECURITIES SA is the Execution Brokerage firm for most EUROCOPR GROUP transactions. For that reason EUROCORP SECURITIES’S principals for Safekeeping of Client’s Financial Instruments are applicable for the EUROCORP GROUP as a whole.
Specifically the Group takes into account the know how and market reputation of the third party as well as any legal requirements or market practices that are related with holding the financial instruments that could negatively affect its client’s rights on their financial instruments.
Indicatively the third party/Trustee may be a Central Registry or other authorized Central Securities Depository, Book Entry Security System, Financial Institution or Investment Firm.
EUROCORP deposits financial instruments of clients to a third Trustee established in a third country, outside the European Union, only if the third party is subject to special regulations and supervision by the authorities of such country.
The Firm does not deposit financial instruments held on behalf of clients to a third party established in a third country, outside the European Union, that has not established a regulatory framework regarding the holding and safekeeping of financial instruments on behalf of another individual unless:
(a) the nature of the financial instruments or investment services related to such requires their deposit in a third Trustee established in a third country, or
(b) the financial instruments are held on behalf of a professional client and the client has requested in written by EUROCORP to deposit such with a third party established in a third country.
The Company has the capability to deposit financial instruments of its clients in omnibus accounts on behalf of several clients.
EUROCORP, in order to ensure its client’s rights in relation to their financial instruments:
(a) maintains the necessary files and accounts in order to be able at any time and without delay to separate the assets held on behalf of a client from the assets held on behalf of any other client, as well as from its own assets,
(b) maintains the necessary client files and accounts in a way that ensures the accuracy and specifically their equivalence with the financial instruments held on behalf of clients,
(c) frequently reviews the reconciliation between the accounts and files kept by EUROCORP itself with the accounts and files kept by any third parties that hold client assets,
(d) takes the necessary measures to ensure that the financial instruments of clients that have been deposited to a third party, can be separated from the financial instruments owned by EUROCORP and from the financial instruments owned by that third party, by using the accounts kept under different names in the books of the third party or by taking other equivalent measures through which the same level of protection is achieved.
(e) establishes appropriate organizational regulations to minimize the risk of loss or reduction of client assets, or their rights in relation to the assets, due to embezzlement of the assets, fraud, mismanagement, improper maintenance of files or negligence.
The Firm is not liable towards its clients in relation to defective fulfillment or even non fulfillment of the obligations by the third party/Trustee or for the solvency and generally the fulfillment of its obligations. The Firm shall only be liable in case of fault in relation to the selection of the third party. Nevertheless, it is considered that the operation of Central Registries, Central Security Depositories, Clearing and Settlement Systems, Investment Firms and Financial Institutions in a member state of the European Union or another country which has established a regulatory system that meets international requirements, excludes the existence of fault in the selection by the Firm, unless the Firm was specifically aware of the fact that the Trustee was to become insolvent and to default. Also, the Firm is not liable for faulty behavior of the bodies and persons assisting the third party/Trustee in the fulfillment of its obligations.
EUROCORP is not permitted to make agreements for securities lending transactions related to financial instruments held on behalf of a client or to use in any other way such financial instruments, for its own account or for account of another client, unless:
(a) The client has explicitly given his prior consent to the Firm for use of his financial instruments under specific terms. In the case of a private client, the client must have signed the relevant terms or another equivalent alternative mechanism must be used.
(b) The use of the client’s financial instruments must be in accordance with the terms to which the client consented.
EUROCORP may make agreements for securities lending transactions related to financial instruments held on behalf of a client in an omnibus account, which is kept by a third party or use in another way on its own behalf or on behalf of another client of financial instruments held in an omnibus account kept by a third party, only:
(a) if the client, whose financial instruments are held in an omnibus account has explicitly given his prior consent
(b) if EUROCORP has established systems and controls that ensure that the financial instruments owned by clients who have explicitly given their prior consent are used in this manner.
The Firm’s files include detailed information on the client whose financial instruments were used according to his instructions, as well as the number of financial instruments of each client who has given his consent, which EUROCORP uses, in order to enable the correct allocation of any losses.
Safekeeping of clients’ funds
The cash of clients is placed in one or more accounts opened by EUROCORP either at the Bank of Greece, or with financial institutions that have received an operation license according to law 3601/2007 (EC Directive 2000/12/EC), or at a financial institution in a third country or finally with a recognized money market mutual fund.
EUROCORP maintains the necessary files and accounts in order to be able at any time and without delay to separate the assets held on behalf of each of its clients from its own assets.
EUROCORP frequently reviews the reconciliation between the accounts and files kept by EUROCORP itself with the accounts and files kept by any third parties that hold client assets.
EUROCORP takes the necessary measures to ensure that its client’s funds that have been deposited with third parties are held in a separate account or accounts than any other accounts that may be used for capital owned by EUROCORP.
EUROCORP has established the appropriate organizational regulations in order to minimize the risk of loss or reduction of client assets, or their rights in relation to the assets, due to embezzlement of the assets, fraud and mismanagement, improper maintenance of files or negligence.
All reports issued by EUROCORP will bind the client unless a detailed objection by the client has been sent to the support department within one day.
The client may examine, after submitting a respective request to EUROCORP, all contracts and documents that have been provided to him within the last 3 years and may request copies of such documents as well as of the transactions that have been executed following the client’s orders.