Regulatory Guide 227
1.1 This guide sets out seven disclosure benchmarks that issuers of margined Forex must address.
1.2 Benchmark 1 – Client Qualification
Trading margined forex may not be suitable to all investors as the financial product can be of high risk. Investors that choose to trade margined forex with Supreme Option Ltd must be aware of the risks involved and Supreme Option Ltd is required to ensure a minimum level of understanding before providing an account.
To qualify that a potential client does understand the nature and risks of margined forex, Supreme Option Ltd requires a client meet one of the following criteria:
- The client completes an online test and within three attempts scores higher than 60%, or;
- The client provides evidence of previous forex trading experience. A trading statement with at least 50 trades in the last year would be deemed sufficient, or;
- The client provides evidence of completion of a trading course.
1.3 Benchmark 2 – Opening Collateral
Supreme Option Ltd only accepts Cash or Cash Equivalent for the opening of a trading account. No other opening collateral (such as securities or real estate) are accepted. Supreme Option Ltd attempts to limit the use of Credit Cards used to fund a trading account but notes that with the advent of Visa and MasterCard Debit Cards it is not possible to distinguish between a Debit or Credit Card and therefore Supreme Option Ltd will not adopt the Opening Collateral Benchmark as it would impede the ability for clients to use Debit Cards.
1.4 Counterparty Risk – Hedging
Supreme Option Ltd maintains strict management over its counter party risk and use of hedging. Hedging is the practice of offsetting counter party risk. To hedge risk Supreme Option Ltd enters into back-to-back hedges with Prime Brokerage(s) . To make these hedges Supreme Option Ltd holds margin with prime brokerages. This creates an element of risk to investors as Supreme Option Ltd is exposed to this counter party. Supreme Option Ltd Prime Brokerages may change from time to time to ensure that customers receive the best Bid and Ask price available. It is important to note that Supreme Option Ltd hedging practice may not eliminate risk to investors.
1.5 Counterparty Risk – Financial Resources
As an issuer of OTC derivatives Supreme Option complies with the financial requirement of licence holders set out in RG166. The goal of these requirements is to ensure that Supreme Option Ltd meets a minimum level of financial resource to conduct business and meet any liabilities as and when they may arise. Supreme Option monitors exposure on a daily basis using real-time software tools and prepares detailed weekly financial reports that ensure the requirements set out in RG1 66 for Adjusted Surplus Liquid Funds (ASLF) are met.
1.6 Benchmark 5 – Client Money
To trade a financial product offered by Supreme Option a client must deposit funds with Supreme Option Ltd.
These rules dictate the way in which Supreme Option Ltd must deal with client money. Supreme Option Ltd accounts hold Client Money separately from money belonging to the business. Supreme Option Ltd does not use Client Money for any business purpose. Client Money is solely used to maintain margin that is needed to cover positions opened by clients.
One of the risks of holding Client Funds in segregated accounts is that market movements may cause a client’s account may go into negative equity and Supreme Option Ltd may be unable to redeem these funds, thus creating a deficit in the other client’s money. To reduce this risk Supreme Option Ltd runs an Automated Margin Stop Out System designed to prevent any client from falling into a negative balance. Additionally Supreme Option Ltd brings these negative balances onto our own balance sheet as a cost of business.
All client cash transactions are reconciled daily and double reconciled weekly. Money is only withdrawn from the client account to:
- Process a withdrawal for a client
- Transfer margin to a Prime Brokerage
- Withdraw fees charged as part of a deposit or withdrawal transaction
Withdrawals from any client bank account require a two-stage authentication whereby management must authorise any bank withdrawal.
1.7 Benchmark 6 – Suspended or Halted Underlying Assets
Supreme Option Ltd offers trading on margined foreign exchange and metals. Neither asset classes can be suspended or halted from a centralized exchange and so Supreme Option Ltd does not comply with Benchmark 6.
1.8 Benchmark 7 – Margin Calls
Supreme Option Ltd operates a Margin Call and Margin Stop Out systems designed to prevent clients from entering into negative balances on their trading accounts. The system is automated and will monitor every client account while the Forex markets are open. Margin is monitored as a percentage and calculated as follows:
Equity / Margin = Margin Percentage
Each trading platform offers a different Margin Call and Stop Out system. Metatrader 4
With Metatrader 4 should the Margin Percentage fall below 90% it will automatically trigger a Margin Call. A Margin call is displayed to clients in two ways:
- The trading platform will indicate the margin call by sending an internal email to the client’s trading platform software and providing an audible announcement of the mail’s arrival.
- The area of the trading platform that displays the clients’ balance and equity will flash red.
Should the Margin Percentage fall below 20% the trading platform will automatically trigger a Margin Stop Out. This will begin to close open positions until the Margin Percentage rises above 20% again.
2. How Supreme Option Ltd Products are traded
2.1 When trading the FX products offered by Supreme Option Ltd you should be aware of the risks and benefits and review examples of how Supreme Option Ltd products can be traded. Clients primarily transact in our products using online Trading Platforms provided by Supreme Option Ltd. Accordingly, clients are provided with direct access to our quoted prices over the internet.
3. Electronic Trading Platform
3.1 Supreme Option Ltd provides access to margin FX trading via an online trading platform created by Meta Quotes called Meta Trader. The current version is version 4.0. We recommend that prior to engaging in live trading you open a “demo” account and conduct simulated trading. This enables you to become familiar with the Trading Platform attributes. Supreme Option Ltd has outsourced the operation of its Trading Platform to Meta Quotes – www.metaquotes.net and in doing so has relied upon these third parties to ensure the relevant systems and procedures are regularly updated and maintained. Please visit www.metaquotes.net for relevant information on how use the online platform.
4. Trading Hours
4.1 From Monday to Friday, Supreme Option Ltd operates between 9.00 Am and 5.00 Pm AEST with the Trading Platforms opening on Monday at 5.00 Am Sydney AEST and closing at 5.00 Pm New York (EST) time Friday 8.00 Am Saturday Sydney (AEST). This means that you are able to view live prices and place live orders during these hours. Outside these hours, you may still access the Trading Platforms and view your account, Market Information, research and our other services. However, there will not be any live prices or trading. It is at the sole discretion of Supreme Option Ltd to provide services to you outside these hours.
5. Client Money
5.1 As all trades are passed directly to our liquidity provider funds may be deposited with the provider to maintain margin for open positions and future dealings.
5.2 It is possible that this hedging counter party may become insolvent whilst controlling your money. It is also possible that another of Supreme Option Ltd clients might go into deficit. Therefore any funds you may have paid to Supreme Option Ltd may not be protected if there is a default in the overall client trust account balance. If this occurred, Supreme Option Ltd would use its best endeavors to retrieve your funds and the funds of other clients. However, if Supreme Option Ltd was not able to retrieve your funds it would have to source funds to match the amount in deficit.
5.3 Supreme Option Ltd has a comprehensive insurance policy in place to cover a variety of different scenarios some of which may assist in the repayment of deficits. However, if Supreme Option Ltd was not able to source these funds it could be that Supreme Option Ltd itself was insolvent and unable to provide financial services. You could therefore become an unsecured creditor to Supreme Option Ltd , as Supreme Option Ltd is to an insolvent hedging counter party.
6. Risk Capital
6.1 In cases where you are speculating we suggest that you do not risk more capital than you can afford to lose. A good general rule is never to speculate with money which, if lost, would alter your standard of living.
7. Conflicts of Interest
7.1 We do not have any relationships or associations which might influence us in providing you with our services.
8. Dispute Resolution
8.1 If you wish to make a complaint, you should contact the Managing Director of Supreme Option Ltd in the first instance.
Supreme Option Ltd must comply with the a Complaints Resolution. Supreme Option Ltd want to know about any problems or concerns you may have with our services so we can take steps to resolve the issue. We have internal and external dispute resolution procedures to resolve complaints from clients. A copy of these procedures may be obtained by contacting us and requesting a copy.
Initially, all complaints will be handled and investigated internally. Should you feel dissatisfied with the outcome, you have the ability to escalate your concerns to an external body for a resolution.
If you have a complaint about the financial services provided to you, please take the following steps:
Contact Supreme Option Ltd (details below) to inform us about your complaint. You may do this by telephone, facsimile, email or letter.
Supreme Option Ltd, registration No. 24165 (“www.supremeopt.com”)
Supreme Option Ltd: No. 6 Norfolk Place, Paddington London, W2 1QN Phone: +44207064715
Email: [email protected]