HiFX Australia Pty Ltd
This Target Market Determination (TMD) issued on 24 March 2023 by:
|Licensee Name||HiFX Australia Pty Ltd|
|Business Name||Xe Australia|
|ACN||105 106 045|
In this document, the use of the words ‘us’, ‘our’, and/or ‘us’ refer to HiFX Australia trading as Xe Australia.
Xe Australia’s Target Market Determination
This Target Market Determination (TMD) is a publicly available document required under section 994B of the Corporations Act 2001 (Cth). It sets out the target market for the product, distribution conditions, circumstances in which this TMD must be reviewed and any reporting obligations. This TMD forms part of HiFX Australia Pty Ltd trading as Xe Australia (Xe Au)’s design and distribution framework.
This document is not a Product Disclosure Statement (PDS) or Supplementary Product Disclosure Statement (SPDS) and is not intended to provide financial advice regarding the product. Customers must refer to the Terms and Conditions, the PDS and/or SPDS for the product, and the Financial Services Guide (FSG) which outline the relevant terms and conditions, and risks of the product, when making a decision about this product. They should obtain legal or financial advice if they are unsure of the product.
This TMD provides Xe Au's customers with information regarding:
- which customers this product is suitable for (the target market) and which customers this product is unsuitable for;
- any distribution conditions and restrictions on distribution for this product; and
- the review period and events or circumstances that may trigger a review.
This TMD describes the customers within Xe Au's target market, but does not consider a customer's personal needs, objectives or financial situation. Customers should obtain their own advice in this regard.
|Product:||Forward Exchange Contracts (FECs)|
|Product issuer:||Xe Au|
|Effective date:||24 March 2023|
|First review date:||24 March 2024|
The issuer of this TMD and the financial product contained within is Xe Au. XE AU’s ACN is 105 106 045 and its AFSL No. is 240917.
2. Product description
The key features are as follows:
(a) a FEC is an agreement to exchange a fixed amount of one currency for another, at a fixed future date, at a fixed exchange rate.
(b) Xe Au provides FECs to Australian retail customers where the value date (a predetermined date acceptable to the two parties of the contract) is more than two Business Days after the date on which the transaction was entered.
(c) the product’s objective is for risk management purposes to protect (or hedge) against adverse currency movements.
FECs mature on a value date where the value date is more than two business days after the date on which the transaction was entered. FECs are deliverable contracts and will involve an obligation to give or to take delivery of currency at the value date. Delivery terms are agreed at the outset of each individual FEC. Additional features of FECs are provided below:
(d) over-the-counter financial product issued by Xe Au. They are not exchange-traded;
(e) facilitates the exchange of currencies and result in physical payments being undertaken on delivery date. Customers send Xe Au their Sold Currency and Xe Au will send them their Bought Currency;
(f) enables customers to protect themselves from adverse exchange rate fluctuations by providing exchange rate certainty; and
(g) when a FEC is agreed, customers may be asked to pay an upfront part payment amount called an initial margin and, if requested, any later margin call i.e. repayment amounts.
3. Date of issue
24 March 2023
4. Target market
The target market for this product is customers who wish to protect (or hedge) against adverse currency movements, and can pay a margin sum to Xe Au without hardship. Xe Au’s customers include a mix of individuals, private companies, trusts, sole traders, public companies, and partnerships.
The variables involved in the negotiation of FECs, which are specific to each customer, are:
- the currencies exchanged (customers selling one currency (Sold Currency) to purchase another currency (Bought Currency));
- the amount of such currencies;
- the margin required by Xe Au;
- the exchange rate i.e., the rate at which such currencies are exchanged; and
- the value date of the FECs (more than two business days from the date the transaction was entered into).
These customers are likely to have the following objectives, needs and financial situation and must meet the eligibility and assessment criteria for this product as set out below.
4.1 Customer Objectives and Needs
This product is designed for individuals or entities who seek to hedge future foreign exchange risk to mitigate the uncertainty of fluctuating exchange rates by locking in an exchange rate at the outset of the transaction.
For example: Individual A, located in Australia, has to pay an invoice in USD which is due in the next 90 days. Individual A enters into a FEC with Xe Au to sell AUD and to buy USD at an agreed foreign exchange rate due to be settled on a nominated date, being the Value Date.
4.2 Customer Financial Situation
This product is designed for individuals or entities who, in terms of their financial situation:
- can afford to pay Xe Au an initial margin in accordance with Xe Au's margin policy and other fees and charges without hardship – this is normally a percentage of the total amount of the currency they are selling. In the case of FECs with a value date greater than two business days from the contract date, the initial margin immediately payable is generally about 10% of the face value of the contract;
- are in a position to pay the initial margin immediately after the FEC is agreed. If the Initial Margin required is not received, the customer’s contract may be closed out (i.e. cancelled) with the customer being responsible for any loss arising from the close out (i.e. cancellation);
- are prepared to accept currency fluctuations, which may cause the mark to market valuation of the contract to change, resulting in a potential loss if the contract needs to be closed out at market rates for any reason;
- are prepared to accept currency fluctuations, which may result in Xe Au requesting additional margin payments to be made i.e., a margin call;
- are prepared to pay the outstanding balance (settlement) of the sold currency (once initial margin and any later payment of margin, if any, has been taken into account) not later than the banking cut-off time on the business day before the value date (of the particular FEC);
- accept responsibility for the taxation implication of their activities; and
- accept the features, advantages, benefits and risks of the product as set out below, and have the ability and capacity to obtain legal and financial advice if required.
Description of features, advantages, benefits, and risks of FEC transactions:
|An agreement to exchange one currency for another with a value date of more than two business days but at a fixed, agreed exchange rate based on prevailing market rates.||Customers have peace of mind knowing immediately what exchange rate they have agreed and fixed for a future point in time.||
By committing to an agreed exchange rate now, customers mitigate the risk of any future adverse currency movements.
A FEC provides customers with cash flow certainty by locking in an exchange rate.
|Once they have fixed their exchange rate they are locked into the rate and will not be able to take advantage of subsequent favourable exchange rate movements should that occur. On the other hand, they will be protected from any adverse movements.|
|Competitive exchange rates quoted by Xe Au's experienced Dealing team.||Access to real time live pricing.||Total transparency which enables customers to compare Xe Au's Exchange.||Risk of a better exchange rate possibly being offered elsewhere.|
|FECs can be fixed and secured by placing an upfront payment (called an initial margin) with Xe Au when agreeing to the transaction.||For an upfront payment, customers can reserve a rate of exchange, knowing it is not going to change.||Peace of mind that customers are protected against any future adverse currency movements.||Risk of close out if margin is not paid. For a FEC, customers typically pay an initial margin amount and any later margin call amount. If they do not pay the required margin by the required time, customer’s FEC may be closed out and they remain liable to pay any shortfall.|
|Payments by customers to Xe Au and from Xe Au to customers are via electronic bank transfers.||Reassurance that customer details are both safe and secure.||Not handling large amounts of cash or worrying about bank drafts being lost in the post.||
Banks sending their money to Xe Au or banks sending money to customers can occasionally experience administrative and technology-based difficulties.
We may be obliged to block or delay payment if Xe Au suspects that an account is being used in connection with money laundering, terrorism financing activities or other financial crime.
|The exchange rate is agreed over the telephone with a member of Xe Au's experienced dealing team, online, or requested via email. A confirmation note is sent shortly afterwards.||It is very clear and transparent how much money is to be paid by customers and when.||Cash flow certainty by locking in an exchange rate.||Risk of details being wrong. It is vital that both parties clearly agree what currency they are selling, what currency they are buying, at what exchange rate, by which value date and lastly the amounts involved.|
|Clients can apply for a credit facility, which can offer some relief from initial margin and margin call requirements when booking FECs.||Clients can enter FECs without the requirement to pay cash.||The client can achieve exchange rate certainty without having to provide the same level of margin payments.||Clients must apply for credit, and the application process may require an in-depth assessment of the client’s circumstances and may take some time to complete, or may be rejected.|
The eligibility criteria of this product include that individuals and entities must:
(a) accept the offer in Australia or New Zealand;
(b) in New Zealand, be a wholesale investor;
(c) have received and read the PDS and/or SPDS;
(d) accept the key risks set out in the PDS and/or SPDS, including in relation to market volatility, opportunity cost, counterparty risk on Xe Au, OTC market risks, market disruptions, slippage, online services risks, conflicts risk, and systems risk;
(e) have received and read the Terms and Conditions, and signed an application form or agreed to the Terms and Conditions;
(f) successfully complete all 'Know-Your-Customer' processes in accordance with Anti-Money Laundering and Counter-Terrorism Financing laws;
(g) have paid the initial margin (if required), and satisfied Xe Au's credit criteria requirements for them, without unnecessary financial hardship; and
(h) accept the credit risk exposure to Xe Au.
The product has not been designed for individuals and entities who:
(a) do not meet the financial suitability criteria set out above;
(b) wish to engage in foreign currency exchange trading or investment for speculative purposes;
(c) require the transaction to be settled immediately;
(d) do not accept the risks associated with FECs as set out above;
(e) are unfamiliar with foreign currency or foreign currency exchange dealings;
(f) are retail customers based in New Zealand;
(g) are unable to pay the agreed Exchange Rate, Initial Margin and any fees without hardship; and/or
(h) are unable or are unlikely to be able to pay for future Margin calls without hardship.
4.5 Appropriateness of the target market
This product is consistent with the likely objectives, financial situation and needs of the class of customers in the target market. This is based on an analysis of the key terms, features and attributes of the product and a finding that these are consistent with the identified class of customers.
The customer needs to exchange one currency (i.e sold currency) for another currency (i.e. bought currency) at an agreed exchange rate on a date (i.e. contract date) for delivery at a pre-determined date (i.e. value date) where the value date is more than two business days after the date on which the transaction was entered, pay the margin and accept the risks of this product. This allows the customer to avoid the risk and uncertainty associated with adverse exchange rate movements.
Xe Au do not encourage customers to utilise this product if the above key attributes do not align with their objectives, requirements and personal circumstances.
5. Distribution conditions
This product will be distributed:
- to customers with existing Xe Au accounts, who satisfy this TMD;
- through Xe Au’s website;
- through Xe Au’s Sales and Dealer teams, via email and/or phone; and
- through Xe Au's affiliates.
This product should only be distributed under the following conditions:
- to individuals and entities that meet Customer Eligibility set out above;
- through Xe Au's approved distribution channels;
- where there are any consumer queries or concerns, where they have been answered by an authorised Xe Au representative;
- where they are eligible in accordance with the application or acceptance that has been approved in writing by Xe Au and which complies with relevant laws;
- by Xe Au's authorised representatives, including corporate authorised representatives, where they have received training and relevant accreditation (if required) and have met annual compliance reviews.
It has been determined that the distribution conditions and restrictions will make it likely that customers who purchase the product are in the class of customers for which it has been designed. This is because:
- Xe Au will programmatically prevent any person that directly opens a Xe Au account and who is not within the target market from accessing Xe Au's issued FEC product; [Xe Au will have controls to ensure applying customers meet eligibility requirements; and
- monitoring and supervision of customer suitability and onboarding processes.
6. Review triggers
Review triggers are event and circumstances that would reasonably suggest that the TMD is no longer appropriate. This may include:
(a) receipt of a Product Intervention Power order from ASIC or significant communication from a regulator requiring Xe Au to cease distribution of this product;
(b) receipt of a significant number of complaints from applicants who have acquired this product that would suggests the TMD is no longer appropriate;
(c) occurrence of a significant dealing outside of the TMD that would reasonably suggest that this TMD is no longer appropriate;
(d) material change to key product features, investment objectives, terms and conditions that would reasonably suggests that this TMD is no longer appropriate;
(e) any significant or continual poor performance of the product or risk that the investment option is not likely to meet its investment objective over the minimum suggested investment timeframe, reasonably suggesting that this TMD is no longer appropriate;
(f) a significant amount of margin calls;
(g) material discrete complaints, AFCA determinations or litigation relating to the product;
(h) external events such as adverse media coverage or regulatory attention; and
(i) significant changes in review triggers covering matters such as:
- inconsistency of product with target market’s likely needs, objectives or financial situation;
- product design or implementation failures;
- inconsistency of distribution with the TMD;
- feedback received, including through industry forums; and
- potential or actual harm to consumers;
(j) the nature of and number of complaints from consumers indicating that the risks of FEC contracts are not well understood;
(k) the target market and product attributes described in this TMD is found to include materially incorrect or misleading information that reasonably suggests that this TMD is no longer appropriate; and
(l) changes to legislation have come into effect which materially impacts upon the design or distribution of the product and reasonably suggests that this TMD is no longer appropriate.
7. Review periods
To ensure that the TMD remains appropriate for the product, Xe Au will review the TMD:
(a) periodically, and at least annually from initial review;
(b) in response to the review triggers; or
(c) when other events or circumstances reasonably suggest that the TMD in its current form is no longer appropriate.
Xe Au will integrate the review process into the product governance arrangements, and controls will be put in place to ensure that meaningful reviews take place. Possible outcomes from the review process include:
(a) no change to the way the product is distributed;
(b) changing the product design, target market or distribution; or
(c) ceasing to distribute the product.
If Xe Au becomes aware of information that would reasonably suggest that the TMD is no longer appropriate (e.g. a review trigger has occurred), Xe Au will stop issuing the product and direct its authorised representatives to stop distributing until Xe Au has reviewed the TMD and product.
8. Reporting requirements
Complaints and general feedback about a financial product are a useful indicator of whether the TMD may still be appropriate. Where Xe Au engages its employees, contractors and authorised representative to distribute its products, it requires the authorised representative to promptly provide any information about complaints and product feedback it receives to Xe Au.
Xe Au requires its authorised representatives – where it appoints them - to provide the following information:
(a) complaints under ASIC RG 271 and all related information;
(b) significant dealings outside the target market; and
(c) general feedback relating to the product and its performance.
The following is an example of the type of information that must be provided to Xe Au by its authorised representative who engages in distribution of this product:
|Type of information||Description of information||Reporting period|
||As soon as complaint is received by the distributor / quarterly.|
|Dealings outside the target market||Where an authorised representative arranges the product acquisition they must confirm within the product application form:
||At the time the product application is submitted.|
|Significant dealings outside the target market||
||As soon as practicable, and in any case, within 10 business days after becoming aware.|
9. Record keeping
Xe Au will keep records of the reasonable steps it has taken to ensure that this product is sold in a manner consistent with this TMD.
Xe Au will also keep complete and accurate records of its decisions, and the reasons for those decisions about:
(a) all TMDs for this product;
(b) identifying and tracking review triggers;
(c) setting review periods; and
(d) the matters documented in this TMD.
Relevant records will be retained by Xe Au for seven (7) years.