Important notice to all clients

Short Selling Rules Update

Date: 16 January 2009. Time: 12.00hrs GMT

For the attention of: The Compliance Officer/Chief Executive

Dear Sirs,

The UK Financial Services Authority has confirmed that its ban on short selling will lapse on 16 January 2009. The disclosure requirements in respect of short-selling will however remain in place and have been extended until 30 June 2009.

The disclosure requirements apply to all relevant short positions and it is your responsibility to ensure you comply with them. Details may be found at: http://www.fsa.gov.uk/pages/Library/Policy/Handbook/short-selling.shtml

Accordingly, MF Global UK Ltd. and MF Global Securities Ltd. will from the 16th January allow clients to put on new short positions in UK financial stocks. Restrictions on short-selling continue to remain in force in several other jurisdictions.

We would like to remind you that it is your responsibility to ensure that you trade in accordance with regulations of the relevant markets.

Yours faithfully, For and on behalf of MF Global UK Ltd.

Short Selling Rules

Date: 3rd October 2008 . Time: 16:00hrs BST.

For the attention of: The Compliance Officer/Chief Executive

Dear Sirs,

In the light of the current financial crisis, regulatory authorities across the world have intervened to stabilise the markets by adopting a series of new measures regarding the short-selling of equity stocks.

The UK's Financial Services Authority "FSA" and the US Securities and Exchange Commission "SEC", together with other national regulatory agencies have introduced new rules to prohibit either the short-selling of designated financial stocks, including intra-day shorts or the practice of short selling in all equity stocks (together the "Prohibitions"). These Prohibitions apply, for the purpose of the UK market abuse rules, to all financial stocks designated by the FSA as well as financial instruments related to such stocks.

MF Global UK Limited and MF Global Securities Limited (together "MFG") have a regulatory obligation to ensure that both firms comply with these new rules and take steps in order to avoid facilitating any transaction in breach of the Prohibitions. The purpose of this letter is to set out and inform you of the measures and procedures we have taken to comply with the Prohibitions, and we have sought, wherever possible to give some indication of the short-selling prohibitions in force in jurisdictions worldwide.

You will need to be familiar with the contents of this communication as this is likely to impact on your dealings with MFG. You are reminded that it is your responsibility to ensure that you trade in accordance with the applicable rules and regulations of the relevant jurisdictions and you should seek legal advice if you are unclear of their meaning or effect. Regulators in some jurisdictions have also reminded market participants that it is a rule breach to fail to deliver on securities sold.

In addition to this, a number of regulators have published statements discouraging the lending of the stock of financial institutions which has resulted in illiquidity in the lending market.

In the light of the Prohibitions and cognisant that their scope and application might change at short notice, you are advised to check the website of the relevant jurisdiction's applicable regulations before you engage in any transactions that involves the short-selling of stocks.

MFG has taken the following measures to comply with the Prohibitions which are applicable with immediate effect:

  1. In any jurisdiction where a prohibition on naked short-selling has been introduced, MFG will not allow shorting before the relevant stock has been borrowed.
  2. Where the securities regulator of a particular jurisdiction has published a statement on the obligation to deliver (i.e. no fails), MFG will not allow shorting before the relevant stock has been borrowed.
  3. For clients where MFG acts as an agency broker, we will rely on the clients' assurances that they are able to deliver the stocks at the time of settlement.
  4. It is MFG's Policy to strictly comply with its obligations under the regulatory system and to deter and report any transactions where MFG might be used to further financial crime or market abuse. Under the UK FSA market abuse regime, any breach of the prohibition on short-selling will be tantamount to an abusive behaviour and subject to relevant regulatory investigation and sanctions. MFG will report any suspicion of market abuse to the FSA.
  5. The FSA has introduced additional rules for the disclosure of short positions. In the UK, the holder of a net short position of 0.25% or more must make a disclosure to the market via an RIS no later than 3.30pm on the next business day.

The SEC has introduced similar rules prohibiting short selling of any publicly traded common equity of any of specified financial companies, chosen and published by each national securities exchange.

Other Jurisdictions

Since 19th September, other jurisdictions in Europe, Asia and the Americas have introduced some form of short-selling prohibition and/or restriction. Based on publicly available information we have compiled in the attached Annex a review of short-selling rules introduced by securities regulators globally. This is intended as a guide only and is not a substitute for you obtaining your own advice on these matters. While we believe the information in the Annex is correct as at the date of this letter, we cannot ensure that this is the case and you are advised to check the regulators' websites to assess if any material changes have been made.

MFG accepts no responsibility for any failure on the client's part to comply with the Prohibitions or any other rules and regulations which may apply.

Yours faithfully, For and on behalf of MF Global UK Ltd.

Annex - A global overview on the new short-selling measures

1. United Kingdom

The Financial Services Authority has prohibited the creation of, or increase in a net short position giving rise to an economic exposure to shares in designated financial institutions and insurers. The prohibition will cover both naked and covered short sales in these stocks.

There is an exemption for persons acting as marker makers.

Link to FSA short selling rules and related materials (including FAQs):
http://www.fsa.gov.uk/pages/Library/Policy/Handbook/short-selling.shtml

2. United States

The SEC has prohibited any person from effecting a short sale in the publicly traded securities of certain designated financial institutions. The prohibition covers any short sales of publicly traded common equity of any of the designated financial companies as specified by the regulated markets and also bans naked short selling on any equity.

The SEC also introduced enhanced delivery requirements on sales of all equity securities, by imposing a penalty on any participant of a registered clearing agency, and any broker-dealer from which it receives trades for clearance and settlement, for having a fail to deliver position in any equity security.

Link to SEC short-selling rules and related materials:

Nasdaq has published a list of the issuers affected by the SEC rules:

NYSE Euronext has also published a list of the issuers affected by the SEC rules:

3. Australia

The Australian Securities and Investments Commission ("ASIC") has prohibited any short selling of financial and non-financial securities, managed investment products and stapled securities quoted on licensed markets in Australia subject to certain exceptions. The prohibition extends to intra-day shorts. There are some exemptions in relation to covered short-selling only.

The exemptions in relation to covered shorts are now available for:

  1. sales made by market makers for the purpose of hedging their market making activities;
  2. sales made as part of dual listed arbitrage transactions;
  3. index arbitrage transactions;
  4. hedging in relation to underwriting and conversions;
  5. market makers hedging pre-22 September transactions;
  6. exercise of ASX exchange traded options

4. Austria

The Financial Market Authority ("FMA") announced that the concluding and holding of net short positions in relation to any shares listed in Austria may qualify as market abuse. 'Net short positions' are defined as offsetting and/or aggregated positions in a financial instrument or with regard to an issuer.

5. Belgium

The Commission Bancaire, Financire et des Assurances ("CBFA") has imposed a restriction on naked short sales of shares in financial institutions listed on Euronext Brussels. Financial institutions have also been requested to abstain from lending the shares concerned, except where this is needed to cover an existing position. The restriction covers financial instruments with voting rights, and applies to transactions entered into on own account or for the account of third parties.

6. Canada

The Ontario Securities Commission ("OSC") has prohibited both naked and covered short-selling of securities of certain financial issuers on the Toronto Stock Exchange and also inter-listed in the US. Alberta, British Columbia and Quebec securities commissions have published orders identical to the OSC order banning short selling in a prescribed list of issuers.

Short selling of these securities is prohibited unless it is:

  1. conducted in accordance with the Universal Market Integrity Rules (UMIR) Rule 3.1 (Restrictions on Short Selling).
  2. Conducted in order to comply with UMIR Rule 5.2 (Best price Obligation); or
  3. Conducted by a person or company as a result of the automatic exercise or assignment of an equity option held prior to the effectiveness of this order due to expiration of the option.

The Investment Industry Regulatory Organisation of Canada has released its guidance on the new short selling rules in Ontario:

7. France

The Autorité des Marchés Financiers ("AMF") has prohibited naked short selling of shares in credit institutions and insurance companies. The regulator has also asked financial institutions to abstain from lending the shares concerned, except where this is needed to cover existing position, perform an obligation contracted prior to the coming into force of the rule or where transaction has no link with a short economic position.

The prohibition does not apply to investment service providers who act as market makers, liquidity providers or counterparties to a block trade.

The AMF has also reminded market participants of their obligations to deliver the securities sold within three days:

The AMF has published a series of documents on its website including an FAQ:

8. Germany

The Bundesanstalt für Finanzdienstleistungsaufsicht ("BaFin") has issued new measures prohibiting naked short selling in relation to shares of designated issuers in the financial services industry. The new rules, FAQs and other related documents are available from the BaFin website in German.

9. Greece

The Capital Market Commission ("CMC") took temporary measures in relation to short selling by requiring members of the Athens Exchange which perform short sales on shares to flag them as such when entering the relevant sale orders.

In addition to this, the CMC will require the daily publication of the total amount of short sales performed by share and the total number of shares by issuer that have been lent. Investment firms and credit institutions which execute orders on behalf of their clients have to ensure that their clients who sell shares are in the position to deliver the shares sold on time within the relevant settlement term.

10. Hungary

The Pénzügyi Szervezetek Állami Felügyelete("PSZAF") has imposed a requirement in relation to trades concluded between 29 September and 31 December 2008. All investment firms and credit institutions providing investment services supervised by PSZAF that have trading rights on the Budapest Stock Exchange ("BSE") must make a daily report to PSZAF.

Firms are required to report short sales in relation to any shares listed on the BSE, including intra-day positions, where the short position represents 0.01% or more of the total issued share capital.

11. Ireland

The Irish Financial Services Regulatory Authority ("Financial Regulator") has prohibited the short selling (both naked and covered) of stock in certain Irish publicly quoted financial institutions. There is an exemption for market makers.

12. Italy

The Commissione Nazionale per le Societa E La Borsa ("Consob") issued an order prohibiting any short selling of shares in banks and insurance companies listed on Italian regulated markets. There are exceptions for:

Market makers as defined in the Italian single financial act. This covers a "person offering his services to trade directly on regulated markets and multilateral trading facilities on a continuous basis, buying and selling financial instruments at self-established prices;

Specialists and liquidity providers as defined in the rules of Borsa Italiana.

13. Korea

Naked short selling is prohibited in Korea under existing laws and the Financial Services Commission ("FSC") has proposed to further enhance investor and broker compliance with the short selling regulation by applying the following restrictions on short selling:

14. Luxembourg

The Commission de Surveillance du Secteur Financier ("CSSF") has prohibited naked short sales in financial institutions or insurance companies admitted to trading on a regulated market. This prohibition applies equally to own account transactions or transactions on behalf of a client.

Market participants executing transactions should ensure that their clients have the necessary cover for any transaction.

15. Netherlands

The Authority for Financial Markets ("AFM") has introduced a ban on short selling which covers naked short selling on any equities of financial institutions traded on Euronext, whether for own account or for customers.

Related documents including the new rules and an FAQ is available on the AFM website:

16. Portugal

The Comissão do Mercado de Valores Mobiliários ("CMVM") has prohibited naked short selling on Euronext Lisbon and PEX. Members should not accept or execute sale orders for stocks in the relevant financial institutions if the person issuing the order does not hold (or is not in a position to ensure that it holds) the stocks at the time of transmission of the order.

The CMVM has published on 25 September a general statement of opinion on the practice of short-selling:

17. Russia

On the 26th September 2008 the Federal Financial Markets Service of Russia has lifted the bans on short selling, uncovered and margin trades.

18. Singapore

The Singapore Exchange ("SGX") has announced that it will not prohibit short-selling, but will tighten rules to deter the failed delivery of stocks in order to discourage "naked" short-selling, and to enhance transparency in the "buying-in" market.

Traders who cannot deliver shares sold will be subject to a penalty of 5% of the value of the failed trade, subject to a minimum of S$1,000, in addition to the current processing fee for "buying-in" of S$30 per contract. SGX requires market participants not short-sell in the buying-in market as it runs counter to the objective of buying-in. Further, traders who fail to deliver shares in the "buying-in" market may be liable to a penalty of S$50,000 and/or disbarment from participating in the "buying-in" market.

Link to press release: http://info.sgx.com/webnewscentre.nsf/b9c790d0d5ba5d2548256dcf0049ce28/48256838002f07b1482574cc00444fe0?OpenDocument

19. Spain

The Comision Nacional Del Mercado de Valores ("CNMV") has always prohibited naked short sales. Regulated market members must ensure that their clients hold the securities before processing their orders to sell, either by relying on their own registers if they act as their custodians or by obtaining the explicit assurance by the client that they are not conducting a naked short sale.

20. Switzerland

The Swiss Federal Banking Commission ("SFBC") and the Swiss Exchange ("SWX") have prohibited naked short sales in all securities.

In a Market Notice issued on 30 September 2008, SWX Europe has prohibited the creation or increase of net short positions, either naked or covered, in Swiss financial stocks on SWX Europe. The borrowing of stock to cover the increase of net short positions in Swiss financial stocks is not permissible.

Whilst the SWX Europe prohibition only applies to securities listed in its release, the SFBC and SWX prohibitions apply to all securities listed on SWX. The prohibitions apply to all trades, whether they are on-exchange or OTC transactions.

21. Taiwan

On the 30th September 2008, the Taiwanese Financial Supervisory Commission ("FSC") has prohibited all short selling and securities borrowing on shares listed on the Taiwan Stock Exchange ("TSE") and the GreTai Securities Markets ("GTSM").

Other Jurisdictions

Japan

Japan has already in place restrictions on short selling that target not only shares in financial firms but also those in all listed companies. In addition to requirements to verify and mark whether the transactions in question are short selling or not, there is an "uptick rule requirement" that short selling are prohibited, in principle, at prices no higher than the latest market price announced by the stock exchange concerned.

The Japanese Financial Services Agency ("FSA") has not introduced any new rules to curb short-selling. However, a statement by the Minister for Financial Services issued on 22 September 2008 indicated that the FSA is monitoring market developments at a "heightened alert level, paying heed to international cooperation toward stabilising, and protecting the integrity of, the international financial system". Short-selling is already restricted in Japan: short-selling is prohibited when it is "naked" and where the price is lower than the latest market price announced by the relevant stock exchange.

Link to press release: http://www.fsa.go.jp/en/announce/state/20080922.html

China

Whilst there are no regulations which explicitly prohibit short-selling in China, there are no mechanisms in place in China to allow for short-selling. As such, no action has been taken by the Chinese regulators.

Thailand

The Securities Exchange Commission has not introduced any new rules to curb short-selling. Naked short-selling is already prohibited in Thailand.

Indonesia

Based on publicly available information, the Indonesian's Capital Markets Supervisory Agency ("CMSA") is understood to be working on draft regulations to restrict short-selling. The CMSA website should be consulted for latest updates.

Link to CMSA website: http://www.bapepam.go.id/

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Date: 19/09/08
Time: 12.30 BST

The UK's Financial Services Authority (FSA) has introduced emergency new rules to prohibit the active creation or increase of net short positions.The new rules came into effect at 00.01 a.m on Friday 19 September 2008 and are intended to prevent the short selling in a list of designated stocks of UK public listed companies. This list currently includes 29 stocks.

The US Securities Exchange Commission (SEC) has also introduced rules to restrict short selling in US public listed companies.

It is your responsibility to make sure that you comply with the new rules and you should seek advice if you are unclear on their meaning or effect.

For information on the new rules please see the FSA and SEC websites: -

Any reference in this website to services offered by MF Global involving short selling should be read in conjunction with the above rules. We will endeavour to update information regarding the new Rules, however, you should access the FSA and SEC websites for the most current information. Please note that other regulators/jurisdictions may impose similar requirements and you are advised to check with local regulators prior to trading.

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The customer charter *

* Please note that this Customer Charter applies only to customers of MF Global UK Ltd. as defined in our TCF Policy.

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Policy and explanation of margin

Margins - A Basic Introduction

Initial margin is the amount of money required to open a derivatives position, whether in futures, forex or CFDs. It is in effect a security deposit to ensure that traders have sufficient funds to meet any potential loss from a trade. When a position is closed out or settled money deposited by way of margin is returned, plus or minus any resulting profit or loss.

If a position involves an exchange-traded product, the amount or percentage of initial margin is set by the exchange concerned. However brokerage firms often require a larger amount of margin than that set by the exchange. In times of market volatility margin requirements can change quickly and brokers such as ourselves have the right to change margins at any time at our discretion.

If a position is making a loss and the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available. Often referred to as "variation margin", margin called for this reason is usually done on a daily basis, however, in times of high volatility a broker can make a margin call or calls intra-day.

Calls for margin are usually expected to be paid and received on the same day. If not, the broker has the right to close sufficient positions to meet the amount called by way of margin. After the position is closed-out the client is liable for any resulting deficit in the client's account.

Some US Exchanges also use the term "maintenance margin", which in effect defines by how much the value of the initial margin can reduce before a margin call is made. However, most non-US brokers only use the term "initial margin" and "variation margin"

Consider the example below:

A gold futures contract of 100 ounces with an initial margin of &$3000:

Day 1

A client lodges $3000 margin and buys a June gold future at a price of $920 per ounce. (every $1 movement in the price of gold generates a profit or loss of $100)

Gold closes the day at $915.00, which means the client is losing $500.

Day 2

The broker makes a margin call for $500 and expects to receive funds on the same day.

Three scenarios:

  1. The client pays his margin call and on day 2 gold closes at 918. In this case the client now has $300 surplus in his account
  2. The client does not pay his margin call and on day 3 the broker sells out the contract at 910. The client is debited $1000 and now has a balance of $2000
  3. The client does not pay his margin call but promises to meet the call on day 3. The broker uses his discretion to give the client an extra day to pay. On day 4 the price drops to $880 and no margin has been received. The broker closes out the trade creating a loss of $4000. The client is now left with a $1000 deficit in his account (i.e. initial margin $3000 less loss of $4000) for which he is legally liable to pay.

In addition to the above information, you are advised to carefully read the risk disclosure statement and associated documents issued to you regarding your account. Should you not understand any aspect of the trading you intend to undertake or the financial consequences of doing so you should consult with an independent financial adviser.

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Definition of segregation

Client Money Statement

As a regulated firm MF Global UK Limited (MF Global) offers "segregated" account facilities to its customers. If you hold a segregated account with MF Global this will mean that any money in your account with MF Global will be treated as "client money" for the purposes of the client money rules of the Financial Services Authority ("FSA"). These rules may be found in the FSA's Handbook of rules, in the business standards section which deals with client assets (CASS). The FSA Handbook is available online on the FSA's website; www.fsa.gov.uk.

In broad terms the client money rules require MF Global to act as trustee in respect of client money it holds and to ensure that such money is held separately from its own funds. The rules dictate where MFG may place client money and the steps MFG must take to ensure that the client money it places with third parties (e.g. MF Global's bankers) are held in suitable segregated facilities. These rules form an important part of the UK regulatory system, which is designed to protect consumers and other users of the financial services markets especially in the event of the failure of a regulated firm. If a regulated firm fails a Liquidator would not be able to utilise client money to meet the demands of the general creditors of that firm.

The client money rules only apply to cash and there are other rules which apply to non-cash assets you may hold with MF Global, for example the FSA's rules regarding custody arrangements.

In respect of certain products MF Global does not offer segregation and customers are asked to place funds and non-cash assets with MF Global as collateral. In these circumstances the customer's cash will be placed in a "non-segregated" account and will not be subject to the FSA's client money rules.

If you have any questions regarding the status of your account or the segregation of your funds, please contact your MF Global account handler.

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