The Issuer believes that the following factors may affect its ability to fulfil its obligations under the ETP
Securities issued under the Programme. Some of these factors describe potential events which may or may
not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency
Factors which the Issuer believes may be material for the purpose of assessing the market risks associated
with ETP Securities issued under the Programme are also described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in
ETP Securities issued under the Programme, but the inability of the Issuer to pay any amounts on or in
connection with any ETP Securities may occur for other reasons and the Issuer does not represent that the
statements below regarding the risks of holding any ETP Securities are exhaustive. Before making an
investment decision, prospective purchasers of ETP Securities should consider carefully, in the light of their
own financial circumstances and investment objectives, all the detailed information set out elsewhere in this
document and, in particular, the considerations set forth below in order to reach their own views prior to
making any investment decision.
This Base Prospectus identifies in general terms certain information that a prospective investor should
consider prior to making an investment in the ETP Securities. However, a prospective investor should,
without any reliance on the Issuer, the Margin Account Provider or any Authorised Participant or any of their
respective Affiliates, conduct its own thorough analysis (including its own accounting, legal and tax
analysis) prior to deciding whether to invest in any ETP Securities issued under the Programme. Any
evaluation of the suitability for an investor of an investment in ETP Securities issued under the Programme
depends upon a prospective investor’s particular financial and other circumstances, as well as on specific
terms of the relevant ETP Securities and, if it does not have experience in financial, business and
investment matters sufficient to permit it to make such a determination, it should consult with its financial
adviser prior to deciding whether or not to make an investment in the ETP Securities.
The ETP Securities may not be a suitable investment for all investors
Each potential investor in the ETP Securities must determine the suitability of that investment in
light of its own circumstances and should consult with its legal, business, tax advisers and such
other advisers as it deems appropriate to determine the consequences of an investment in the ETP
Securities and to arrive at its own evaluations of the investment.
In particular, each potential investor should:
(a) be financially sophisticated in that it either (i) has the requisite knowledge and experience in financial,
business and investment matters and of investing in investments offering a similar economic exposure
to the ETP Securities, and access to, and knowledge of, appropriate resources, to evaluate the
information contained in this document and the relevant Final Terms and the merits and risks of an
investment in the ETP Securities in the context of such investors’ financial position and circumstances;
or (ii) if it does not have such knowledge, experience and access, have consulted with appropriate
advisers who do have such knowledge, experience and access;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the ETP Securities and the impact the ETP Securities
will have on its overall investment portfolio;
(c) understand thoroughly the terms of the ETP Securities and be familiar with the behaviour of the
market of the Component Security and the Index relating to a particular Series of ETP Securities
and any relevant indices and financial markets; and
(d) have an asset base sufficiently substantial as to enable it to sustain any loss that they might suffer as
a result of an investment in the ETP Securities and have sufficient financial resources and liquidity to
bear all of the risks of an investment in the ETP Securities including, without limitation, any currency
exposure arising from the currency for payments being different to the prospective investor’s currency.
If a prospective investor is in any doubt as to whether the ETP Securities are a suitable investment for it,
it should consult with an appropriate independent financial advisor prior to deciding whether or not to
make an investment in the ETP Securities.
This Base Prospectus is not, and does not purport to be, investment advice, and none of the Issuer, the
Authorised Participants or the Margin Account Provider makes any recommendation as to the suitability of
the ETP Securities as an investment. The provision of this Base Prospectus to prospective investors is not
based on any prospective investor’s individual circumstances and should not be relied upon as an
assessment of suitability for any prospective investor in the ETP Securities. Even if the Issuer, any of the
Authorised Participants, the Margin Account Provider or any of their respective Affiliates possess limited
information as to the objectives of any prospective investor in relation to any transaction, series of
transactions or trading strategy, this will not be deemed sufficient for any assessment of suitability for such
person of the ETP Securities. Any trading or investment decisions a prospective investor takes are in
reliance on its own analysis and judgment and/or that of its advisers and not in reliance on the Issuer, the
Authorised Participants, the Margin Account Provider or any of their respective Affiliates.
In particular, each prospective investor in the ETP Securities must determine, based on its own
independent review and such professional advice as it deems appropriate under the circumstances, that its
acquisition of the ETP Securities (i) is fully consistent with its (or, if it is acquiring the ETP Securities in a
fiduciary capacity, the beneficiary’s) financial needs, objectives and condition, (ii) complies and is fully
consistent with all investment policies, guidelines and restrictions applicable to it (whether acquiring the
ETP Securities as principal or in a fiduciary capacity) and (iii) is a fit, proper and suitable investment for it
(or, if it is acquiring the ETP Securities in a fiduciary capacity, for the beneficiary), notwithstanding the clear
and substantial risks inherent in investing in or holding the ETP Securities.
Each prospective investor in ETP Securities should have sufficient financial resources and liquidity to bear
all of the risks of an investment in the relevant ETP Securities, including, without limitation, where the
currency for payments is different from the potential investor’s currency, the associated currency exposure.
See “Exchange rate risks and exchange controls” below.
Investment activities of certain investors are subject to investment laws and regulations or review or
regulation by certain authorities. Each prospective investor should therefore consult its legal advisers to
determine whether and to what extent (i) the ETP Securities are legal investments for it, (ii) if relevant, the
ETP Securities can be used as underlying securities for various types of borrowing and (iii) other
restrictions apply to its purchase or, if relevant, pledge, of any ETP Securities. Financial institutions should
consult their legal advisers or the appropriate regulators to determine the appropriate treatment of ETP
Securities under any applicable risk-based capital or similar rules.
Risk factors relating to the ETP Securities
Market price of the ETP Securities
The ETP Securities may have a long term and the only means through which an investor will be able to
realise value from an ETP Security prior to its Final Redemption Settlement Date will be to sell it at its then
market price in a secondary transaction. While each Authorised Participant appointed in respect of the
Programme and/or a Series of ETP Securities intends to make a market for the relevant Series of ETP
Securities in respect of which it is appointed as an Authorised Participant, no Authorised Participant is
obliged to make a market for any Series of ETP Securities (including any Series in respect of which it is
appointed as an Authorised Participant) and an Authorised Participant may discontinue making a market at
General movements in local and international markets and factors that affect the investment climate and
investor sentiment could all affect the level of trading and, therefore, the market price of the ETP Securities.
Investors should note that general movements in markets and factors that affect the investor climate and
investor sentiment may have different effects on each Series of ETP Securities. The ETP Security Value
and/or market price of the ETP Securities may be volatile and may fall rapidly and an investor may not be
able to sell its ETP Securities quickly and/or at a price such that the investor is able to prevent or minimise
any loss of its investment.
The market price of the ETP Securities of a Series will be affected by a number of factors, including, but not
(i) the value and volatility of the Index referenced by such Series of ETP Securities and the assets underlying that Index;
(ii) the degree of leverage applicable to such Series of ETP Securities;
(iii) market perception, interest rates, yields and foreign exchange rates;
(iv) whether or not any market disruption is subsisting;
(v) the nature and value of any Collateral Assets relating to such Series of ETP Securities;
(vi) the creditworthiness of the Custodian and any Sub-Custodian; and
(vii) the liquidity in the ETP Securities.
Prospective investors should be aware that the ETP Security Value and the secondary market price of the
ETP Securities can go down as well as up throughout the term of the ETP Securities. Certain indices may
be more volatile than other indices, and the secondary market price of the ETP Securities linked to such
index may demonstrate similar volatility. Prospective investors should be aware that the ETP Security
Value and market price of any ETP Securities on any Valuation Date may not reflect their prior or future
performance. There can be no assurance as to the future value and market price of any ETP Securities.
AN INVESTMENT IN ETP SECURITIES INVOLVES A SIGNIFICANT DEGREE OF RISK AND AN
INVESTOR MAY LOSE THE VALUE OF ITS ENTIRE INVESTMENT OR PART OF IT.
Market-making by Authorised Participants
The price (if any) provided by an Authorised Participant for the purchase or sale of ETP Securities in the
secondary market (whether in an on-exchange or off-exchange transaction), and the number of ETP
Securities subject to any such offer, will be determined at the absolute discretion of that Authorised
Participant by reference to such factors as it sees fit.
An Authorised Participant may maintain such bid/offer spread as it determines in its absolute discretion.
The bid/offer spread is the difference between the bid price (i.e. the price at which a holder can sell ETP
Securities to the Authorised Participant) and the offer price (i.e. the price at which a holder can buy ETP
Securities from the Authorised Participant). Any price provided by an Authorised Participant or other
secondary market price may take into account fees (including any dealing order fees charged by the Issuer
to such Authorised Participant), charges, duties, taxes, commissions, liquidity, market spreads and/or other
Prospective investors should note that:
(i) not all market participants and Authorised Participants will determine the price of the ETP Securities
of a Series in the same manner, and the variation between such valuations and prices quoted may
(ii) the number of ETP Securities of a Series subject to any offer made by an Authorised Participant or
otherwise in the secondary market may be affected by market demand for the ETP Securities of
that Series, the number of ETP Securities of that Series in issue, whether the Margin Account
Provider has requisite capacity to enter into margin account agreements in respect of any new ETP
Securities, whether subscriptions can be processed and prevailing market conditions;
(iii) they may not be able to sell their ETP Securities quickly, easily or at prices that will provide them
with a yield comparable to other similar investments;
(iv) any price at which the ETP Securities of a Series may be sold prior to the Final Redemption Date
may be at a discount, which could be substantial, to the price at which such ETP Securities were
acquired by the relevant investor; and
(v) illiquidity may have a severely adverse effect on the ETP Security Value. Furthermore, because
each Series of ETP Securities provides leveraged exposure to a single security, the impact of
illiquidity of such security – particularly during an environment with significant price declines – is
intensified due to the concentrated nature of the exposure of the ETP Securities.
Prospective investors should be aware that ETP Securities requested for issue and subscribed for by an
Authorised Participant may be held on an inventory basis by such Authorised Participant and offered for
sale and/or sold over a period of time. Investors should not assume that ETP Securities will automatically
be placed with investors by the relevant Authorised Participant(s) immediately upon issue. To the extent
that the Authorised Participants hold ETP Securities at any time, they may exercise their rights under them
in such manner as they see fit in their own interests and need not have regard to the interests of other
holders of ETP Securities or any other person. In particular, an Authorised Participant that is a holder of
ETP Securities may vote at any meeting of holders of such ETP Securities or approve any resolution of
such holders as it sees fit (including with respect to any changes to the terms of the ETP Securities
proposed by the Issuer).
Foreign exchange risk
Prospective investors should be aware that in case the Component Security of the relevant Index for a
Series of ETP Securities is denominated in a currency other than the currency in which the ETP Securities
are listed, correlation risks may apply. These correlation risks depend on the degree of dependency of the
currency fluctuations of the foreign currency of the Component Security of the relevant Index for a Series of
ETP Securities to the currency in which the ETP Security Value or the Redemption Amount of such Series
of ETP Securities is calculated. Hedging transactions, if any, of the ETP Securities may not exclude these
Each Series of ETP Securities provide leveraged exposure to a single security (the Component Security of
the relevant Index for such Series of ETP Securities). Due to this concentrated leveraged exposure to a
single security, prospective investors should be aware that there are risks deriving from such concentration,
the most significant of which is the impact on the liquidity and the volatility of the ETP Securities.
In respect of liquidity, a concentrated leveraged exposure to a single security heightens the impact of the
illiquidity of such security on the ETP Securities – particularly during an environment with significant price
declines. Furthermore, the volatility of the ETP Securities is also intensified due to their concentrated
leveraged exposure, as there is no other reference asset to counterbalance potential volatile movements on
the Component Security of the relevant Index for a Series of ETP Securities.
Prospective investors should also be aware that leveraged exposure to the Component Security has a high
degree of idiosyncratic (i.e., company-specific) risk, relative to a more diversified investment. Examples of
idiosyncratic risk include, but are not limited to: company management expertise, capital allocation, labour
and/or supply chain disruptions, theft, lawsuits and natural disasters.
Furthermore, because each ETP Security provides exposure to a single Component Security, the potential
impact of corporate actions is more significant than in a diversified investment. Certain corporate actions,
such as a merger or acquisition, could result in the eventual liquidation of an ETP Security.
Tracking error in relation to Component Security
At any time, the price at which any Series of ETP Securities trade on the London Stock Exchange (or any
other exchange or market on which they may be quoted or traded) may not reflect accurately the leveraged
changes in the return of the Component Security which the relevant Index of such Series seeks to track.
The application and redemption procedures for any Series of ETP Securities and the role of the Authorised
Participant(s) as market-makers are intended to minimise this potential difference. However, such price at
which any Series of ETP Securities trade will be a function of supply and demand amongst investors
wishing to buy and sell such Series and the bid/offer spread that market-makers are willing to quote for
The Issuer’s ability to issue new ETP Securities of a Series is subject to the Margin Account Provider’s
ability to increase the amount of margin provided under the Margin Account Agreement in connection with
such Series. In the relevant Margin Account Agreement, the Margin Account Provider will agree limits on,
amongst other things, the amount of margin to be provided in relation to each Series of ETP Securities and
each Index. Such capacity limits will reference the Margin Account Provider’s exposure, pursuant to all
Margin Account Agreements entered into by the Issuer with the Margin Account Provider in connection with
any Series of ETP Securities, to the relevant Index, and accordingly the capacity limits for each Series of
ETP Securities that reference the same Index will be interdependent. The Issuer will notify the ETP
Securityholders on the Issuer’s website of the then applicable Margin Account Provider capacity limits
following the written request of any ETP Securityholder.
If the Issuer is unable to issue new ETP Securities of a Series due to Margin Account Provider capacity
limits being breached, and there is high market demand for ETP Securities of such Series, then such ETP
Securities may trade at a significant premium to their ETP Security Value. An investor who buys any such
ETP Securities in such circumstances may incur a significant loss should either market demand fall, or
should the Margin Account Provider agree to increase its capacity limits with respect to the relevant Index
in order that further ETP Securities of such Series may be issued. Such significant loss can even occur
where the ETP Security Value has increased during the period of that investor’s holding of such ETP
In addition, each Series of ETP Securities has a principal protection component (the “Principal Protection
Amount”) which is not reflected in the Index that such Series of ETP Securities seeks to track. Because the
Leverage Factor for such Series of ETP Securities will not be applied to this Principal Protection Amount,
the Leverage Factor of such Series will be marginally less than the Index Leverage Factor and will therefore
contribute to daily tracking error.
Issuer’s right to vary fees
The fees that are taken into account in calculating the ETP Security Value in respect of a Series on any
Valuation Date (comprising the Arranger Fee and the Daily Margin Interest Rate applicable to such ETP
Securities) may be varied upon the Issuer giving notice to the ETP Securityholders. Potential investors
should note that the Issuer is not required to consider the interests of the ETP Securityholders in making
any such variation.
Index Sponsor’s right to make funding adjustments in the relevant Index
Each Series of ETP Securities reference an Index whose methodology may take into account specific
funding adjustments. Depending on market conditions, the Index Sponsor for the relevant Index may vary
its funding adjustments from time to time without regard to the interests of the ETP Securityholders.
Potential investors should note that the Issuer shall have no obligation to adjust the ETP Security Value, the
calculation or the methodology of the relevant Series of ETP Securities so as to eliminate or reduce the
impact of the funding adjustments made in the underlying Index of such Series of ETP Securities.
Issuer’s right to make funding adjustments in the relevant Series of ETP Securities
Each Series of ETP Securities take into account specific funding adjustments, which may be varied by
agreement between the Issuer and the relevant Margin Account Provider. Potential investors should note
that the Issuer and the Margin Account Provider are not required to consider the interests of the ETP
Securityholders in making any such variation.
Issuer’s right to replace agents and providers
The Issuer reserves the right to replace the Margin Account Provider, the Portfolio Administrator, the
Custodian, the Trustee (only in accordance with the Trust Deed), the Issuing and Paying Agent, the
Registrar, the CREST Settlement Agent and any other agents or providers herein at its sole discretion in
order to ensure the efficient operation of this Programme.
Only Authorised Participants may deal with the Issuer in subscribing for or requiring the Issuer to redeem
outstanding ETP Securities, save in relation to Optional Redemptions at any time following notification by
the Issuer that redemption requests from ETP Securityholders which are not Authorised Participants will be
Prospective purchasers should note that the Optional Redemption Amount payable by the Issuer to an ETP
Securityholder in respect of an ETP Security will be reduced on account of any amounts owing to the
Margin Account Provider. As such, the amount due to an ETP Securityholder in respect of each ETP
Security held by it on the Optional Redemption Settlement Date may be less than the ETP Security Value in
respect of such ETP Securities.
The amount of any Optional Redemption is subject to the Maximum Daily Redemption Limit, being a
maximum limit (if applicable) on the redemption number of ETP Securities of a Series on any Optional
Redemption Pricing Date, as may be amended by the Margin Account Provider from time to time in
accordance with the terms of the Operating Procedures Agreement.
Prospective investors should be aware that it is possible that the Maximum Daily Redemption Limit could
cause the ETP Securities to trade at a higher premium or result in a discount to the ETP Security Value.
An investor who buys ETP Securities in such circumstances may incur a significant loss should market
demand change. Significant loss could occur even where the ETP Security has increased in price during
the investor’s holding period. The Maximum Daily Redemption Limit could also lead to higher trading
spreads for the ETP Securities in the secondary market, which could increase the execution costs for an
investor purchasing the ETP Securities in the secondary market.
In the event that an investor is not able to immediately redeem their ETP Securities due to a breach of the
Maximum Daily Redemption Limit, such investor will be subject to market risk (i.e. that the value of the ETP
Securities will decline prior to redemption and therefore reduce the redemption amount). As a result, it is
possible that the redemption amount could be reduced due to a decline in the price of the Component
Security (which would consequently impact the value of the ETP Securities).
In addition, prospective investors should be aware that if trading in the Component Securities in respect of
a Series of ETP Securities is suspended, any Optional Redemption would be delayed. As a result, any
redemption request relating to the relevant ETP Securities placed on the day upon which the relevant
Component Security is suspended from trading would be delayed and such suspension from trading of the
relevant Component Securities could ultimately lead to a Disruption Event Redemption. Investors would
therefore be subject to market risk (i.e. that the value of the ETP Securities will decline prior to redemption
and therefore reduce the redemption amount). As a result, it is possible that the redemption amount could
be reduced due to a decline in the price of the Component Security (which would consequently impact the
value of the ETP Securities).
Risks relating to the Indices
The ETP Securities are index-linked securities. Prospective investors should note that the amount payable
on the redemption of the ETP Securities of any Series will be linked to the daily performance of the Index
referenced by that Series.
Prospective investors should be aware that the level of an Index can go down as well as up and that the
past performance of an Index will not be indicative of its future performance. There can be no assurance as
to the future performance of any Index to which the ETP Securities are linked. The ETP Securities may
trade differently from the performance of the Index and changes in the level of the Index may not result in a
comparable change in the market value of the ETP Securities or in the ETP Security Value.
Prospective investors should be aware that, in addition to any Arranger Fees or other expenses deducted in
the calculation of the ETP Security Value, fees and other adjustments may be deducted in the calculation of
the level of the Index by the relevant Index Sponsor. Prospective investors should carry out their own
detailed review of the composition and calculation of the applicable Index and the rules relating thereto and
ensure that they understand the fees and adjustments and any other amounts deducted from (or added to)
the Index, the impact such fees may have on the level of the Index and the circumstances in which any
such fees and adjustments may change.
Accordingly, before investing in any ETP Securities, prospective investors should carefully consider
whether an investment based on the performance of the applicable Index is suitable for them and in all
cases an investor in ETP Securities should carry out its own detailed review of the applicable Index and the
rules relating thereto.
Each Series of ETP Securities provide leveraged exposure to the daily performance of a single equity
security and therefore is subject to general and specific market movements and changes in the market
rates or prices such as interest rates, credit spreads, foreign exchange rates, commodities and equity prices.
Purpose of the Index
The purpose of the Index in respect of each Series of ETP Securities is to provide leveraged exposure to
the Component Security of such Index, which will be adjusted daily in accordance with the performance of
the Component Security. As such, any negative or positive changes in the price of such Component
Security will be multiplied by the applicable Index Leverage Factor for the relevant Series of ETP Securities.
Based on the daily leveraged valuation of the Component Security provided by the Index and in accordance
with the Leverage Factor for the relevant Series of ETP Securities, Collateral Assets will be acquired or
disposed from the Margin Account. Potential Investors should note that they will have no entitlement to the
relevant Index or the Component Security of such Index, but solely to the proceeds from the liquidation of
the Collateral Assets (after deduction of all costs and expenses incurred by the Issuer in connection with
the liquidation of such Collateral Assets and repayment of a pro rata proportion of the Margin Loan (and
any interest accrued thereon) held in the Margin Account.
Risks associated with indices generally
Factors affecting the performance of indices may adversely affect the value of the ETP Securities
The performance of an Index in respect of each Series of ETP Securities is dependent upon the
macroeconomic factors relating to the share that comprises such Index, which may include interest rates
and price levels on the capital markets, currency developments, political factors and company-specific
factors such as earnings position, market position, risk situation, shareholder structure and distribution
The returns on the ETP Securities may not reflect a direct investment in the assets comprised in the
The return payable on ETP Securities linked to an Index may not reflect the return an investor would realise
if it actually owned the relevant Component Security of such Index. For example, holders of the ETP
Securities linked to an Index will not receive any dividends paid on the Component Security of the relevant
Index and will not participate in the return on those dividends other than through the effect that these
dividends might have on the Redemption Amount of the ETP Securities, as any dividends held in the
Margin Account in respect of a Series of ETP Securities would increase the Collateral Assets in respect of
such Series. Similarly, the holders of such ETP Securities will not have any voting rights in the Component
Security of such Index. Accordingly, investors in ETP Securities may receive a lower payment upon
settlement or redemption of such ETP Securities than such investor would have received if it had invested
in the Component Security of the Index to which such ETP Securities are linked.
The actions of the Index Sponsor, including any change in the composition or discontinuance of an Index,
could adversely affect the market value of the ETP Securities referencing such Index
The sponsor of each Index is responsible for the calculation and maintenance of that Index. The sponsor of
any Index can make methodological changes that could affect the composition, calculation and/or
maintenance of such Index, which would affect the payments made by the Issuer to the investors in the
ETP Securities referencing such Index. The sponsor of any Index may effect intraday rebalancing of the
Index due to volatility of the relevant Component Security of such Index, which may make the Index Level
differ from the market price of the Component Security multiplied by the relevant Index Leverage Factor.
The sponsor of any such Index may also alter, discontinue or suspend calculation or dissemination of such
Index. The sponsor of an Index will have no involvement in the offer and sale of the ETP Securities and will
have no obligation to any investor in such ETP Securities. The sponsor of an Index may take any actions in
respect of such Index without regard to the interests of the investor in the ETP Securities, and any of these
actions could adversely affect the market value of the ETP Securities.
The Issuer is not affiliated with the sponsor of any Index in any way (except for the agreements and
licensing arrangements described in this Base Prospectus) and has no ability to control or predict their
actions, including any errors in or discontinuation of disclosure regarding its methods or policies relating to
the calculation of any Index or related Indices. ETP Securityholders will have no recourse against the
sponsor of any Index, or the underlying components of such Index.
Disruption Events/Adjustment Events/Change in Law
Any Valuation Date of a Series of ETP Securities may become subject to disruption due to occurrence of
certain events including, without limitation:
(i) any applicable Exchange or Related Exchange failing to open for its regular trading session, or
suspends or limits trading of any components of such index, or an event occurs that impairs trading
or valuation on the Exchange of, any components of such index;
(ii) the performance of an Index falling overnight by more than the applicable threshold;
(iii) the performance of an Index falling within a day by more than the applicable threshold;
(iv) the Index Sponsor permanently cancelling the Index;
(v) the Index Sponsor announcing that it will make a material change in the formula for, or the method
of, calculating the Index or in any other way materially modifying the Index;
(vi) the Index Sponsor failing to calculate and announce the level of the Index; or
(vii) a change in any applicable law or regulation that causes it to become illegal for the Margin Account
Provider to hold, acquire or dispose of hedging transactions in respect of its obligations under a
Margin Account Agreement, or causing the Margin Account Provider to incur materially increased
costs in maintaining or hedging its obligations under a Margin Account Agreement.
The consequences of such events may include, variously, disruptions or delays to pricing of ETP
Securities, the postponement of subscriptions for, and redemptions of, ETP Securities, adjustments to the
terms of the ETP Securities and the designation of a Successor Index. Ultimately, the occurrence of any
such event may trigger the mandatory redemption of the affected Series of ETP Securities. In this
eventuality, the amount which an ETP Securityholder may receive in respect of each ETP Security subject
to such redemption may be lower than the ETP Security Value.
Pursuant to the European Referendum Act 2015, a referendum on the United Kingdom’s membership of
the EU (the “UK’s EU Referendum”) was held on 23 June 2016 with the majority voting to leave the EU.
On 29 March 2017, the UK Government exercised its right under Article 50 of the Lisbon Treaty to leave the
EU. There is now expected to be a 2-year period of negotiations between the UK Government and the
Governments of the other EU Member States which will determine the manner of the UK’s departure from
Whilst the medium to long-term consequences of the decision to leave the EU remain uncertain, there
could be short-term volatility which could have a negative impact on general economic conditions in the UK
and business and consumer confidence in the UK, which may in turn have a negative impact elsewhere in
the EU and more widely. The longer-term consequences may be affected by the length of time it takes for
the UK to leave the EU and the terms of any future arrangements the UK has with the remaining member
states of the EU. Among other things, the UK’s decision to leave the EU could lead to instability in the
foreign exchange markets, including volatility in the value of the pound sterling or the euro.
Deteriorating business, consumer or investor confidence could lead to (i) reduced levels of business
activity; (ii) higher levels of default rates and impairment; and (iii) mark to market losses in trading portfolios
resulting from changes in credit ratings, share prices and solvency of counterparties.
No assurance can be given that such matters would not adversely affect the market value and/or the
liquidity of the ETP Securities in the secondary market.
Reform of LIBOR, EURIBOR and other “benchmarks”
The London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) and other
interest rates or other types of rates and indices which are deemed to be “benchmarks” are the subject of
ongoing national and international regulatory reform, including the implementation of the European
regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the
performance of investment funds, which entered into force on June 30, 2016 as well as proposals such as
the IOSCO Principles for Financial Market Benchmarks (July 2013). Following the implementation of any
such potential reforms, the manner of administration of benchmarks may change, with the result that they
may perform differently than in the past, or benchmarks could be eliminated entirely, or there could be other
consequences which cannot be predicted. On July 27, 2017, the UK Financial Conduct Authority
announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR
benchmark after 2021, and indicated that the continuation of LIBOR on the current basis cannot and will not
be guaranteed after 2021. The potential elimination of the LIBOR benchmark or any other benchmark, or
changes in the manner of administration of any benchmark, could result in the applicable interest rate for
any calculation that are linked to LIBOR (including the calculation of the Daily Margin Interest Rate) or
another benchmark becoming fixed or other adverse consequences which could adversely affect the return
on the ETP Securities, the value of the ETP Securities and the trading market for the ETP Securities. At
this time, no consensus exists as to what rates or indices may become accepted alternatives to LIBOR or
other benchmarks and it is impossible to predict the effect that any such alternative may have on the value
of the ETP Securities that are linked to existing benchmarks. Any such consequence could have a material
adverse effect on the return on, value of and market for the ETP Securities.
Risks relating to an investment in leveraged ETP Securities
For an explanation of the risks covered here and some simulated numerical examples, see the Section of
this Base Prospectus titled “Economic Overview of the ETP Securities – Daily return and simulated
Tracking error in relation to the Index
At any given time, the price at which any Series of ETP Securities trade in the secondary market may be
significantly different from the Index Level of the relevant Index of such Series. Additionally, the
performance of any Series of ETP Securities may significantly differ from the performance of the relevant
Index of such Series.
Accordingly, there is a risk that the return on any Series of ETP Securities may differ from the actual return
that investors would obtain from the relevant Index tracked by such Series. Therefore, investors may
receive a return under the ETP Securities that is significantly lower than the return that they would receive if
it was possible for investors to invest in the relevant Index directly.
Each Series of ETP Securities seek to achieve a return which is a multiple of the daily return of the
Component Security of the relevant Index for such Series (excluding the effects of any applicable fees and
adjustments). Thus the ETP Securities will magnify losses in market environments adverse to their
objective compared to similar exchange traded products that are not leveraged. In addition, losses will be
magnified as the amount of leverage increases.
Investing in ETP Securities is not the same as being long in the Component Security or in the relevant
Index and is different from a long futures position.
Investing in ETP Securities is not the same as making a leveraged investment in the Component Security
of the relevant Index. The return from holding ETP Securities is not the same as the return from buying the
Component Security of the relevant Index, and is not the same as being long in a comparable position in
futures contracts related to such Component Security.
The return from holding ETP Securities is not the same as the return generated from the relevant Index,
and is not the same as being long in a comparable position in futures contracts related to such Index.
Due to the ETP Securities’ daily investment goal, an ETP Security’s return over holding periods longer than
one day will likely differ from the return of the relevant Index, and this difference will become more
significant as the holding period increases in length.
The return on ETP Securities over a period longer than one day is the result of the return for each day
compounded over all days in that period and the effects of daily rebalancing. As a consequence of the daily
leverage exposure of ETP Securities, over periods longer than one day, the redemption entitlement of an
ETP Security will fall if the relevant Index’s performance is flat (i.e. has a zero or close to zero return).
Factors affecting leverage risk
Higher leverage, higher volatility and longer holding periods will increase the risk from investing in ETP
Risk of regulatory intervention
Government or regulatory intervention in the financial markets could result in the Issuer being unable to
enter into, or maintain, transactions in relation to any Series of ETP Securities. If, due to a change in any
applicable law or regulation, it becomes illegal for the Issuer or the Margin Account Provider to perform its
obligations under a Margin Account Agreement, that Margin Account Agreement will terminate. If the Issuer
is unable to enter into a replacement margin account agreement the ETP Securities of the relevant Series
will fall for mandatory early redemption.
Risks relating to the early redemption of the ETP Securities
Issuer call option
The Issuer may at any time, in its sole and absolute discretion, elect to redeem all or some only of the ETP
Securities of a Series. In exercising such discretion, the Issuer will have no regard to the interests of the
ETP Securityholders, and ETP Securityholders may receive less, or substantially less, than their initial
Mandatory Redemption Events and Events of Default
The ETP Securities of a Series may become due and payable prior to their Final Redemption Date, as
further described in Conditions 8.7 and 12, in connection with the occurrence of an Event of Default
(including an event of default with respect to the Issuer or the Margin Account Provider under any
applicable Margin Account Agreement) or a Mandatory Redemption Event.
Consequences of a Mandatory Redemption Event or an Event of Default
Following the occurrence, in respect of a Series of ETP Securities, of:
(i) a Mandatory Redemption Event, each ETP Security of such Series will become due and payable
on the relevant Mandatory Redemption Settlement Date at its Mandatory Redemption Amount
(equal to the greater of (a) the Principal Protection Amount of such ETP Security and (b) the Prorata
(ii) an Event of Default, the Trustee may, and will, if so directed in writing by the holders of at least a
majority of the ETP Securities, declare such ETP Securities immediately due and payable at their
Final Redemption Amount.
Risk of intraday rebalancing
As defined in the Index methodology in respect of a Series of ETP Securities, there is a possibility of
intraday rebalancing in the event of a significant decline in the price of the relevant Component Security for
such Series. On a day in which an intraday rebalance is triggered, the daily return of the relevant Series of
ETP Securities will not be equal to the Leverage Factor of such Series multiplied by the daily return of the
respective Component Security. Such intraday adjustment seeks to protect the holder of Leveraged ETP
Securities in the event of extreme market movements on any single Valuation Date (since the last Price per
ETP Security was calculated) by crystallising the losses incurred up to that point.
As a result of the intraday rebalancing, a Series of ETP Securities may not track what an investor might
expect on such day. If the price of the relevant Component Security was to reverse its fall after the intraday
rebalancing, then the holder of the relevant ETP Security will not benefit from the reversal of the price of the
Component Security to the same extent that it might have if the intraday rebalancing had not occurred.
However, if the price of the relevant Component Security continues to fall, then the holder of such ETP
Security will not suffer a loss to the same extent as if the intraday rebalancing had not occurred.
At the end of a Valuation Date on which an intraday rebalancing occurs, the relevant ETP Security will
rebalance once more as if it were the end of a normal Valuation Date.
Recognition of Security in other jurisdictions
The laws of certain jurisdictions may affect some or all of the assets comprising the Collateral Assets. In the
event that the laws of a jurisdiction do not recognise the security granted by the Trust Deed, such security
may not be effective in relation to assets deemed located in that jurisdiction and/or such assets may be
subject to claims which would otherwise rank after claims secured by the Trust Deed.
Enforcement of the Security
The obligations of the Issuer in respect of a Series of ETP Securities are secured by the Trust Deed in
respect of such Series of ETP Securities. Pursuant to such Trust Deed, the Issuer will create security in
respect of that Series in favour of the Trustee (for the benefit of the Secured Creditors) over (i) all of the
Issuer’s rights, title, interest and benefit present and future in, to and under the Programme Documents to
the extent that they relate to the ETP Securities; (ii) all sums held now or in the future by or on behalf of the
Issuer (including, without limitation, by the Issuing and Paying Agent and/or the Registrar and/or the
CREST Settlement Agent) to meet payments due in respect of the obligations and duties of the Issuer
under the Trust Deed and the ETP Securities, (iii) the Collateral Assets and any sums of money, securities,
financial instruments or other property received or receivable now or in the future by or on behalf of the
Issuer under the Margin Account Agreement and the Portfolio Administration Agreement and (iv) all of the
Issuer’s rights as against the Margin Account Provider, the Custodian and/or any Sub-Custodian in respect
of any sum or property now or in the future standing to the credit of the relevant accounts of the Issuer with
the Custodian or of the Custodian (on behalf of the Issuer) with any Sub-Custodian relating to the ETP
Securities, in each case, to the extent that they relate to the ETP Securities.
The claims of ETP Securityholders are subordinated upon enforcement of the Security
Following the enforcement of the security, the Trustee will apply the proceeds derived from the realisation
of the assets that are the subject of the security constituted by a Trust Deed in the applicable order of
priority under which amounts due to the ETP Securityholders will be subordinated to all costs, fees,
expenses and all other amounts including (without limitation) the costs of enforcing and/or realising any
security due to the Trustee itself and any receiver(s), and amounts arising to the Margin Account Provider,
in each case in relation to the ETP Securities.
Limited recourse obligations, non-petition and related risks
In respect of the ETP Securities of any Series, the Secured Creditors will have recourse only to the
Secured Property in respect of such ETP Securities, subject always to the Security, and not to any other
assets of the Issuer. If, following realisation in full of the Secured Property (whether by way of liquidation or
enforcement) and application of available cash in accordance with the applicable orders of priority and the
Trust Deed, any outstanding claim against the Issuer in respect of the Secured Obligations remains unpaid,
then such outstanding claim will be extinguished and no debt, liability or obligation will be owed by the
Issuer in respect thereof. Following such extinguishment, none of the Programme Parties, the ETP
Securityholders of any relevant Series or any other person acting on behalf of any of them or any other
person acting on behalf of any of them will be entitled to take any further steps against the Issuer or any of
its officers, shareholders, corporate service providers or directors to recover any further sum in respect of
the extinguished claim and no debt, liability or obligation will be owed to any such persons by the Issuer in
respect of such further sum.
None of the Programme Parties, the ETP Securityholders or any person acting on behalf of any of them
may, at any time, bring, institute or join with any other person in bringing, instituting or joining insolvency,
administration, bankruptcy, winding-up, examinership or any other similar proceedings (whether courtbased
or otherwise) in relation to the Issuer or any of its assets, and none of them will have any claim
arising with respect to the sums, assets and/or property attributable to any other securities issued by the
Issuer (save for any further securities which form a single Series with the ETP Securities).
There is also the risk that the Issuer may become subject to claims or other liabilities (whether or not in
respect of the ETP Securities) which are not themselves subject to limited recourse or non-petition
No person other than the Issuer will be obliged to make payments on the ETP Securities of any Series and
the ETP Securities issued under the Programme will not be guaranteed by, or be the responsibility of, any
other entity. In particular, the ETP Securities (i) do not represent an interest in and will not be obligations of,
or insured or guaranteed by, any Programme Party or any Affiliate or any company associated with any of
them, (ii) will not have the status of a bank deposit and will not be within the scope of any deposit protection
scheme and (iii) are not insured or guaranteed by any government, government agency or other body.
Meetings of ETP Securityholders, resolutions, modification, waivers and substitution
Meetings of the holders of a Series of ETP Securities may be convened to consider any matter affecting
their interests. These provisions permit specified majorities of the ETP Securityholders attending or
represented at any such meeting to pass resolutions binding all holders of such Series of ETP Securities,
including holders who did not attend or vote at such meeting, or who voted against the passing of such
ETP Securityholder directions
The Conditions of each Series of ETP Securities permit the holders of a majority or more of the outstanding
number of ETP Securities of a Series following the occurrence of an Event of Default, certain events which
would, upon delivery of the requisite notice, constitute Mandatory Redemption Events and at any time after
the Security has become enforceable to direct the Trustee in writing to deliver a notice or take such other
action in accordance with the Conditions, whereupon each ETP Security of such Series will become due
and payable at its Final Redemption Amount or Mandatory Redemption Amount (as applicable)
immediately upon the delivery of such notice (in the case of an Event of Default) or on the Mandatory
Redemption Settlement Date (in the case of a Mandatory Redemption Event) and/or the Security will be
enforced by the Trustee, as applicable. The Trustee will not however be obliged to take any step or action
or to act in accordance with any such direction unless the Trustee has been pre-funded and/or secured
and/or indemnified to its satisfaction by one or more ETP Securityholders in accordance with the Trust
Amendment and waiver without the consent of the ETP Securityholders
The Trustee may agree, without the consent of the ETP Securityholders to (i) any modification to the
Conditions, any Trust Deed, a Margin Account Agreement and/or any other Programme Document to which
it is a party which is of a formal, minor or technical nature or is made to correct a manifest error, and (ii) any
other modification, and any waiver or authorisation of any breach or proposed breach of the Conditions, any
Trust Deed, a Margin Account Agreement and/or any other Programme Document that is in the opinion of
the Trustee not materially prejudicial to the interests of the ETP Securityholders.
Risk factors relating to the Issuer and the legal structure
The Issuer is a special purpose vehicle
The Issuer is a special purpose vehicle with the sole business of issuing ETP Securities. The contracts
which may be entered into by the Issuer (such as any Margin Account Agreement entered into by the Issuer
in relation to one or more Series of ETP Securities) and the payments of the Issuer and the parties
thereunder are structured to have the capacity to provide the Issuer with funds to service payments due
and payable in respect of the ETP Securities and on any redemption by the Issuer of the ETP Securities.
The Issuer has, and will have, no assets other than (i) the small sums of money raised by issuing shares in
relation to its incorporation, (ii) such fees (if any) as are payable to it in connection with the issue or
redemption of any Series of ETP Securities from time to time and (iii) any rights, property, sums or other
assets on which any Series of ETP Securities issued under the Programme are secured.
Regulation of the Issuer by any regulatory authority
The Issuer is not required to be licensed or authorised under any current securities, commodities or
banking laws of its jurisdiction of incorporation and will operate without supervision by any authority in any
jurisdiction. There is no assurance, however, that regulatory authorities in one or more jurisdictions would
not take a contrary view regarding the applicability of any such laws to the Issuer. The taking of a contrary
view by such regulatory authority could have an adverse impact on the Issuer or the holders of the ETP
The Issuer has agreed not to engage in activities other than the issue of ETP Securities and related and
incidental matters. Any issue of ETP Securities must be on terms that provide for the claims of the ETP
Securityholders and the Programme Parties in respect of such ETP Securities to be limited to the proceeds
of the assets on which such ETP Securities are secured (see “Risk factors relating to the early redemption
of the ETP Securities – Limited recourse obligations, non-petition and related risks” above). In addition,
there are restrictions on the ETP Securityholders and Programme Parties bringing insolvency proceedings
against the Issuer. If such provisions are upheld, it would be unlikely that the Issuer could become
However, notwithstanding the restrictions described in Condition 7 and the limited recourse and nonpetition
provisions, should the Issuer have outstanding liabilities to third parties which it is unable to
discharge or should the limited recourse or non-petition provisions be found to be non-enforceable in a
particular jurisdiction and as a result the Issuer becomes or is declared insolvent according to the law of
any country having jurisdiction over it or any of its assets, the insolvency laws of that country may
determine the validity of the claims of ETP Securityholders and may prevent ETP Securityholders from
enforcing their rights with respect to any ETP Securities held by it or delay such enforcement. In particular,
depending on the jurisdiction concerned and the nature of the assets and security, the Security created in
favour of the Trustee in respect of such Series of ETP Securities may be set aside or ranked behind certain
other creditors and the assets subject to such Security may be transferred to another person free of such
In addition, certain jurisdictions have procedures designed to facilitate the survival of companies in financial
difficulties. In such jurisdictions, the rights of the Trustee or of the Issuer to enforce the Security created
pursuant to any Security Document may be limited or delayed by such procedures.
Preferred Creditors under Irish Law and Floating Charges
If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that
are treated under Irish law as creditors that are senior relative to its secured creditors including the ETP
Securityholders, the ETP Securityholders (and other secured creditors) may suffer losses as a result of
their subordinated status during such insolvency proceedings. In particular, under Irish law, upon an
insolvency of an Irish company, such as the Issuer, when applying the proceeds of assets subject to fixed
security which may have been realised in the course of a liquidation or receivership, the claims of a limited
category of preferential creditors will take priority over the claims of creditors holding the relevant fixed
security. These preferred claims include the remuneration, costs and expenses properly incurred by any
examiner of the company (which may include any borrowings made by an examiner to fund the company’s
requirements for the duration of his appointment) which have been approved by the relevant Irish courts
(see “Examinership” below).
The holder of a fixed security over the book debts of an Irish tax resident company (which would include the
Issuer) may be required by the Irish Revenue Commissioners, by notice in writing from the Irish Revenue
Commissioners, to pay to them sums equivalent to those which the holder received in payment of debts
due to it by the company.
Where the holder of the security has given notice to the Irish Revenue Commissioners of the creation of the
security within 21 days of its creation, the holder’s liability is limited to the amount of certain outstanding
Irish tax liabilities of the company (including liabilities in respect of VAT) arising after the issuance of the
Irish Revenue Commissioners’ notice to the holder of fixed security.
The Irish Revenue Commissioners may also attach any debt due to an Irish tax resident company by
another person in order to discharge any liabilities of the company in respect of outstanding tax whether the
liabilities are due on its own account or as an agent or trustee. The scope of this right of the Irish Revenue
Commissioners has not yet been considered by the Irish courts and it may override the rights of holders of
security (whether fixed or floating) over the debt in question.
In relation to the disposal of assets of any Irish tax resident company which are subject to security, a
person entitled to the benefit of the security may be liable for tax in relation to any capital gains made by the
company on a disposal of those assets on exercise of the security.
The essence of a fixed charge is that the person creating the charge does not have liberty to deal with the
assets which are the subject matter of the security in the sense of disposing of such assets or expending or
appropriating the moneys or claims constituting such assets and accordingly, if and to the extent that such
liberty is given to the Issuer any charge constituted by the Trust Deed may operate as a floating, rather than
a fixed charge.
In particular, the Irish courts have held that in order to create a fixed charge on receivables it is necessary
to oblige the chargor to pay the proceeds of collection of the receivables into a designated bank account
and to prohibit the chargor from withdrawing or otherwise dealing with the moneys standing to the credit of
such account without the consent of the chargee.
Depending upon the level of control actually exercised by the chargor, there is therefore a possibility that
the fixed security over the relevant charged assets would be regarded by the Irish courts as a floating
Floating charges have certain weaknesses, including the following:
(a) they have weak priority against purchasers (who are not on notice of any negative pledge
contained in the floating charge) and the chargees of the assets concerned and against lien
holders, execution creditors and creditors with rights of set-off;
(b) as discussed above, they rank after certain preferential creditors, such as claims of employees and
certain taxes on winding-up;
(c) they rank after certain insolvency remuneration expenses and liabilities;
(d) the examiner of a company has certain rights to deal with the property covered by the floating
(e) they rank after fixed charges.
Centre of Main Interests
The Issuer has its registered office in Ireland. As a result there is a rebuttable presumption that its centre of
main interest (“COMI”) in Ireland and consequently that any main insolvency proceedings applicable to it
would be governed by Irish law. In the decision by the Court of Justice of the European Union (“CJEU”) in
relation to Eurofood IFSC Limited, the CJEU restated the presumption in Council Regulation (EC) No.
1346/2000 of 29 May 2000 on Insolvency Proceedings, that the place of a company’s registered office is
presumed to be the company’s COMI and stated that the presumption can only be rebutted if “factors which
are both objective and ascertainable by third parties enable it to be established that an actual situation
exists which is different from that which locating it at the registered office is deemed to reflect”. As the
Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has an Irish
corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption,
although this would ultimately be a matter for the relevant court to decide, based on the circumstances
existing at the time when it was asked to make that decision. If the Issuer’s COMI is not located in Ireland,
and is held to be in a different jurisdiction within the European Union, main insolvency proceedings may not
be opened in Ireland.
Examinership is a court procedure available under the Companies Act 2014 to facilitate the survival of Irish
companies in financial difficulties. Where a company, which has its COMI in Ireland is, or is likely to be
unable to pay its debts an examiner may be appointed on a petition to the relevant Irish court under Section
509 of the Companies Act 2014.
The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or
shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the
voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner.
The examiner, once appointed, has the power to set aside contracts and arrangements entered into by the
company after this appointment and, in certain circumstances, can avoid a negative pledge given by the
company prior to this appointment. Furthermore, the examiner may sell assets, the subject of a fixed
charge. However, if such power is exercised the examiner must account to the holders of the fixed charge
for the amount realised and discharge the amount due to the holders of the fixed charge out of the
proceeds of the sale.
During the period of protection, the examiner will formulate proposals for a compromise or scheme of
arrangement to assist the survival of the company or the whole or any part of its undertaking as a going
concern. A scheme of arrangement may be approved by the relevant Irish court when at least one class of
creditors has voted in favour of the proposals and the relevant Irish court is satisfied that such proposals
are fair and equitable in relation to any class of members or creditors who have not accepted the proposals
and whose interests would be impaired by implementation of the scheme of arrangement.
In considering proposals by the examiner, it is likely that secured and unsecured creditors would form
separate classes of creditors. In the case of the Issuer, if the Trustee represented the majority in number
and value of claims within the secured creditor class, the Trustee would be in a position to reject any
proposal not in favour of the ETP Securityholders. The Trustee would also be entitled to argue at the
relevant Irish court hearing at which the proposed scheme of arrangement is considered that the proposals
are unfair and inequitable in relation to the ETP Securityholders, especially if such proposals included a
writing down to the value of amounts due by the Issuer to the ETP Securityholders.
The fact that the Issuer is a special purpose vehicle and that all of its liabilities should be of a limited
recourse nature means that it is unlikely that an examiner would be appointed to the Issuer.
However, if, for any reason, an examiner were appointed while any amounts due by the Issuer under the
ETP Securities were unpaid, the primary risks to the ETP Securityholders are as follows:
(a) the potential for a compromise or scheme of arrangement being approved involving the writing
down or rescheduling of the debt due by the Issuer to the ETP Securityholders as secured by the
(b) the Trustee, acting for and on behalf of the secured creditors, would not be able to enforce rights
against the Issuer during the period of examinership;
(c) the potential for the examiner to seek to set aside any negative pledge in the ETP Securities
prohibiting the creation of security or the incurring of borrowings by the Issuer to enable the
examiner to borrow to fund the Issuer during the protection period; and
(d) in the event that a scheme of arrangement is not approved and the Issuer subsequently goes into
liquidation, the examiner’s remuneration and expenses (including certain borrowings incurred by
the examiner on behalf of the Issuer and approved by the relevant Irish court) will take priority over
the moneys and liabilities which from time to time are or may become due, owing or payable by the
Issuer to each of the secured creditors under the ETP Securities or the Programme Documents.
Tax consequences of an investment in the ETP Securities
None of the Issuer or any Programme Party make any representation or warranty as to the tax
consequences to any investor of the acquisition, holding or disposal of the ETP Securities. The tax
consequences for each investor in the ETP Securities can be different and therefore investors are advised
to consult with their tax advisers as to their specific consequences. Prospective investors’ attention is also
drawn to the section of this Base Prospectus headed “Tax Considerations”.
Taxation and no gross-up
Each ETP Securityholder will assume and be solely responsible for any and all Taxes of any jurisdiction or
governmental or regulatory authority, including, without limitation, any state or local Taxes or other like
assessment or charges that may be applicable to any payment to it in respect of the ETP Securities. In the
event that any withholding or deduction for or on account of Tax is imposed on payments on the ETP
Securities, the ETP Securityholders will be subject to such Tax or deduction and will not be entitled to
receive amounts to compensate for such withholding or deduction. No Event of Default will occur as a result
of any such withholding or deduction.
The Issuer may become liable for Tax charges whether by direct assessment or withholding. If any such
event occurs as a result of a change in law or regulation that materially increases the cost to the Issuer of
performing its obligations under the ETP Securities or the Margin Account Agreement or makes it illegal for
the Issuer to do the same or to hold, acquire or dispose of the Collateral Assets, the ETP Securities may
become subject to early redemption.
Change of law
The Conditions of the ETP Securities are governed by English law in effect as at the date of issue of the
relevant ETP Securities. No assurance can be given as to the impact of any possible judicial decision or
change to English law or administrative practice after the date of issue of the relevant ETP Securities.
Legality of purchase
None of the Issuer, the Arranger, the Trustee, the Margin Account Provider, the Authorised Participants or
any Affiliate of such persons have or assume responsibility for the lawfulness of the acquisition of the ETP
Securities by a prospective purchaser of the ETP Securities (whether for its own account or for the account
of any third party), whether under the laws of the jurisdiction of its incorporation or the jurisdiction in which it
operates (if different), or for compliance by that prospective purchaser (or any such third party) with any
law, regulation or regulatory policy applicable to it.
The Issuer has been advised that, for United Kingdom regulatory purposes, the ETP Securities are treated
as debt securities with a minimum repayment amount and do not take the form of a collective investment
scheme. The ETP Securities described in this document are not units in an authorised collective investment
scheme for the purposes of the FSMA. There can be no assurance that the courts or regulatory authorities
in any jurisdiction would not recharacterise the ETP Securities as units in a collective investment scheme.
Any recharacterisation of the ETP Securities as units in a collective investment scheme may have adverse
consequences (including, without limitation, adverse tax consequences) for an investor.
Prospective investors should consult their professional advisers on the implications, and in particular the tax
and accounting implications, of investment in the ETP Securities and the risk that the ETP Securities may
be recharacterised as contracts for differences for United Kingdom regulatory purposes.
Undertakings for Collective Investment in Transferable Securities (UCITS)
Prospective investors comprising a scheme which is an undertaking for collective investment in transferable
securities subject to the Council Directive of 20 December 1985 on the coordination of laws, regulations
and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities
(No 85/611/EEC) (the “UCITS Directive”), as amended, need to satisfy themselves that an investment in
the ETP Securities would comply with any regulations and/or guidelines applicable to them pursuant to the
UCITS Directive and any laws, regulations or guidelines of their jurisdiction of incorporation and would be in
line with their individual investment objectives.
Alternative Investment Fund Managers Directive
EU Directive 2011/61/EU on Alternative Investment Fund Managers (“AIFMD”) provides, among other
things, that all alternative investment funds (“AIFs”) must have a designated alternative investment fund
manager (“AIFM”) with responsibility for portfolio and risk management.
The requirements of AIFMD have, in general, taken effect from 22 July 2013. If, AIFMD were to apply to the
Issuer, the Issuer would need to be appropriately regulated. AIFMD and any other changes to the
regulation or regulatory treatment of the ETP Securities for some or all investors may negatively impact the
regulatory position of individual investors and, in addition, have a negative impact on the price and liquidity
of the ETP Securities affected by such rules in the secondary market.
Risks related to the Margin Account Provider and the Collateral Assets
Risks relating to the Margin Account Provider
Under the terms of the Margin Account Agreement entered into by the Issuer in connection with a Series of
ETP Securities, the Issuer will pay the entire proceeds from the issue of such Series of ETP Securities to
the Margin Account Provider upon receipt and the Margin Account Provider will extend moneys by way of
credit to the Issuer which will be invested, in accordance with the Portfolio Administration Agreement, in
securities which will be held in the Margin Account in order to replicate (to the degree practicable) the return
on the Index referenced by such Series. On a daily basis the Margin Account will be reconstituted, in
accordance with the Portfolio Administration Agreement, in order to track the performance of the Index, by
the purchase of additional securities or the sale of existing securities held in the Margin Account. If
additional securities are required to be purchased, the Margin Account Provider will extend moneys by way
of credit to the Issuer in order to fund such purchases. Successful daily tracking will therefore be dependent
upon the credit of the Margin Account Provider.
ETP Securityholders have no direct ownership interest or right to delivery of the Collateral Assets
Investing in the ETP Securities will not make an investor the owner of any Collateral Assets. Any amounts
payable on the ETP Securities will be made in cash and the holders of the ETP Securities will have no right
to receive delivery of any Collateral Assets at any time.
Provision of information
None of the Issuer, any Programme Party or any Affiliate of any such persons makes any representation as
to the credit quality of the Margin Account Provider or any Collateral Assets. Any of such persons may have
acquired, or during the term of the ETP Securities may acquire, non-public information in relation to the
Margin Account Provider and/or the Collateral Assets. None of such persons are under any obligation to
make such information directly available to ETP Securityholders. None of the Issuer, any Programme Party
or any Affiliate of any such persons are under any obligation to make available any information relating to,
or keep under review on the ETP Securityholders’ behalf, the business, financial conditions, prospects,
creditworthiness or state of affairs of the Margin Account Provider or any issuer/obligor in relation to any
Collateral Assets or conduct any investigation or due diligence thereon or to monitor such Margin Account
Business relationships and capacity of the Margin Account Provider
The Margin Account Provider and any of its Affiliates may have existing or future business relationships
with any Authorised Participant (including, but not limited to, lending, depository, risk management,
advisory and banking relationships) and will pursue actions and take steps that they deem or it deems
necessary or appropriate to protect their or its interests arising therefrom without regard to the
consequences for an ETP Securityholder. In addition, the Margin Account Provider and any of its Affiliates
may make a market or hold positions in respect of any of the ETP Securities. From time to time, the Margin
Account Provider and its Affiliates may own significant amounts of ETP Securities issued under the
There are no restrictions on the future business operations or activities of the Margin Account Provider,
and, accordingly, the ability of the Margin Account Provider to meet its obligations under the Margin
Account Agreement may be adversely affected depending on such future business operations or activities.
The Margin Account Provider and/or any of its Affiliates may engage in trading for their proprietary
accounts, for other accounts under their management or to facilitate transactions, including block
transactions, on behalf of customers relating to one or more assets that underlie the Index to which a
Series of ETP Securities is linked. Any of these activities in which the Margin Account Provider and/or its
Affiliates engage could have an adverse impact on the value of the ETP Securities by affecting the price of
such constituent assets(s).
The Margin Account Provider and its Affiliates may actively trade futures contracts and options on assets
that underlie the Indices linked to Series of ETP Securities, over-the-counter contracts on those assets and
other instruments and derivative products based on such assets. Any such trading by the Margin Account
Provider and its Affiliates and unaffiliated third parties could adversely affect the value of the Indices to
which certain Series of ETP Securities are linked, which could in turn affect the return on, and the value of,
such Series of ETP Securities.
The Margin Account Provider and/or its Affiliates may also issue or underwrite other securities or financial
or derivative instruments linked to the commodity indices or equity indices referenced by certain Series of
ETP Securities, which might compete with the ETP Securities of such Series. By introducing competing
products into the marketplace in this manner, the Margin Account Provider and/or its Affiliates could
adversely affect the market value of certain ETP Securities, and therefore the amount payable on such ETP
Securities on the stated maturity date or any early redemption date, as applicable, and the value of such
ETP Securities before that date. To the extent that the Margin Account Provider and/or its Affiliates serve
as issuer, agent or underwriter of, or as margin account providers in relation to, those securities or other
similar instruments, their interests with respect to those products may be adverse to the interests of an ETP
The Margin Account Provider and its Affiliates may in the future publish research reports with respect to
some or all of the Indices linked to certain Series of ETP Securities or the assets underling such Indices.
This research may be modified from time to time without notice and may express opinions or provide
recommendations that are inconsistent with purchasing or holding the ETP Securities. The research should
not be viewed as a recommendation or endorsement of the ETP Securities in any way and investors must
make their own independent investigation of the merits of this investment. Any of these activities by the
Margin Account Provider or any of its Affiliates may affect the market price of the Indices to which certain
Series of ETP Securities are linked or their components and the value of such commodity indices or such
equity indices and, therefore, the market value of such ETP Securities.
The Margin Account Provider and its Affiliates may act in a number of capacities in respect of ETP
Securities issued under the Programme including, without limitation, Portfolio Administrator. The Margin
Account Provider and its Affiliates acting in such capacities in connection with such ETP Securities will
have only the duties and responsibilities expressly agreed to by such entities in the relevant capacity and
will not, by virtue of acting in any other capacity, be deemed to have other duties or responsibilities or be
deemed to hold a standard of care other than as expressly provided with respect to each such capacity.
The Margin Account Provider and its Affiliates in their various capacities in connection with the ETP
Securities may enter into business dealings, from which they may derive revenues and profits in addition to
any fees, without any duty to account therefor.
Risks relating to the Custodian
Collateral Assets in the form of cash or transferable securities will be held in an account of the Custodian in
the name of the Issuer. Where the Collateral Assets consist of assets other than cash or transferable
securities, it may be held in the name of the Issuer or under the control of the Custodian.
The ability of the Issuer to meet its obligations with respect to the ETP Securities may be dependent upon
receipt by the Issuer of payments from the Custodian under the Portfolio Administration Agreement for the
Series (if the Collateral is so held). Consequently, the ETP Securityholders are relying not only on the
creditworthiness of the Collateral Assets, but also on the creditworthiness of the Custodian in respect of the
performance of its obligations under the Portfolio Administration Agreement for such Series of ETP
Any cash deposited with the Custodian by the Issuer and any cash received by the Custodian for the
account of the Issuer in relation to a Series of ETP Securities will be held by the Custodian as broker and
not as trustee. Accordingly, such cash will not be held as client money and will represent only an unsecured
claim against the Custodian’s assets.
Sub-Custodians, depositaries and clearing systems
Under the Margin Account Agreement the Issuer authorises the Custodian to hold the Collateral Assets in
the Custodian’s account or accounts with any Sub-Custodian (other than a Clearing System) properly
appointed for the safe-keeping, administration, clearance and settlement of the Collateral Assets. Where
the Collateral Assets are held with a Sub-Custodian that is an affiliate of the Custodian, the Consequently,
the ETP Securityholders are relying not only on the creditworthiness of the Collateral Assets and the
Custodian in respect of the performance of its obligations under the Portfolio Administration Agreement and
the Margin Account Agreement for such Series of ETP Securities (and any obligations of any Sub-
Custodian under or pursuant to the Margin Account Agreement or otherwise), but also on the
creditworthiness of any Sub-Custodian.
Lien/Right of set-off
Pursuant to their terms of engagement, Sub-Custodians may have liens or rights of set-off with respect to
the Collateral Assets held with them in relation to any of their fees and/or expenses. If, for whatever reason,
the Custodian fails to pay such fees and/or expenses, the relevant Sub-Custodian may exercise such lien
or right of set-off, which may result in the Issuer failing to receive any payments due to it in respect of the
Collateral Assets, and thereby adversely affecting the ability of the Issuer to meet its obligations with
respect to the Series of ETP Securities.
Therefore, the ability of the Issuer to meet its obligations with respect to the Series of ETP Securities will
not only be dependent upon receipt by the Issuer of payments from the Custodian under the Portfolio
Administration Agreement for the Series of ETP Securities (if the Collateral Assets are so held) but will also
be dependent on any Sub-Custodian not exercising any lien or right of set-off in respect of any Collateral
Assets that it holds. Consequently, the ETP Securityholders are relying not only on the creditworthiness of
the Collateral Assets, but also on the creditworthiness of the Custodian in paying when due any fees or
expenses of such Sub-Custodian (or the ability of the Issuer to pay such amounts due to the Custodian
and/or the Sub-Custodians).
Risks related to other Programme Parties
Other business activities of Authorised Participants
The Authorised Participants and/or their respective Affiliates may be active traders in equities and/or
commodities markets, including in the physical markets for commodities, in the futures markets and the
over-the-counter markets. These trading activities may present a conflict between the interests of holders of
the ETP Securities and the interests of the Authorised Participants and their respective Affiliates may have
in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions,
for their customers and in accounts under their management. These trading activities, if they influence the
value of an Index to which a Series of ETP Securities is linked, could be adverse to the interests of the ETP
Securityholders. The Authorised Participants and their respective Affiliates may also issue or underwrite
additional securities or trade other products the return on which is linked to the value of an Index linked to a
Series of ETP Securities or other similar strategies. An increased level of investment in these products may
negatively affect the level of an Index to which a Series of ETP Securities is linked and therefore the
amount payable in respect of such Series of ETP Securities on their stated maturity date or any prior
redemption date, as applicable, and the market value of such ETP Securities.
These activities could give rise to conflicts of interest which are adverse to the interests of the ETP
Securityholders and could adversely affect the market value of such ETP Securities. With respect to any of
the activities described above, none of the Authorised Participants or any of their respective Affiliates has
any obligation to the Issuer to take the needs of any buyers, sellers or holders of the ETP Securities into
consideration at any time.
Interactive Brokers (UK) Limited (“IBUK”) and its Affiliates may act in a number of capacities in respect of
ETP Securities issued under the Programme including, without limitation, Portfolio Administrator and
Margin Account Provider. IBUK and its Affiliates acting in such capacities in connection with the ETP
Securities will have only the duties and responsibilities expressly agreed to by such entities in the relevant
capacity and will not, by virtue of acting in any other capacity, be deemed to have other duties or
responsibilities or be deemed to hold a standard of care other than as expressly provided with respect to
each such capacity. IBUK and its Affiliates in their various capacities in connection with the ETP Securities
may enter into business dealings, from which they may derive revenues and profits in addition to any fees,
without any duty to account therefor.
In its role as Determination Agent under the ETP Securities, SEI Global Services, Inc. will, pursuant to the
provisions of the Determination Agency Agreement, the Operating Procedures Agreement and the
Conditions, make various non-discretionary calculations, that affect the ETP Securities, including
calculating, among other things, the ETP Security Value and the Final Redemption Amount, the Optional
Redemption Amount or the Mandatory Redemption Amount. The value of the ETP Securities could be
adversely affected by such calculations. In making such calculations the Determination Agent will depend
upon timely and accurate provision of information and certain constituent values of the relevant formulae
which are provided to the Determination Agent by various parties, including, but not limited to, the Margin
Account Provider, the relevant Index Sponsor and the Issuer. Any consequent variation in the value of the
amounts required to be calculated by the Determination Agent could result in a change to value of the ETP
In connection with the exercise of its functions, the Trustee will have regard to the interests of the ETP
Securityholders as a class and will not have regard to the consequences of such exercise for individual
ETP Securityholders and the Trustee will not be entitled to require, nor will any ETP Securityholder be
entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any
such exercise upon individual ETP Securityholders.
Exchange rate risks and exchange controls
The Issuer will satisfy its payment obligations in respect of the ETP Securities in the currency of
determination of the ETP Securities. This presents certain risks relating to currency conversions if an
investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s
Currency”) other than the specified currency. These include the risk that exchange rates may significantly
change (including changes due to devaluation of the specified currency or revaluation of the Investor’s
Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify
exchange controls. An appreciation in the value of the Investor’s Currency relative to the specified currency
would decrease (a) the Investor’s Currency equivalent value of the payment payable on the ETP Securities
and (b) the Investor’s Currency equivalent market value of the ETP Securities.
Government and monetary authorities may impose (as some have done in the past) exchange controls that
could adversely affect an applicable exchange rate. As a result, investors may receive less payment than
expected and may receive no payment.