INDEX OF DEFINED TERMS - Banca di Legnano

Level: 2 – From: 2 – Wednesday, July 21, 2010 – 11:55 – eprint6 – 4247 Section 02
Risk Factors
Commodities. If any amount payable in respect of a Note is linked to the price of a Commodity, any
change in the price of such Commodity may result in the reduction of the amount of such payment in
respect of a Note. The reduction in the amount payable on the redemption of the Note may result, in some
cases, in a Noteholder receiving a smaller sum on redemption of the Note than the amount originally
invested in such Commodity Linked Note.
Commodities may reference physical Commodities or Commodity contracts, and certain
Commodity contracts may be traded on unregulated or “under-regulated” exchanges. Commodities
comprise both (i) “physical” Commodities, which need to be stored and transported, and which are
generally traded at a “spot” price, and (ii) Commodity contracts, which are agreements either to (a) buy or
sell a set amount of an underlying physical Commodity at a predetermined price and delivery period
(which may be referred to as a delivery month), or to (b) make and receive a cash payment based on
changes in the price of the underlying physical Commodity.
Commodity contracts may be traded on regulated specialized futures exchanges (such as futures
contracts). Commodity contracts may also be traded directly between market participants “over-thecounter”
on trading facilities that are subject to lesser degrees of regulation or, in some cases, no
substantive regulation. Accordingly, trading in such “over-the-counter” contracts may not be subject to the
same provisions as, and the protections afforded to, contracts traded on regulated specialized futures
exchanges, and there may therefore be additional risks related to the liquidity and price histories of the
relevant contracts and any Notes which reference any such Commodity contracts may have reduced
liquidity or greater price volatility or be subject to more extensive market disruptions.
Commodity Linked Notes which are linked to Commodity futures contracts may provide a
different return from Commodity Linked Notes linked to the relevant physical Commodity and will have
certain other risks. The price of a futures contract on a Commodity will generally be at a premium or at a
discount to the spot price of the underlying Commodity. This discrepancy is due to such factors as (i) the
need to adjust the spot price due to related expenses (e.g., warehousing, transport and insurance costs) and
(ii) different methods being used to evaluate general factors affecting the spot and the futures markets. In
addition, and depending on the Commodity, there can be significant differences in the liquidity of the spot
and the futures markets. Accordingly, Commodity Linked Notes which are linked to Commodity futures
contracts may provide a different return from Commodity Linked Notes linked to the relevant physical
Commodity.
Investments in futures contracts involve certain other risks, including potential illiquidity. A holder
of a futures position may find that such position becomes illiquid because certain Commodity exchanges
limit fluctuations in such futures contract prices pursuant to “daily limits”. Once the price of a particular
futures contract has increased or decreased by an amount equal to the daily limit, positions in the contract
can neither be taken nor liquidated unless holders are willing to effect trades at or within the limit. This
could prevent a holder from promptly liquidating unfavorable positions and subject it to substantial losses.
Futures contract prices in various Commodities occasionally have exceeded the daily limit for several
consecutive days with little or no trading. Any such losses in such circumstances could have a negative
adverse effect on the return of any Notes the Underlying Asset of which is the affected futures contract.
There can be no assurance that any such disruption or any other force majeure (such as an act of God, fire,
flood, severe weather conditions, act of governmental authority, or a labor dispute or shortage) will not
have an adverse affect on the value of or trading in the Underlying Asset(s), or the manner in which it is
calculated, and therefore, the value of the Notes.
In the case of a direct investment in commodity futures contracts, the invested capital may be
applied in whole or in part by way of collateral in respect of the future claims of the respective
counterparties under the commodity futures contracts. Such capital will generally bear interest, and the
interest yield will increase the return of the investor making such direct investment. However, holders of
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