MORNBFI Vol. 1 - Planters Development Bank

APP. Q-16-a09.12.31establish or maintain your position. If themarket moves against you (i.e., unfavorably),you may even be called upon to payadditional margin (known as margin call) atshort notice to maintain the position. If youfail to do so within the time required, yourposition may be liquidated at a loss and youwill be responsible for the resulting deficit.(4) (For non-readily realizableinvestments) You may have difficulty sellingthis investment at a reasonable price and, insome circumstances, it may be difficult to sellit at any price. Do not invest in this unlessyou have carefully thought about whether youcan afford it and whether it is right for you.(5) These instruments often involve ahigh degree of gearing or leverage, so that arelatively small movement in the price ofthe underlying asset or variable can resultin a much larger movement, unfavorable orfavorable, in the price of the instrument. Theprice of the instrument can therefore bevolatile.(6) In buying options, the maximumloss can be limited to the premium (plusany commission or transaction charges)when the price of the underlying assetmoves against you because you can simplyallow the option to lapse. However, if youbuy a call option on another derivativesinstrument, e.g., futures contract, theexercise of the option may expose you tothe risks for that particular derivatives.(7) If you write an option, the risks areconsiderably greater. You may be liable formargin (i.e., minimum level of collateral) tomaintain your position and a loss may besustained well in excess of the premiumreceived. By writing an option, you areaccepting a legal obligation to purchase orsell the underlying asset if the option isexercised against you, however far theexercise price may have moved from themarket price of the underlying asset. If youalready own the underlying asset (knownas covered call option), the risk is reduced.However, if you do not own the underlyingasset, the risk can be unlimited. Onlyexperienced persons should contemplatewriting uncovered options, and then onlyafter securing full details of the applicableconditions and potential risk exposure.Any scenario analysis is being providedfor illustrative purposes only. It does notrepresent actual prices that may be availableto you. It does not present all possibleoutcomes or describe all factors that mayaffect the value of the transaction.No advice on investments has beengiven. If you have any doubt about thesuitability of the product, you should contacta financial advisor or carefully considerwhether the product is suitable for you.In entering into any derivatives activitywith or arranged by us, you should understandthat we are not acting in the capacity of yourfinancial adviser due to the inherent conflictsof interests in simultaneously acting as dealerand financial adviser. Notwithstanding theconflict of interest, we may act as your financialadviser only if you have so agreed in writingand only to the extent so provided.THIS STATEMENT DOES NOTPURPORT TO DISCLOSE ALL OF THERISKS OR RELEVANT CONSIDERATIONSIN ENTERING INTO DERIVATIVESTRANSACTIONS. YOU SHOULDREFRAIN FROM ENTERING INTO ANYSUCH ACTIVITY UNLESS YOU FULLYUNDERSTAND ALL SUCH RISKS ANDHAVE INDEPENDENTLY DETERMINEDTHAT THE ACTIVITY IS SUITABLE FORYOU.[Name of FI]I/We have read and understood the riskwarning set out above.Date[Signature of Customer](Circular No. 668 dated 02 October 2009)Q RegulationsAppendix Q-16-a - Page 2Manual of Regulations for Non-Bank Financial Institutions