Disclosure of Terms of Dealing for Foreign Exchange Transactions
1. Compliance with laws, regulatory requirements, and market practice
Sumitomo Mitsui Banking Corporation (hereafter the “Bank”) will comply with applicable domestic and overseas laws and regulations, market standards to be complied with, and proper market practices when entering into Foreign Exchange (FX) transactions.
2. Roles and capacities of the Bank: Acting as Principal
The Bank will in principle act as a principal and place bid/ask prices when it receives orders of FX transactions from customers. A principal means a type of market participant who acts on its own behalf as counterparty to its customer. Hence, prices offered by the Bank to a customer and the executed price based on an agreement between that customer and the Bank will be solely applied to a specific transaction based on that agreement.
Due to FX transactions with customers, the Bank will hold FX positions and from time to time execute a hedge transaction(s) in the FX market to cover and control the risks arising from these transactions with the customers.
Also, the Bank may decide to enter into pre-hedge transactions in manners that the Bank deems proper at its discretion in order to effectively execute the customers' orders and/or to manage the Bank's own risks. In addition, the Bank may enter into a full-hedge transaction(s) for a certain customer's order(s) depending on currency pairs and transaction types. Aforementioned risk hedge related transactions will be carried out by the traders who are duly authorized to execute at the Bank's discretion.
In general, the execution price applied to a certain transaction with a customer may not be identical to the price at which the Bank executes to cover its position in the FX market. This difference is due to the fact that the Bank has no assurance to be able to execute the cover trade at the same price and/or amount in the FX market.
In addition to the cover transactions that the Bank will execute to control the risk exposure, the Bank will also conduct proprietary trading for its own account. This proprietary trading will be carried out by the duly authorized traders according to the Bank's risk control guidelines.
3. Information services
The Bank may provide market forecast reports to its customers as part of research services for discussion purposes only. Such reports will be prepared based on information that the Bank determines credible, but it will not guarantee the accuracy and completeness of that information. The forecast and outlook therein just indicate the Bank's views at that timing, and could be altered without any notice. The view and outlook for the FX market should be determined by each customer at its own responsibility.
Further, the Bank, as one of the market participants, may conduct its own FX trading based on a different market view from that of those expressed in such publicized reports.
4. Factors relating to the price
The executable prices offered by the Bank will be determined based on actual market price deemed by the Bank as such as well as various factors. Descriptions of the factors relating to the prices on typical transactions are as follows:
- （1）Actual market rate based transaction
This rate will be determined based on actual market rate as determined by the Bank's duly authorized traders, plus costs incurred in relation to the transaction (such as one for position management) and fee.
- （2）Telegraphic Transfer Middle Rate (the "TTM") based transaction
In Japan, the Bank may provide offers based on the “TTM”.
The TTM will be determined by the Bank based on a rate deemed by the Bank as actual market rate around 9:55 AM Tokyo time every business day. The Bank also determine buying/selling rate (TTB/TTS) by adding a spread applied to respective currency. The spread is determined based on costs incurred in relation to the transaction (such as one for position management) and fee. The details of TTM based deal are described in the footnote*.
Further, the Bank may provide certain favorable treatments applicable to certain specific customers based on certain factors such as the volumes of transactions and type of services. The Bank will transact with customers after the applicable rates are respectively specified and are agreed, but in general, such favorable treatment (if applicable) and other factors relating to the prices will not be disclosed to the customers at each time of the transaction.
For pricing derivative products such as FX derivatives or currency swaps, the Bank will take into consideration of various risks associated with each transaction in addition to the costs to execute the transaction.
In the case where a customer requests the Bank a FX transaction at a reference price provided by any third-party, the Bank will enter into such a transaction only when the Bank determines it to be acceptable. In such a case, the Bank will manage the applicable transaction in an appropriate manner.
5. Risk factors
FX transactions involve the following risks. Other products such as foreign currency deposits or loans and other products or services that have FX exposure will also contain such risks.
- （1）Price change risk (market risk)
The FX market is comprised of a variety of market participants using various venues and mediums such as dealing via phone or electronic brokering systems on a bilateral and "off and on" basis. Consequently, the price determination process in the FX market is different from exchanges which are subject to disclosure requirements and other rules.
The executable rate fluctuates constantly depending on various factors such as currency pairs, time zones and market liquidity which can affect including, but not limited to, the number of participants and transaction volumes at any given time. The market rate can also change significantly within a short timeframe due to events such as changes in monetary policies, or occurrences of geopolitical events.
The Bank will proceed to manage and mitigate the above mentioned risks arising from FX transactions with customers upon the execution of the trade or in certain circumstances even before the execution. Therefore, in general, customers will not be able to change or cancel the FX transaction (including similar market products) offered by the Bank after acceptance. Should the Bank agree to change or cancel the transaction upon request from the customer, the Bank may charge fees and costs, including, but not limited to commissions, reconstruction costs, settlement costs, and any other damages to the customers. Please refer to the terms and conditions, agreements, or any other documents (if any) for further details.
- （2）Other risks
FX settlements between the customers and the Bank can be disrupted if the credibility of the Bank or the Bank's nostro agent bank deteriorates, or the Bank or its nostro agent bank goes bankrupt or insolvent. The settlements can also be disrupted if the Bank's settlement system has technical issues. Such disruption can be also caused by the system error of or the failure by the FX settlement facilities or the financial institutions that are the participants of FX settlement facilities. Currency control and/or restrictions imposed by the governments and/or the relevant central banks may also impact customers' FX transactions and settlements therefor.
6. Execution of orders
The Bank will quote the executable rate upon receipt of an order from the customer. The rate will be offered based on the actual market rate deemed by the Bank, as well as with due consideration of the management of any associated risks when executing the transaction.
The Bank, depending on the type of transaction, will decide whether to enter into the transaction or not based on the tradable amount limits predetermined by the Bank per each customer. The Bank controls the tradable amount limits based on each transaction amount, term, and currency, etc. and such limits are reviewed from time to time based on the usage record and the credit condition of the respective customer. The Bank may decline to enter into the transaction if the applicable tradable amount limit will be exceeded by accepting the order. The Bank may also decline to enter into the transaction due to the market conditions without regard to the tradable amount limits.
The Bank will manage the limit price orders in accordance with the execution procedures pre-agreed with the customers. However, the Bank may not execute the order if the Bank determines that actual market rate has not reached the limit price designated by the customer.
Additionally, since the Bank holds various orders from multiple customers, the sequence of executed orders may not be the sequence of orders received from the customers. Even in the case whereby there are multiple identical orders in regard to currency pair, buy/sell instruction and rate, some of the orders may not be executed. Such decisions will be made by the duly authorized traders in a reasonable manner as determined by the Bank, based on information sources that the Bank deems to be credible, the Bank's execution experiences, market liquidity, and traders' positioning, among others.
The Bank carries out various market transactions for the purpose of risk management and proprietary trading. This may result in the Bank executing its own trade near or at the prices triggering the customers' stop-loss orders. In that case, such Bank's transaction(s) may influence the rate referenced in the customer's order and can trigger the customer's stop loss order as a result. Also, in executing an order by a customer, the Bank may aggregate with the orders by other customers and the Bank's orders for its risk management and proprietary trading.
The Bank has the final and absolute authority in regard to the setting of the transaction amount limit, the decision whether to enter into the transaction or not, the method of execution, etc. as stated above and such authority will be exercised in a fair and reasonable manner. The Bank will not disclose the details of the exercise of such authority to any customer individually.
The Bank may provide the customers with the specific order execution services utilizing algorithm, and in such cases the Bank will make efforts to disclose and explain the customers the terms and conditions of such services appropriately.
7. Electronic trading platform
The Bank provides the FX electronic trading platform services via the Internet or a dedicated circuit to corporate customers. Such services consist of the services via the Bank's single platform including "i-Deal" provided in Japan and the services via multi-bank platform operated by third parties. Please refer to the terms and conditions for the i-Deal services and other services for further details.
In regard to an electronic trading, if an electronic message offering a transaction by a customer is not received by the Bank's system by the prescribed cutoff time, there will be no transaction without any regard to the reasons for the non-receipt. Even if an electronic message offering a transaction by a customer is received by the Bank's system by the cutoff time, the Bank, from the viewpoint of the risk management, will decide whether to execute a transaction or not pursuant to the Bank's internal procedures within the prescribed time limit. Therefore, if the Bank indicates the quotes on the electronic trading system as tradable and a customer transmits its intent to enter into a transaction at such rate with such message having been received by the Bank via the platform, still there will be no transaction where the Bank decides that such a transaction is not executable due to the result of credit check and the market fluctuation taking place after the posting of the quotes by the Bank, as such fluctuation exceeds the limits set by the Bank (whether it is favorable for the Bank or not) (the custom of the “last look”). In such an occasion the Bank will notify the customer of such non-execution of the transaction in a prescribed manner. In this connection, the Bank will never use contents of the customer's message stating its intent to enter into the transaction for the purpose of formulating the quotes by the Bank or execution of other transactions to be entered during the consideration timing of the last look. Also, the quotes indicated via platform by the Bank may be formulated based on the quotes provided by the multiple reliable liquidity providers notwithstanding the provisions of Clause 4 above. As stated in Clause 2 above, because the Bank will indicate the quotes as principal, the Bank will not disclose the identity of each liquidity provider who provides the Bank with the market rates.
For your information, in addition to the risks stated in Clause 5 above, the transactions using electronic trading platforms of the Bank or a third party may be subject to the delay of the notice of the receipt of the order or the notice of the execution or non-execution of the transaction, etc. attributable to the third party's system or the circuit conditions.
8. Management on conflict of interest and other governance systems
Provided that the Bank conducts FX transaction with number of customers simultaneously, the Bank will follow its conflict of interest management policy, if necessary, when entering into FX transaction with customers. The Bank's conflict of interest management policy is available at the Bank's website.
The Bank has adopted the following control systems in order to manage risks (including conflict of interest) for the FX transactions.
- （1）Training of the duly authorized traders dealing with the FX transactions
The Bank provides adequate training to both traders and other employee participating in FX transactions. The training covers relevant laws and regulations, compliance as well as the code of conduct including the conflict of interest management.
- （2）Monitoring by the risk management department and the audit department
The Bank's risk management department properly monitors the transactions to prevent inappropriate market transactions. The independent audit department also performs internal audit reviews to establish appropriate governance system on a periodic basis.
- （3）Management of transaction information
The Bank takes all necessary measures to adequately manage the customers' transaction information. If the transaction information includes the confidential information, the Bank will take care of such information pursuant to the applicable information control system such as the limited sharing of the information to the extent necessary in the Bank. The Bank also adopts the timely recording system of the receipt of the order from a customer and the execution of a transaction as much as practicable depending on the type of the transaction.
- （4）Risk Management
The Bank aims to manage its own risks appropriately based on its trading strategies, its position, foreseeable risks, and market liquidity etc.
The bank conducts the foreign exchange business in compliance with the FX Global Code established by the Global Foreign Exchange Committee.
Please refer to the following materials, the statement of commitment to the FX Global Code and the disclosure materials in the format recommended by the FX Global Code.
- *In principle, the TTB/TTS will be applied by the Bank to the designated transactions (small lot, etc.) during the applicable time zone in the applicable day in japan, but please note that the Bank may change the TTM/TTB/TTS at any time to reduce its risk if there are fluctuations in the market rate.