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 providing Foreign Exchange (FX) transactions.
2. Roles and capacities of the Bank: Acting as Principal
The Bank will generally act as a principal and place bid/ask prices when it receives orders 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.
Through 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 determines 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 depending on currency pairs and transaction types. Aforementioned risk hedge related transactions will be carried out by employees 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 in which the Bank executes to cover its position in the FX market. This difference is due to the fact that the Bank has no guarantee 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 employees who will operate under 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 at the discretion of each customer.
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 that the Bank determines and 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 dealer, plus costs incurred in relation to the transaction (such as position management) and fee.
- （2）TTM based transaction
In Japan, the Bank may provide offers based on the Telegraphic Transfer Middle Rate, or “TTM * ”.
The TTM will be determined by the Bank based on a rate determined by the Bank as actual market rate around 9:55 AM Tokyo time every business day, plus a spread applied to respective currency. The spread is determined based on costs incurred in relation to the transaction (such as position management) and fee. The detail of TTM based deal is described in the footnote.
Further, the Bank may provide certain favorable treatments applicable to certain specific customers based on certain factors such as the volume 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 transaction.
For pricing derivative products such as FX derivatives or currency swaps, the Bank will take into consideration risks associated with each transaction in addition to the costs to execute the transaction.
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 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 but not limited to the number of participants and transaction volume 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 accepting the terms. Should the Bank agree to change or cancel the deal upon request from the customer, the Bank may charge fees such as commission, reconstruction cost, settlement cost, or any other damages to the customers. Please refer to the terms and conditions, agreements, or any other documents (if provided) 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 system error of or failure by FX settlement facilities or financial institutions that are participants of FX settlement systems. Currency control and/or restrictions imposed by governments and/or 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 as determined by the Bank, as well as with consideration of the management of any associated risks when executing the transaction.
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, some of the order may not be executed. Such decisions will be made by the duly authorized dealers in a reasonable manner as determined by the Bank, based on information sources that the Bank determines to be credible, the Bank's execution experiences, market liquidity, dealers' 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.
7. Electronic trading platform
The Bank provides the FX electronic trading platform service (i-Deal) via the Internet or a dedicated circuit to corporate customers. Please refer to the terms and conditions for the service for further details.
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 duly authorized employees dealing with FX transactions
The Bank provides adequate training to employees involved in FX transactions. The training covers relevant laws and regulations, compliance with the code of conduct, and also includes the conflict of interest management.
- （2）Monitoring by risk management department and 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 on a periodic basis.
- （3）Management of transaction information
The Bank takes all necessary measures to adequately manage the customers' transaction information.
- （4）Risk Management
The Bank manages its own risks appropriately based on its trading strategies, its position, foreseeable risks, and market liquidity etc.
- *TTM based transaction is provided only in Japan. The Bank will apply this rate to the transactions that are less than 100 thousand US dollar equivalent during that business day.
The Bank has discretion to change the TTM from time to time should it deem necessary depending on the market conditions.