EQUITY DERIVATIVES NZX DERIVATIVES MARKET

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WHAT ARE EQUITY DERIVATIVES?

Equity derivatives are among the most traded financial instruments globally with volume traded of 11.77 billion in 2013.

NZX is committed to offering global and local investors access to tools needed to manage and gain exposure to the New Zealand capital market.

NZX EQUITY DERIVATIVES

NZX equity derivatives provide investors with the tools that may assist them to mitigate their risk and generate market exposure to New Zealand equities. NZX will initially launch an NZX 20 Index Futures contract followed by exchange-traded options.

Market Hours Index Futures Equity Options Enquiry 1:30am 1:30am Pre - Open 9:00am 9:00am Open 9:45am 10:00am Pre – close 5:13pm 5:08pm Close 5:15pm 5:10pm Enquiry 5:30pm 5:30pm

NZX 20 Capital, NZX 50 Capital and NZX 50 Gross Indices

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Apr-12 Apr-13 Apr-14

Inde

x Va

lue

NZX20 Capital Index NZX50 Capital Index NZX50 Gross Index

HOW CAN I GET INVOLVED?

You can gain access to NZX’s Equity Derivatives Market by contacting an accredited market participant:

Trading and Advising Firm

Advising Firm

Contact details and further information is available at www.nzx.com/investing/find_a_participant

GLOBAL DERIVATIVES TRADING Last ten years

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Volu

me

(bill

ions

)

Source: Futures Industry Association

CONTRACT SPECIFICATION

NZX’s equity derivatives are settled to the underlying stock or index value. NZX 20 Index Futures are settled to the NZX 20 Capital Index, which reflects increases or decreases of the market value, based on the price of shares. Equity Options � Trades will be physically settled with delivery of the underlying equity � Contracts traded nearest 3 months out and up to six quarterly months out � One equity option = rights over 100 ordinary shares of the underlying Index Futures � Trades will be cash settled to the special opening quotation of the NZX 20 Capital Index

calculated by NZX � Contracts traded nearest 2 months out and up to six quarterly months out � Contract valued at NZ$25 per index point (e.g. value NZ$75,000 at 3,000 index points) BENEFITS OF EQUITY DERIVATIVES Index Futures Equity Options

Risk Management Provides investors with the ability to protect the value of a portfolio correlated to the NZX 20 Index

Put options can assist an investor to protect their shares against a fall in value, as an investor is able to guarantee the sale price of their shares for the life of the option

Speculation Investors can capture price movements in the underlying asset without trading the asset itself

Options over equity securities expose an investor to movements in the share price for a fraction of the cost of purchasing the shares themselves

Transition Investors can create synthetic market exposure when transitioning funds between markets and asset classes

Investors can create synthetic equity exposure when transitioning funds between underlying securities

Arbitrage Investors trade on price discrepancies between the underlying stocks and index futures price

Investors can trade on price discrepancies between the price of equity options and the price of the underlying stock

Equitising Cash Investors are able to avoid cash drag by purchasing futures to gain market exposure

Investors are able to avoid cash drag by purchasing options contracts to gain exposure to individual equities

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Disclaimer:

This document is provided for general information purposes and is not intended as, and shall not constitute, investment advice nor an offer, invitation, inducement, solicitation or recommendation to acquire or dispose of securities. Although NZX Limited (NZX) has taken care to ensure the accuracy of the information as at the date of publication, NZX does not give any warranty or representation as to the accuracy,reliability or completeness of the information in this document. The reader of this document should seek independent advice before acting on any information in this document.

To the maximum extent permitted by law, NZX and its subsidiaries, employees, officers and contractors shall not be liable for any loss or damage (whether direct, indirect, consequential or otherwise) arising in any way (including by way of negligence) from or in connection with any information provided or omitted or from anyone acting or refraining to act in reliance on this information.

NZX Derivatives Market is a registered market operated by NZX, a registered market operator regulated under the Securities Markets Act 1988.

Those who desire to trade any products available on any NZX market or to offer and sell any such products to others should consider the requirements of the applicable Rules and other legal and regulatory requirements relevant to them, as well as the associated risks, before doing so.