DISCLOSURE OF CONTROL RELATIONSHIP
KCG Holdings, Inc. is comprised of several trading and related entities under common control. Collectively, these businesses and affiliates are referred to as KCG in this disclosure document. For additional information regarding KCG’s affiliates, please refer to Operating Subsidiaries page.
KCG affiliates effect transactions in KCG stock (NYSE and NYSE Euronext: KCG).
NOTICE REGARDING PRIVACY AND CONFIDENTIALITY
KCG archives electronic communications pursuant to regulatory requirements and may monitor and review the content of all electronic communications.
Securities and futures in the United States are offered by KCG Americas LLC (“KCGA”). KCGA is a member of FINRA, SIPC (website: http://www.sipc.org/; phone: 202-371-8300), and most national securities and futures exchanges and clearinghouses in the United States.
Securities services and proprietary market making activity in the United Kingdom and European Union are offered by KCG Europe Limited (“KCGE”), GETCO Europe Limited (“GEL”), and Automat Limited, which are all authorised and regulated by the FCA and GETCO Execution Services Limited, which is an appointed representative of GEL, and are members of most major European exchanges. Unless governing law permits otherwise, you must contact a KCG entity in your home jurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material.
FOR OUR EUROPEAN CLIENTS
Institutional Sales material is not for distribution to retail clients, as that term is defined under the European Union Markets in Financial Instruments Directive (2004/39/EC) and any investments, including derivatives, mentioned in this material will not be made available by us to any such retail client. Potential clients are advised that certain protections afforded by the regulatory systems of the European Union or of other relevant jurisdictions may not apply to investments in securities referred to on this site, and compensation may not be available under relevant jurisdictions' financial services compensation schemes.
INSTITUTIONAL SALES MATERIAL
Institutional Sales Material, including, but not limited to market color is prepared by KCG’s equity trading, market-making and/or sales personnel (collectively, KCG Traders) and comprises commentary received from KCG Traders (providing their personal perspectives on the markets, sectors and general news) and third party sources. The information is obtained from or based upon sources believed by the KCG Traders to be reliable, but each KCG Trader and KCG (as defined above) does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors or omissions, delays in the receipt of this information, or any actions taken in reliance thereon. The information provided is not intended to provide a sufficient basis on which to make an investment decision. The content is neither held out, nor should be relied upon, as impartial. It is intended only to provide observations and views of individual KCG Traders, which may be different from, or inconsistent with, the observations and views of KCG and/or its affiliates, officers, directors, and/or employees (including other KCG Traders).
Institutional Sales Material, including, but not limited to market color is for your general information only and is not an offer or solicitation to buy or sell any security or product. KCG Traders may, from time to time, express indications of interest to potentially buy or sell a particular security. These indications of interest are not firm orders or quotes, and may not be current. Accordingly, please contact your KCG representative if you have any interests or questions relating to these indications of interest or to any information provided herein.
KCG affiliates may make a market in the securities discussed in Institutional Sales Material, including, but not limited to market color communicaions. Opinions and views expressed are current opinions only. Opinions, historical price(s) or value(s) are as of the date and, if applicable, time indicated. KCG does not accept any responsibility to update any opinions or other information contained in market color communications. KCG and/or its affiliates, officers, directors and employees, including persons involved in the preparation or market color, may, from time to time, have long or short positions in, or buy or sell (on a principal basis or otherwise) the securities mentioned in this communication which may be inconsistent with the views expressed herein. Questions regarding the information presented herein should be referred to your KCG sales representative.
USE OF TRADE DATA
The Firm may use trade data on an aggregated or anonymous basis for bona-fide business purposes. Such uses can include: transaction cost analysis; capital use analysis; dissemination to “trade advertisement” vendors such as TradeWeb/Autex, Bloomberg, etc.: dissemination to KCGA sales and trading personnel for the purpose of providing “market color” to institutional clients. In providing market color, KCGA may segment aggregated post trade execution information, by symbol, buy or sell imbalances, and client segment, e.g. Retail, Institutional and Algorithmic. Please contact your sales representative if you have questions or would like to request that your data be excluded.
FOR OUR ETF / ETN CLIENTS
Clients should consider the investment objectives, risks, and charges and expenses of the ETFs and ETNs carefully before investing. Each US listed ETF and ETN has filed a registration statement (including a prospectus) with the SEC which contains this and other information about the ETF or ETN as applicable. Before you invest in an ETF or ETN, you should obtain and read carefully the prospectus in the registration statement and other documents the issuer has filed with the SEC (or other relevant international regulatory body) for more complete information about the product. In the US, you may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov.
Alternatively, you may obtain a copy of the prospectus for each of the ETFs and ETNs mentioned in these materials from the issuer or by contacting your sales representative or by calling 800-544-7508. ETFs are redeemable only in creation unit size aggregations and may not be individually redeemed; are redeemable only through authorized participants; and are redeemable on an "in-kind" basis. The public trading price of a redeemable lot of the ETFs may be different from its net asset value. These ETFs can trade at a discount or premium to the net asset value. Leveraged and inverse ETFs have unique risks, including leverage, derivatives, complex investment strategies and compounding risk. Designed for intraday trading, they require active monitoring and management and are not suitable for all investors. For more information, SEC's Alert on Leveraged and Inverse ETFs at http://sec.gov/investor/pubs/leveragedetfs-alert.htm. There is always a fundamental risk of declining stock prices, which can cause losses to your investment.
KCG will make order routing information on orders you placed through our trading system(s) available to you upon request in compliance with SEC Rule 606. If you would like more information please contact our Client Services Department at (201) 222-9400.
PAYMENT FOR ORDER FLOW
KCG may receive remuneration for directing orders to a particular broker or dealer and may route orders to market centers, including national securities exchanges, alternative trading systems, electronic communications networks, and broker-dealers that may offer credits for orders that provide liquidity and may assess fees for orders that take liquidity. In some cases, the credits offered by a market center may exceed the charges assessed, such that a market center may make a payment to KCG in relation to orders directed to such market center. Such remuneration, if any, is considered compensation to us. The source and amount of any compensation received on behalf of your particular order will be disclosed upon written request.
LIMIT AND MARKET ORDER PROTECTION UNDER FINRA RULE 5320
KCG is engaged in market-making activities in multiple trading units and in various equity securities. For Manning eligible orders, KCG provides price-for-price and share-for-share Manning protection to market, limit, and marketable limit orders.
KCG’s market making trading units facilitate the execution of orders received from its broker dealer and/or institutional clients. Accordingly, and pursuant to FINRA Rule 5320, a KCG “No-Knowledge Unit,” (i.e., a KCG trading unit that has no knowledge of orders handled by another KCG trading unit), is not required to provide order protection to unexecuted market or limit orders handled by another KCG trading unit. KCG may trade for its own account in a No-Knowledge Unit at a price that would satisfy a client order resting in another KCG trading unit without providing an execution to that resting client order.
KCG has implemented internal controls, including information barriers, which are designed to prevent its No-Knowledge trading units from obtaining knowledge of the orders handled by other trading units.
PRE-MARKET and POST-MARKET EXECUTION RISK
Clients should be aware of the following risks when submitting orders for execution in the pre-market or post market sessions.
Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market hours.
Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the next morning. As a result, you may receive an inferior price in extended hours trading than you would during regular market hours.
Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
Risk that Current Underlying Index Value or Intraday Indicative Value (“IIV”) is Unavailable. For certain Derivative Securities Products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during the pre-market and post-market sessions, an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.
FINRA RULE 5270 DISCLOSURE
In connection with amendments to Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5270 which governs the handling of client block sized transactions KCGA would like to take this opportunity to remind you of its practices.
FINRA Rule 5270 prohibits a broker-dealer from buying or selling a security or a “related financial instrument” for its own account when that member has material, non-public market information concerning an imminent block transaction in that security, a related financial instrument or a security underlying the related financial instrument prior to the time information concerning the block transaction has been made publicly available, or has otherwise become stale or obsolete. However, Rule 5270 does permit certain exceptions, and one of the exceptions allows a broker-dealer to trade for its own account when transactions are undertaken to fulfill or facilitate the execution of the customer block order (including hedging or block positioning).
For example if a client requests that KCA execute a guaranteed-priced order (“Guaranteed Order”), KCGA will usually establish a hedge through single or multiple purchase (sale) transactions in order to offset the risks associated with facilitating the Guaranteed Order. KCGA will typically establish the hedge before it executes (fills) the client’s Guaranteed Order, and the hedge will usually involve transacting as principal in the same security, however, it may also involve transacting as principal in related derivative and/or financial instruments (e.g., standardized options, futures, exchange traded funds, fixed income securities, etc.). The Firm generally attempts to establish a perfect hedge, but may not always do so under certain circumstances such as natural forces of supply and demand. If we are not able to establish a perfect hedge KCGA may, at its good faith discretion, purchase (sell) a different quantity of shares than the quantity of shares on the Guaranteed Order(s).
Additionally, the final price that is received on your order may have been impacted by KCGA’s hedging and positioning activity particularly with regard to thinly-trades stocks or large hedging transactions. For example, if a client places a large Guaranteed Order(s) to purchase/sell a thinly-traded stock, and the Firm enters into related hedge transactions, the Firm’s transactions may contribute to an increase/decrease in the stock’s price, which in turn could increase/decrease the guaranteed price. Moreover, KCGA may be handling other client orders concurrently with your guaranteed order, and may trade principally in connection with the facilitation of these orders, which may affect the final price received on your order. KCGA will make reasonable efforts to balance each of its client’s, and the Firm’s needs, in handling orders and will seek to obtain best execution and fair pricing in each instance.
*The term “related financial instrument” is defined as any option, derivative, security-based swap or other financial instrument overlying a security, the value of which is materially related to, or otherwise acts as a substitute for, the security, as well as any contract that is the functional economic equivalent of a position in such security. See FINRA Rule 5270(c).
NET TRADING DISCLOSURE
Clients may request the KCGA execute “not held” orders on a “net” basis. When you enter a “not held” order with KCGA, you are giving KCGA discretion to use its professional judgment on the timing and pricing of the executions in order to help ensure that an overall quality execution is provided. In addition, consistent with using its discretion to seek best execution, KCGA is not required to display or protect orders when it trades at prices equal to or better than those of the “not held”orders.
In order to facilitate orders on a “net” basis, KCGA will, after receiving such order, accumulate a position in a principal account and execute the order at the average price of the accumulation plus or minus an agreed upon compensation. Accordingly, the net price you receive will include the compensation that you agreed to pay KCGA. Since the “net” price is the price that is reported by KCGA to the Consolidated Tape, it will appear as the “trade price” on your confirmation. Therefore, the client confirmation will not separately disclose the compensation that KCGA earned on the trade. The actual prices used to facilitate the order(s) are available upon request.
OPTIONS PROFESSIONAL/PRIORITY CUSTOMER DESIGNATION
Clients must mark all terms of their option orders correctly, which includes using the proper order origin code(s) for each order. This includes, but is not limited to, the correct marking of professional/priority customer orders, or orders for any customer that had an average of more than 390 orders per day during any month of the prior calendar quarter. Further information about this requirement may be found, among other places, in ISE Regulatory Circulars 2014-007, 2011-011 and 2009-06. Please contact your KCG representative with any questions
OPTIONS SOLICITED ORDER MECHANISM
When handling an order of 500 contracts or more on your behalf, KCG may solicit other parties to execute against your order and may thereafter execute your order using the International Securities Exchange’s Solicited Order Mechanism. This functionality provides a single-price execution only, so that your entire order may receive a better price after being exposed to the Exchange’s participants, but will not receive partial price improvement. For further details on the operation of this Mechanism, please refer to International Securities Exchange Rule 716, which is available at www.ise.com under “Membership, Rules & Fees – Regulatory – ISE Rules.”
Transactions executed in overseas markets may be effected with an affiliate. If the trade is being settled in a currency different from the standard settlement currency of the traded security, KCG has effected the currency conversion it considered necessary for the purpose of complying with your instructions. KCG may effect a currency exchange through an affiliate. KCG may effect currency transactions for its own account at rates that are different than the currency exchange rate applied to your order. Full details regarding the executing entity and the costs associated with the currency conversion when the conversion is executed by either KCG or one of its affiliates are available upon written request.
Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. In addition, clients in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk.
KCG Americas LLC operates the KCG BondPoint ATS (“KBP ATS”). Other divisions and affiliates of KCG Americas LLC may transmit orders to, and execute transactions on, the KBP ATS in connection with their handling of client orders or for their own account on a proprietary basis. Some prices on KBP ATS are displayed on a net basis which may include remuneration or other fees.
KCG Americas LLC operates the MatchIt ATS (“MatchIt”). Other divisions of KCG Americas LLC or KCG affiliates may transmit orders to the MatchIt. These other divisions or affiliates may transmit orders to the MatchIt in connection with their handling of client orders or for their own account on a proprietary basis. Additional information about MatchIt, including the MatchIt Execution Protocols and Form ATS, are available on KCG.com under Trading Venues.
MATCHIT DAILY SUMMARY REPORT
Shares and issues eligible for execution are derived from orders received by KCG Americas LLC. Average savings per share is based on a weighted average of all executions for Passive Orders (resting orders) derived from the price difference between the execution and the offer (for buy orders) or bid (for sell orders) at the time of the execution.
RULE 144 AND PROSPECTUS TRANSACTIONS
Regulators require that the Firm make reasonable inquiry in connection with sales of restricted securities made under SEC Rule 144, or another available registration exemption, before any sales are made.
Securities that are, or at one time were, restricted may bear a legend on the certificates that serves to restrict transfer. In this regard, your orders may be required to be marked as short sales under Regulation SHO, Clearance and settlement of restricted securities may be delayed beyond the normal settlement cycle due to the legend removal process. Proper marking of your orders will allow you to have time beyond the normal settlement cycle to make delivery, while improperly marked orders put you at risk of being bought-in.
In connection with securities that are being sold either pursuant to exemption or under a registration statement, the Firm is required to perform a level of due diligence to determine whether there is an effective registration statement covering the securities to be sold, which includes, contacting the issuer, their counsel and the transfer agent and will typically ask you the following types of questions:
How long have you held the securities?
How did you acquire the securities?
Have you recently sold or do you intend to sell additional securities of the same class?
Have you solicited or made arrangements for the solicitation of buyers of your securities or made payments to any other persons in connection with the transactions?
Please note that if we cannot determine that the securities are eligible for resale we reserve the right to refuse to accept the order.
Pursuant to the international dealer registration exemption in NI 31-103, KCGA is informing you of the following:
It is not registered as a dealer in any of Québec, Ontario, British Columbia or Alberta. In each of these provinces, the Firm is trading with you, its client, in reliance upon an exemption from the dealer registration requirement under NI 31-103.
The Firm’s principal place of business is located in New Jersey, U.S.A.
There may be difficulty enforcing legal rights against the Firm because all or substantially all of its assets may be situated outside of Canada.
The name and address of its agent for service of process in the each of the listed provinces is listed below:
Borden Ladner Gervais LLP
Centennial Place, East Tower, 1900, 520 - 3rd Avenue SW
Calgary, Alberta T2P 0R3
Attention: Jon Doll
Borden Ladner Gervais LLP
1200 Waterfront Centre, 200 Burrard Street
P.O. Box 48600
Vancouver, B.C. V7X 1T2
Attention: Shantela Blaeser
Borden Ladner Gervais LLP
Scotia Plaza, 40 King Street West
Toronto, ON M5H 3Y4
Attention: Prema K. R. Thiele
Borden Ladner Gervais LLP
1000 de La Gauchetière Street West, Suite 900, Montreal, Quebec H3B 5H4
Attention: Anick Morin
COST BASIS TAX REPORTING
Section 403 of the Energy Improvement and Extension Act of 2008 amended the Internal Revenue Code to mandate that every broker required to file a return with the IRS reporting gross proceeds from the sale of a covered security additionally report a customer’s adjusted basis in the security and whether any gain or loss on the sale is classified as short-term or long-term.
A security is a “covered security” and therefore subject to the cost basis reporting requirements if it is acquired after its corresponding applicable date. For stock in a corporation, the applicable date is January 1, 2011. Brokers therefore are not required to report basis for any securities acquired before 2011. KCG utilizes the FIFO (First in First Out) methodology for calculating adjusted cost basis. If you wish to elect a different methodology, please contact your sales representative.
SECURITIES INVESTOR PROTECTION CORPORATION
Please make note that you can obtain information about SIPC, including the SIPC brochure, by visiting their website www.sipc.org or calling (202)371-8300.
SECTION 311 NOTICES (PROHIBITED ACCOUNTS)
Pursuant to U.S. regulations issued under section 311 of the USA PATRIOT Act, 31 CFR 103.193, KCG is prohibited from establishing, maintaining, administering or managing a correspondent account for, or on behalf of: Banca Privada d’Andorra; Banco Delta Asia; Burma; Commercial Bank of Syria (Includes Syrian Lebanese Commercial Bank); FBME Bank Ltd.; Halawi Exchange Co.; Islamic Republic of Iran; JSC CredexBank; Kassem Rmeiti & Co. For Exchange; Liberty Reserve S.A.; and Lebanese Canadian Bank SAL. Updated Section 311 Special Measures can be viewed at: http://www.fincen.gov/statutes_regs/patriot/section311.html