How They Work
1) At the start
- Set a protection/gearing level between 50-100%
- Choose your share portfolio and growth cap (if applicable)
- Pick your investment term up to 5 years
- Choose a fixed of variable interest rate and how you'd like to pay the protection premium
2) During the term
- Receive dividends and franking credits
- Receive potential tax deductions in relation to interest costs
3) At maturity
- Receive any capital growth in your portfolio
- Sell any share below the protected price to Commonwealth Bank in repayment of the loan
A Protected Loan involves a number of risks that may lead to financial outcomes that are unfavourable to you. The risks that apply to the Protected Loan are outlined in Section 2.3 and Section 3.3 in the Product Disclosure Statement and include the following:
- The overall return on your Protected Loan may be negative despite the limited recourse feature because interest costs (and any additional costs such as Break Costs) may exceed any capital gains, income, tax deductions or other benefits
- If you are borrowing less than 100% of the purchase price of a Parcel of Securities, any Additional Funds you contribute are not protected and you are at risk of losing some or all of these Additional Funds
- Terminating your Protected Loan prior to the Maturity Date can result in Break Costs, which can be substantial. You should not enter into a Protected Loan if you intend to terminate the Protected Loan prior to the Maturity Date
- CommBank has discretion in relation to the treatment of Corporate Actions:
- Generally, special Dividends will be reinvested on your behalf to buy additional Securities (rather than being received by you in cash)
- You will not generally participate in entitlement offers such as rights issues
- You may be required to contribute additional funds, make repayments to the Protected Loan or terminate all or part of your Protected Loan in the event of a Corporate Action
- All portfolio management features may have associated costs, which vary per transaction
- Performance and general investment risks apply
How they work for personal investors
How they work for SMSFs
Risk Disclosure The Protected Loan is a product offered under The Options and Lending Facility (Facility). It provides sophisticated financial products which may involve gearing and dealing in derivatives. Unless you are familiar with the effects and risks of gearing and derivative dealings, these products may not be suitable for you. Potential investors should read the Product Disclosure Statement for a full disclosure of the main risks and costs involved.
Important information As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances. The Bank strongly recommends you seek independent financial advice and taxation advice to determine whether the Facility is suitable for you. The Options and Lending Facility is issued by Commonwealth Bank of Australia ABN 48 123 123 124 and is administered by its wholly owned but non-guaranteed subsidiary Commonwealth Securities Limited ABN 60 067 254 399 (CommSec), a Participant of the ASX Group and Chi-X Australia. A Product Disclosure Statement is available for The Options and Lending Facility and should be considered before making any investment decision about this product. Bank and Government charges apply. Applications for Protected Loans and Interest in Advance Loans are subject to Commonwealth Bank’s normal credit approval. The Option Lending Facility is not a deposit liability of the Commonwealth Bank for the purposes of the Banking Act and is not subject to the depositor protection provisions of Australian banking legislation (including the Australian Government guarantee of certain bank deposits).
Commonwealth Bank Fixed Income Products
The CBA Fixed Income Team is now able to offer Government, Semi-Government and Corporate Bonds in lots of $100k or more.
Currently, there is a large amount of cash sitting on the sidelines waiting for viable investment opportunities - fixed income is a conservative asset class so you would expect a good chunk of that cash to be invested in fixed income, particularly for retirees or those wanting diversification with liquidity.
What is fixed income?
- Fixed income securities, such as bonds, form one of the fundamental building blocks of balanced investment portfolios along with cash, property and shares
- Bonds represent the debt of the government entity or company issuing them. When an investor buys a bond, they provide funds to the issuer for its operations and become one of its creditors
- In exchange for the investor taking that risk to lend money, the issuer promises to pay regular interest income over a fixed period of time. The loan, or principal value of the security, is repaid at maturity
- For example, if an investor buys a government bond with a face value of $100,000, a coupon of 3% and a maturity of 10 years, they would get a total of $3,000 interest income p.a. for the next decade and their $100,000 principal back at maturity
Issuers of bonds
- The Australian Commonwealth Government borrows money by selling bonds, as do State Governments and many of Australia’s largest companies like Telstra, Woolworths and BHP Billiton
- Bonds are generally classified as defensive investments but are not risk-free - that is dependent on the credit quality of the issuer
- The Australian Commonwealth Government guarantees Australian Government bond payments and so Australian Government bonds have exceptionally low risk
- Australian State Government bonds are guaranteed by the state that issued them and so also generally have lower credit risk
- Corporate bonds however, are not guaranteed by any government (unless expressly stated). Corporate bonds generally offer higher returns than government bonds because payment of interest and repayment of principal at maturity is dependent on the financial performance of the corporate issuer and is not guaranteed.
Fixed and Floating Rate Securities
Bonds can be issued at fixed or floating rates and have a defined maturity date at which the bond is redeemed. Terms range from 1 to 20 years or longer.
Fixed Rate Bonds
- Coupons (interest payments) are fixed throughout the life of the bond so the investor has a known income stream
- Interest is usually paid every six months
Floating Rate Notes
- Coupons are based on a fixed margin above the 90 day BBSW rate
- The fixed margin is determined on the issue date based on the credit rating of the issuer, the term to maturity, the ranking of the bond and the market perception of the issuer
- Interest is usually paid quarterly
Benefits of Bonds & Floating Rate Notes
- Usually higher returns than term deposits - commensurate with slightly higher risk as they rank behind deposits if the issuer is wound up
- Diversify investment portfolio across different issuers - i.e. CBA, Westpac, Commonwealth Government, Woolworths, Telstra etc
- Flexibility - a wide range of terms is available, usually between one and ten years
- Choice of fixed and floating interest rates
- Liquidity - Commonwealth Bank is a major participant in the secondary market and will consider repurchasing fixed rate bonds or floating rate notes prior to maturity on a best endeavours basis
Risks of Bonds & Floating Rate Notes
- Credit Risk - investors need to understand the risk profile of the issuer. Bonds that we sell are not guaranteed by Commonwealth Bank; that is dependent on the performance of the bond issuer
- Liquidity - bonds are generally a 'hold to maturity' investment. Commonwealth Bank will endeavour to repurchase any bond we sell but cannot guarantee it will be able to do so
- Interest Rate Risk - for fixed rate bonds coupons are fixed so the investor is unable to take advantage of any subsequent rise in interest rates. For floating rate notes if BBSW falls the return will fall and all coupons are not known until each quarterly reset date
- Inflation - can eat away at real returns
This information is directed to AFSL Advisers only. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Investors should read the current disclosure information available from the issuer before making any decision about the products discussed in this article. The Commonwealth Bank of Australia (the Bank) and its related entities do not guarantee the performance or repayment of capital invested in any products discussed in this article. The article is not a recommendation to buy, sell or hold the products issued by any company or government. This article is neither a summary nor exhaustive statement of the matters discussed as is not intended to be relied upon as such. The Bank and related entities do not accept any liability for losses resulting from the use of this material.
Partnering with us can allow you and your clients access to deal-flow opportunities provided by our highly experience Equity Capital Markets team.
CBA's Equity Capital Markets have raised in excess of $10b over the past 3 years and we are looking to expand this further.
Opportunities have recently included IPOs, Hybrids, REITs and Corporate Actions.
Please contact your Sales or Relationship Manager for further detail.
Features and Benefits
Complete portfolio administration
We manage your mail administration, dividend direction and reinvestment & Initial Public Offerings so you don’t have to.
Access to diverse investments
Offer a complete investment management choice with access to a wide variety of investment classes.
Corporate actions & IPO management
View and act on corporate actions and IPOs quickly and easily through the CommSec Adviser Services website.
Value for money
Competitive fees ensure your clients receive value for money. Plus management fees can be offset against income earned on their portfolio.
Tax and performance reporting
View a comprehensive range of client tax and performance reports online through CommSec Adviser Services.
Bundle your portfolio solution with one of our online trading packages for a complete advice and execution solution for your clients.
About Portfolio Services
Who is it designed for?
Financial Planning Practices and Stockbroking Firms looking:
- to hand over the administration of their investment portfolio to an experienced portfolio administrator
- for a solution to the administrative burden of managing corporate actions for clients
- for a comprehensive annual tax information to facilitate tax return preparation
- for a consolidated administration solution for their client equity and option portfolios
Our Portfolio Services are available to clients via their adviser. Clients wanting more information on how the service can help them grow their wealth should contact their adviser.
What features do you receive?
- Access portfolio information 24 hours a day, 365 days a year through the CommSec Adviser Services website
- Combine the Portfolio Service with one of our online trading packages for an end-to-end client portfolio management solution
- Comprehensive reporting
- Allows advisers and brokers to make better informed client portfolio investment decisions
- Online corporate actions management
- View client entitlement notifications online
- Lodge corporate action instructions and nominate participation electronically
- Share registry correspondence management
- Initial Public Offerings
- Adviser and client logins
- Give your clients view-only access to view holdings and reports while retaining full control of the portfolio with view and trade permissions
- Tax parcel management and reporting
- Our proprietary tax engine manages data at individual tax parcel level and uses ‘minimise gain’ parcel matching to minimise your client’s capital gains tax liability
- Comprehensive tax reports detailing all investment-related transactions after financial year-end
- Service fee management
- Service fees are calculated daily and the client charged on a monthly basis
How do we support you?
Administration of all client investments including:
- Mail administration service
- Processing dividends and other income to the cash management trust account
- Managed fund applications
- Notification of all corporate actions
- Processing corporate actions based on your selected options
- Dividend Reinvestment Plans
- Initial Public Offering applications
For more information about our Portfolio Services, see the Portfolio Services - Website Guide (PDF).
New Adviser Form (PDF)
Complete this form to setup an adviser from your dealer group to be able to offer Portfolio Services to clients.
|Important Information (PDF)
Contains important information about our Portfolio Services.
Contains information about how we collect, verify and use customer information.
Share Trading and Portfolio Administration and Reporting are services provided by Australian Investment Exchange Ltd (AUSIEX) ABN 71 076 515 930 AFSL 241400, a Participant of the ASX Group and Chi-X Australia. AUSIEX is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia (CBA) ABN 48 123 123 124 AFSL and Australian credit Licence 234945.
Buy shares in two payments with Instalment Warrants
Borrow to invest in a selection of Australia’s leading companies and Exchange-Traded Funds (ETFs).
Instalment Warrants may suit your clients if they are looking to;
- Borrow to invest in Australian shares without margin calls
- Increase exposure to potential capital growth dividends and franking credits
- Build medium to long term share portfolio
- Borrow to invest within their SMSF
Introducing Commonwealth Bank Instalment Warrants
Commonwealth Bank Instalment Warrants (Instalment Warrants) provide Australian investors and eligible Self-Managed Superannuation Funds (SMSFs) with the major benefits of share ownership for a portion of the cost of purchasing the underlying shares outright. Instalment Warrants are issued by the Commonwealth Bank of Australia (CBA), and are listed and traded on the Australian Securities Exchange (ASX) providing a flexible, easy access geared investment.
After paying the first Instalment, you are the beneficial owner of the underlying securities and can enjoy the major benefits of share ownership, including dividends, franking credits (subject to eligibility and any withholding for tax) and any potential capital gains. The first Instalment is made when you purchase Instalment Warrants on the ASX and pay the prevailing market price.
Throughout the investment you can sell your Instalment Warrants on the ASX during normal market hours and receive the prevailing market price less any brokerage.
You can also opt to make the second Instalment, known as the Completion Payment, and take full ownership of the shares at any time up to 12:00pm (Sydney time) on the Maturity Date. The Completion Payment is made by contacting Commonwealth Bank who will send you a Completion Notice.
The second instalment is a limited recourse loan offered by Commonwealth Bank. As such there are no margin calls, no credit checks, no loan documents, and investors are unable to lose more than the first Instalment.
The benefits and risks of Instalment Warrants
- Purchase ASX listed securities in two payments. The second instalment, known as the Completion Payment, is optional.
- Exposure to enhanced dividend yield and franking credits.
- Gain leveraged exposure to movements in the share price.
- You have the ability to give a Completion Notice to Commonwealth Bank and pay the Completion Payment at any time up to 6:00pm (Sydney time) on the Maturity Date to take full ownership of the shares
- The Completion Payment (Loan) is limited recourse and is optional.
- No margin calls due to the limited recourse nature of the loan.
- No credit checks or loan documents to complete
- Listed and traded on the ASX, offering flexibility and transparency.
- Potentially accelerate the number of excess franking credits that can be used to offset the tax liability on earnings and contributions tax for eligible SMSFs.
- Issued over a range of Australia’s leading companies and Exchange-Traded Funds.
Potential Risks to consider
Instalment Warrants are a leveraged share market investment and as such there is a potential for loss. Investors should consider the potential risks of investing in Instalment Warrants and these are detailed in full in the Commonwealth Bank Instalment Warrants Product Disclosure Statement (PDS) at Section 3.2. The PDS can be found on our website at www.commbank.com.au/warrants
or 1300 786 039. Key risks include:
- The value of the underlying securities may fall, which would result in the value of the Instalment
- Warrants falling.
- The leverage (gearing) incorporated in the Instalments will magnify any losses that occur, and investors risk losing some or all of their initial capital outlay.
- Impact of changes in volatility, interest rates and dividends some of which may adversely affect the price of the Instalment Warrant.
- On the Maturity Date the value of the underlying security may be less than the Completion Payment. In this case the investor will lose their initial capital outlay but will be not obliged to repay the loan.
- Any changes in Australian tax law and legislation.
Commonwealth Bank Instalment Warrants (Instalment Warrants) are issued by the Commonwealth Bank of Australia ABN 48 123 123 124 (Commonwealth Bank) and are administered by its wholly owned but non-guaranteed subsidiary Commonwealth Securities Limited ABN 60 067 254 399 (CommSec), a Participant of the ASX Group and Chi-X Australia. A Product Disclosure Statement (“PDS”) for Instalment Warrants is provided on this website and should be considered before making any decision to invest in the product. Capitalised terms on this site have the same meaning as the capitalised terms in the PDS. Potential investors should refer to the PDS for the risks and costs involved with an investment in Instalment Warrants. The Commonwealth Bank and its subsidiaries, including CommSec, do not guarantee the investment performance of Instalment Warrants.
Investments in Instalment Warrants are not deposit liabilities with the Commonwealth Bank.
What is the Commonwealth Bank Exersale Facility?
The Exersale Facility provides employees holding options an easy to implement and low-cost solution to unlock the value in their option holding without having to arrange to fund the exercise cost of the options. Commonwealth Bank (the Bank) will deal with the share registry to arrange your options exercise, sell your shares and pay you the difference.
How does it work?
- Fast and easy to implement – Commonwealth Bank arranges the exercise and sale and you do not need to worry about funding arrangements
- Efficiency – enables you to exercise options without having the funds or having to apply for a loan to fund the exercise
- Low cost solution – No arrangement or borrowing fees. Brokerage charged on sale proceeds
- Access sophisticated trading strategies - we offer advanced execution methods including algorithmic trading to help you achieve your desired sale price
Ian, an executive of XYZ Company (XYZ) was granted options in XYZ for zero consideration under a qualifying Employee Share tax-deferred scheme where the options were at real risk of forfeiture. The options with an exercise price of $20.00 vested with no restrictions placed on their disposal. At the time the options vested the XYZ share price was $50.00.
Ian discusses his financial position with his accountant and financial adviser, and is made aware that he will be taxed on the options in the financial year when they vest.
Ian chooses to sell all of his XYZ vested options before the expiry date through the Exersale Facility to help fund his tax liability.
Ian provides the Bank with his documentation:
- XYZ Company Options Exercise Notice – showing details of his options holding
- The Bank Exersale Facility application
The financial outcome for Ian using the Exersale Facility is as follows:
- The Bank funds the exercise price to the share registry and sells the XYZ stock into the market at a price of $50.00
- The share registry delivers the Bank with XYZ shares, which the Bank uses to settle the sell trade in t+3 days
- Ian receives the sale proceeds minus the exercise amount and brokerage into his nominated bank account 3 days after the sale of the underlying XYZ shares.
- Ian receives a credit of $297,250 into his nominated bank account 3 days after instructing the Bank to execute the Exersale of his XYZ company options
- He has extracted the value out of the options which can be used to pay his tax liability and fund other interests
- He has not had to arrange financing to exercise the options.
General Advice Warning
This document does not constitute advice and has been prepared by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 (Commonwealth Bank) without taking account of the objectives, financial situation or needs of any particular individual. Before acting on this information, you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice. This information should not be taken to represent actual performance and should not be interpreted as an indication or guarantee of future performance.
The Exersale Facility is a service of the Commonwealth Bank. The terms and conditions, including fees and charges, of the Exersale Facility are available upon request and should be considered before making any decisions.
We believe that the information herein is correct and any opinions or conclusions contained in this document are reasonably held or made as at the time of its compilation, but we make no warranty as to the accuracy, reliability or completeness of that information. To the extent permitted by law neither Commonwealth Bank, or any subsidiaries, or any of their respective employees or other person accept liability for any claim in respect of anything stated herein, and of the consequences of anything, done or omitted to be done by any person acting in reliance, whether wholly or partially, upon the contents of this presentation. No person shall act or omit to act on the basis of any information presented in this document without considering and if necessary taking appropriate professional taxation advice upon his or her own particular circumstances.
The case studies mentioned in this presentation are purely hypothetical and for illustrative purposes only. The accuracy cannot be guaranteed and future outcomes may vary markedly. Neither Commonwealth Bank, nor CommSec, recommend any particular financial product or service mentioned in this document.
An Investment in the Exersale Facility is not a Bank deposits. Such an investment is a contract entered into between investors and Commonwealth Bank of Australia on the terms set out in the Terms and Conditions and represent unsecured obligations of the Commonwealth Bank of Australia.
Information on taxation is based on the continuation of current laws, as at the date of communication, and their interpretation which may be subject to change.