This Loan Product Annex (as amended from time to time, this “Loan Product Annex”) is an annex to the User Agreement (the “User Agreement”) that the related user has executed with respect to their usage of the communications software provided by Paradigm Connect, Inc. DBA Paradigm (“Paradigm”) and relates to Loans (as defined below). This Loan Product Annex supplements and forms an integral part of the User Agreement with respect to usage of the System to negotiate Loans (the “Loan Negotiation Tools”). Capitalized terms used but not defined in this Loan Product Annex have the meanings given to such terms in the User Agreement. Usage of the Loan Negotiation Tools constitutes agreement by the User to the terms of this Loan Product Annex, as amended from time to time.
“Loan” means a loan negotiated between a borrower and lender under a Master Loan Agreement, the terms of which are set forth in a Loan Term Sheet, involving an Eligible Digital Asset (as defined below).
“Custodian Settled Loan” means a Loan that is settled via a custodian selected by the parties to such Loan (from among the custodians that are supported by Paradigm), with such Loan auto-submitted to the custodian through the System.
“Bilateral Settled Loan” means a Loan that is privately settled between the parties to such Loan with no auto-submission of the Loan to a custodian.
“Master Loan Agreement” means a Master Loan Agreement between a borrower and lender that will establish the overall terms and conditions of a loan between the parties thereto, and pursuant to which the borrower and lender thereunder may enter into one or more Loans, the terms of which will be contained in a Loan Term Sheet (as defined in the Master Loan Agreement).
(a) Custodian Settled Loan Account. Settlement of Custodian Settled Loans occurs through each party’s account with their Paradigm supported custodian that serves as the settlement venue. Accordingly, User must have an account with the custodian before it may utilize Loan Negotiation Tools. In addition, for so long as Loans remain outstanding, the User must maintain its account with that custodian.
(b) Bilateral Settled Loans. Parties to Bilateral Settled Loans are responsible for making arrangements for settlement of the Loans directly with each other. Paradigm is not involved in settlement of those Loans.
(c) Documentation. User may only negotiate Loans (whether as a borrower or lender) with parties with which it has entered into (1) a Master Loan Agreement and (2) an amendment to such Master Loan Agreement in substantially the form attached hereto as Exhibit A. The purpose of this amendment is to allow the confirmation generated by the System after the parties have agreed on the terms of a Loan to serve as a “Loan Term Sheet” for purposes of the Master Loan Agreement.
(d) Eligible Assets. Loan Negotiation Tools may only be used to negotiate Loans covering products that Paradigm supports, as listed within their Supported Currencies page for their given settlement venue on: https://www.paradigm.co/help/products/loans/venues
(e) Natural Persons. No natural persons, sole proprietorships or trusts are eligible to utilize Loan Negotiation Tools.
(f) Legal Entities (Other than Residents of the United Kingdom or the European Economic Area). To utilize Loan Negotiation Tools, a User must (i) have a minimum financial instrument portfolio, including both cash deposits and financial instruments, in excess of 500,000 EUR (or equivalent in non-Euro currencies); (ii) the sophistication to understand the transactions that the User (or its Authorized Users) are negotiating themselves through the System; and (iii) otherwise satisfy all legal requirements to use the System (including the legal ability to enter into transactions) in the jurisdiction(s) in which they are located.
(g) Legal Entities That Are Residents of the United Kingdom or the European Economic Area). To utilize Loan Negotiation Tools, a User that is a resident of the United Kingdom or the European Economic Area must elect to be treated as a "Professional Client". “Professional Clients” are defined under the following regulations: (i) Natural Persons: Section II of Annex II of Directive 2014/65/EU on markets in financial instruments ("MiFID II") entitled "Clients Who May Be Treated As Professionals On Request" and under rule COBS 3.5.3 R of the rules of the UK Financial Conduct Authority (the “FCA”); and (ii) Legal Entities: Section I of Annex II of Directive 2014/65/EU (Markets in Financial Instruments Directive (MiFID)) entitled "CATEGORIES OF CLIENT WHO ARE CONSIDERED TO BE PROFESSIONALS" and under rule 3.5.2 of the rules of the FCA. By entering into this Loan Product Annex, a User that is a resident of the United Kingdom or the European Economic Area elects to be treated as a “Professional Client” with respect to the System, and makes the following representations and warranties on an ongoing basis to Paradigm for so long as it remains a User:
(A) The User is one of the following types of entities: (1) an entity required to be authorised or regulated to operate in the financial markets, including a credit institution, an investment firm, any other authorised or regulated financial institution, an insurance company, a collective investment scheme or the management company of such a scheme, a pension fund or the management company of a pension fund, a commodity or commodity derivatives dealer or any other institutional investor; (2) a large undertaking meeting two of the following size requirements on a company basis: a balance sheet total of EUR 20,000,000, net turnover of EUR 40,000,000 or having funds of EUR 2,000,000; or (3) another institutional investor whose main activity is to invest in financial instruments and with a minimum financial instrument portfolio, including both cash deposits and financial instruments, in excess of 500,000 EUR (or equivalent in non-Euro currencies), AND
(B) The User (i) has the sophistication to understand the transactions that the User (or its Authorized Users) are negotiating themselves through the System; and (ii) otherwise satisfies all legal requirements to use the System (including the legal ability to enter into transactions) in the jurisdiction(s) in which it is located.
(h) Additional Requirements. In addition, the following persons and entities are ineligible to utilize Loan Negotiation Tools: (i) any person or entity that is located in or organized under the laws of a U.S. embargoed country, province, or region; (ii) any person or entity listed on the U.S. Treasury Department’s list of Specially Designated Nationals or the U.S. Department of Commerce Denied Person’s List or Entity List; and (iii) any person or entity not permitted under applicable law to utilize the System to negotiate Loans in the jurisdiction(s) in which they are located. In the case of a Custodian Settled Loan, each party to that Loan must satisfy any additional requirements of the custodian and the counterparty to such Loan.
By usage of Loan Negotiation Tools, a User represents and warrants, on an ongoing basis, that it satisfies the eligibility criteria set forth above in the preceding paragraphs of this Section 1.
(a) Paradigm is not a party to any Loan or Master Loan Agreement; rather, Paradigm has developed Loan Negotiation Tools to facilitate the relevant parties’ negotiation of the terms of the applicable Loan. It is the responsibility of each party to a Loan and a Master Loan Agreement to determine the appropriateness of the terms of the Loan and Master Loan Agreement for themselves.
(b) Paradigm does not provide any advice or recommendation, including any legal or tax advice, with respect to negotiating or the terms of a Loan or a Master Loan Agreement. Users are urged to consult with their own legal and tax counsel on all matters relating to the terms of a Loan or Master Loan Agreement.
(c) Each User agrees (i) not to use Loan Negotiation Tools to engage in abusive trading, lending or borrowing practices, including in connection with any transactions that the User communicates about on the System (abusive trading practices include, but are not limited to, the following: market manipulation, front-running, accommodation trading, or fraudulent trading); (ii) to only use the System for communication purposes; or (iii) that would violate applicable Law.
(d) Each User that utilizes Loan Negotiation Tools as a lender agrees to make all required legal disclosures to the borrower prior to entering into the loan.
a. Request For Quote (RFQ) and Bilateral Price Negotiation/Agreement Process
i. To execute loans between two Users, each User must first “approve” each other in their web-dashboard for the respective venue (Custodian Settled or Bilateral). Each User is responsible for their own KYC, AML or any other verification processes deemed necessary to be compliant with the User’s regulatory jurisdiction(s). Each user is also responsible for maintaining Master Loan Agreements for the counterparties the user approves for loans to be transacted on Paradigm.
ii. Once approved, a user (or their Authorized User) can send Loan RFQ to other approved users (“Loan Providers”) and come to a rate agreement for the Loan requested. All communication for RFQs, responses, and rate agreements can be automated through Paradigm buttons.
iii. All Users are solely responsible for all risks (including market, credit and process risks) related to or arising out of the Loans negotiated by themselves or their Authorized Users, and Paradigm is not responsible for any such risks.
b. Confirmation Process. An agreement is reached when the initiating counterparty (“Taker”) confirms, via Terms Sheet - Borrower screen, the terms put forth in the RFQ by the user along with Rate Quote and Custom terms put forth by the counterparty (“Loan Provider”). After an agreement is reached, all agreement details are available on (i) Loan RFQ displayed as “Filled” on LRFQ Table; (ii) Agreement details available for selected LRFQ using “View Details” pop-up; and (iii) summarized in a Loan Recap email sent to each counterparty via email.
c. Loan Rates. Loan Rates will be as agreed between the applicable Users using Loan RFQ process.
d. Settlement and Clearing Process for Custodian Settled Loans. The System will submit loan principal and collateral asset transfers to the custodian settlement venue with Collateral transfer from Borrower’s custodian settlement venue workspace AND Principal transfer from Loan Provider’s custodian settlement venue workspace. The Custodian Settlement Venue will validate LoanAsset Transfer based on credentials used by Paradigm (User’s x-API key and Pairing token) along with funds check prior to initiating an asset transfer. Each asset transfer out of the custodian settlement venue has to be approved by Authorized User/s at the counterparty that is part of the Master Loan Agreement. If the Loan fails any validations, the Loan is rejected and a negative acknowledgement is sent to the submitter. The submitter should contact the custodian if they have any questions regarding a rejected trade.
e. Settlement and Clearing Process for Bilateral Settled Loans. The parties to Bilateral Settled Loans are responsible for making appropriate arrangements as between themselves for settlement of the Loan, and Paradigm is not involved in those arrangements.
f. Disputes. Disputes regarding transactions (including with respect to whether an agreement has been reached, the terms of that agreement, or the breach of that agreement) are solely subject to, and resolved in accordance with, the Master Loan Agreement; provided, that in the case of a custodian Settled Loan, to the extent that the dispute relates to matters governed by the parties’ agreement(s) with the custodian, such dispute shall be resolved pursuant to the parties’ agreement(s) with the custodian (if any), or otherwise in accordance with the Master Loan Agreement. Paradigm will not be involved in any dispute resolution, and each User agrees to not hold Paradigm liable for any dispute with the other applicable User or any custodian.