Daily Mark

SG hereby notifies you that for cleared swaps or SBS originally executed by you with SG you have the right to receive the daily mark from the relevant derivatives clearing organization (“DCO”) or clearing agency upon request. With respect to uncleared swaps or SBS executed between you and SG, or uncleared SBS executed between you and SG, SG will provide you with a daily mid-market mark pursuant to CFTC Rule 23.431(d) or SEC Rule 15Fh(3)(c), as required. Any daily mark that SG may provide to you in connection with a swap or SBS, will not include amounts for profit, credit reserve, hedging, funding, liquidity, or any other costs and adjustments, and may not necessarily:

• Be a price at which either SG or you would agree to replace or terminate the swap or SBS;
• Unless otherwise expressly agreed, be the basis for margin calls and maintenance of collateral; and
• Be the value of the swap that is marked on SG’s books and records.

We will generally provide the daily mark to you in a daily valuation report sent to you via electronic mail or posted on a password protected web page or other client portal.  Please note that we may post your daily marks to our website or other client-accessible portal without providing you with separate notices of each posting.  Daily marks represent SG’s best efforts to arrive at a mid-market valuation of a swap or SBS.  Below is general information regarding the methodologies, assumptions and data sources that are generally used to prepare the daily mark in respect of uncleared swaps or SBS.

To the extent you are executing a swap with SG, the daily mark provided to you will be pursuant to CFTC Rule 23.431(d); to the extent you are executing an SBS with SG, the daily mark provided to you will be pursuant to SEC Rule SEC Rule 15Fh-3(c); and to the extent you are executing a mixed swap with SG, the daily mark provided to you will be pursuant to CFTC Rule 23.431(d) and SEC Rule 15Fh-3(c). With respect to each uncleared swap or SBS entered into with SG, the daily mark you receive is generally prepared giving consideration to the applicable tenor of such swap or SBS and by discounting future cashflows (or expected cashflows in the case of options) of the swap or SBS to arrive at a current value.  Uncertain cash flows are generally derived from forward curves, correlation (if applicable), and volatility levels based upon observable market inputs available and/or good faith estimates, depending on asset class and availability. In some cases, we may use probabilistic models or other simulations or mathematical pricing models to determine the expected value of future cashflows before discounting. The specific discount rate applicable to a transaction, if any, may be obtained from your SG sales contact upon request.

With respect to swaps and SBS entered into with SG, the daily mark is generally calculated as follows:
(i)  For credit default swaps (“CDS”) and other credit-based products, using brokers or other third-party vendors

(ii)  For equity vanilla swaps, using spot and volatility from listed markets while for equity exotic products, the daily mark also relies on SG’s mathematical and financial models to derive the future cash flows; and 

(iii)  For IRS or bonds, using third party vendors.

SG may use different mark-to-market (“MtM”) methodologies when computing the daily mark, including an accrued payments methodology and a net present value of future payments methodology.  Additionally, in certain cases, SG may use, for products within the same asset class, different MtM methodologies for computing the daily mark and the client valuation.  If you have any questions relating to this matter, please do not hesitate to contact your normal SG contacts. 

The daily mark is an indicative estimate provided to you by SG for informational purposes only; it is not intended for use by, and should not be disseminated to, any third party.  Please be advised that we must provide you with daily marks, as required, at no cost to you and cannot restrict your internal use of such information.  Daily marks are indicative as of the close of business on the date shown only, and do not constitute an offer to purchase or sell any instrument or enter into, transfer, assign, or terminate any transaction, security, or instrument; nor do they constitute a commitment by SG to make such an offer. Where SG expresses a daily mark as a negative amount, this is the amount you would owe to SG upon termination of the transaction. Where SG expresses a daily mark as a positive amount, this is the amount SG would owe to you upon termination of the transaction.

In our sole discretion, we may use a variety of methodologies and inputs to prepare the estimated cash flows described above, including without limitation, preparing Monte Carlo simulations and utilizing Black-Scholes and other mathematical pricing models. We are under no obligation to disclose to you any confidential, proprietary information about the methodology used or the inputs thereto with respect to swaps. In our sole discretion, we may modify our methodologies or vary the inputs used.  Such changes may result in unanticipated and significant changes in the daily mark.    

Various factors potentially relevant to the value of your particular swap or SBS may not have been assessed for purposes of the daily mark, including, for example, the notional amount, credit spreads, underlying volatility, costs of carry, your CSA terms, cost of capital, and profits.  As noted above, SG may not include adjustments for liquidity, hedging, credit reserves, funding, profit or other such costs in your daily mark.  In addition, daily marks may vary significantly from indicative prices available from other sources or values determined for other purposes. To the extent that such marks may be based on inputs and/or information obtained from external sources, SG believes any such sources to be reliable but makes no representations or warranties with respect to the accuracy, reliability, or completeness of such data and/or information, or the resulting daily mark.

Valuation models are applied giving consideration to the relevant transaction type, in each case with adjustments applied in accordance with SG’s proprietary models that reflect market standard practices using spot, forward and volatility values and assumptions regarding past, present and future market conditions including liquidity of markets, trading volumes and interest rates. Because of these circumstances, a daily mark will not necessarily be indicative of, and may be materially different from, the value which any other person might assign to the relevant swap or SBS, including a person affiliated with SG.