Mid-Market Marks

DAILY (POST-TRADE) MID-MARKET MARKS AND PRE-TRADE MID MARKET MARKS

Under CFTC Rule 23.431, SG is required to provide a post-trade daily mark and a pre-trade mid-market mark (“PTMM”) for in-scope swap transactions with US counterparties (as that term is defined under CFTC rules). Under SEC Rule 15Fh-3, SG SA is required to provide a post-trade daily mark (but not a PTMM) for in-scope SBS transactions with US counterparties or in-scope SBS transactions with non-US counterparties where such trades are arranged, negotiated or executed by SG personnel located in the US. The following post-trade daily mark disclosure relates to both swaps and SBS.

Post-Trade Daily Mark

SG hereby notifies you that for cleared swaps originally executed by you with SG or SBS originally executed by you with SG SA 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 executed between you and SG, or uncleared SBS executed between you and SG SA,  SG, or SG SA, respectively, 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 any daily mark that SG SA may provide you in connection with an 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 SA, 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 SA, 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 SA, 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 entered into with SGIL, the daily mark is generally calculated as follows:
(i)   For FX and Metals swaps, using spot and forward prices provided by a third-party vendor.
(ii)  For Energy swaps, using futures settlement prices and query of broker information provided by a third-party vendor.
(iii)  For interest rate swap (“IRS”) products, using market data and yield curve information provided by a third-party vendor.
(iv)  For products based off exchange traded futures, using futures pricing information provided by the exchanges.

With respect to swaps and SBS entered into with SG SA, 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 

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

SG SA 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 SA 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 SA contacts. 

Whether calculated by SG SA or SGIL, 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.

Pre-trade Mid-Market Mark (applicable only to swaps, not SBS)

Any PTMM that SG may provide to you is solely in connection with a swap pursuant to CFTC Rule 23.431(a)(3)(i).  PTMMs 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;
  • 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.

A PTMM is SG’s best effort to provide you with a mid-market price of a swap.  PTMMs must be provided, generally, in writing prior to execution.  However, you may elect in writing to receive your PTMM orally pre-trade and promptly in writing post-trade.  There are a number of exemptions to the PTMM requirement whereby you may elect in writing not to receive a PTMM for certain plain vanilla transparent FX, CDS and IRS products.  You may speak to your account representative for further details.  We will generally provide the PTMM to you either:

  • in writing via electronic mail, Bloomberg chat or any other means of electronic communication notified by us to you to the email address that you have provided; or
  • orally, whether over the telephone or any other similar communication device and followed up with a post-trade written confirmation to the email or Bloomberg address that you have provided for such purposes (provided, as noted above, that you have either consented in writing to such oral disclosure by making the relevant election under the ISDA 2012 DF Protocol and Questionnaire to receive oral PTMMs).

SG makes no representations or warranties to you that the prices at which SG offers or values swaps are the best prices available in the marketplace. You may wish to seek representative quotations from other participants in the relevant market to compare prices or to determine the intrinsic or current market value of a particular swap.  Under certain circumstances, we may be obligated to provide a PTMM to you on a swap that is intended to be cleared.  Contact your relationship manager for further details.  

You should not regard any PTMM that we provide to be an offer to enter into or terminate the relevant swap at that value or price, unless we identify that value or price as firm or binding with respect to a specific quantity or notional amount of the swap. SG makes no representations or warranties that any such PTMMs are suitable for complying with any financial or tax reporting obligation, determining net asset value, computing any tax liability or any other purpose, matters which you should discuss with your own financial, legal, tax, accounting and other professional advisors and, except as otherwise agreed, SG disclaims any liability for any such use or reliance thereon, whether losses or damages are direct, indirect, incidental or consequential, even if SG is advised of their possibility.

In addition to the above, with respect to swaps that are equity-linked swaps based on a broad index, the PTMM  generally will be calculated by assuming that the rate fixings would be performed at (i) a rate tenor corresponding to the length of the reset period on the floating leg and (ii) the rate currency corresponding to the settlement currency for a standard equity-linked swap in the relevant jurisdiction. Using a rate other than the rate tenor that corresponds with the length of the reset period or a rate currency other than the one that corresponds to the settlement currency of the swap would introduce scenarios that are beyond the scope of the pricing systems that SG uses to produce the PTMM and may result in a mark that is substantially different than the mark provided. The PTMM generally will be calculated based on the earliest optional termination date, unless the deal may not be terminated by either party, in which case it will be calculated based on the stated maturity of the swap.

In certain cases, the PTMM will be provided to you by the electronic platform on which you may execute your swap transactions (such as in the case of certain FX execution platforms).  If you have any further questions regarding SG’s calculation of the PTMM  for any particular product, please discuss with your SG relationship contact.

Dynamic Portfolio Swaps and SBS

PTMM (Swaps only) 

1. Where the reference instrument is an index: the PTMM is published on Bloomberg page “SGOD”. 
2. Where the reference instrument is a future: the PTMM is the prevailing mid-market level of the reference contract, as published by the relevant Exchange. 
3. Where the reference instrument is a share, ETF or bond: the PTMM is the prevailing level of the Floating Rate Option with relevant Designated Maturity, agreed with you prior to execution of the relevant transaction. 

Daily Mark (Swaps and SBS)

The daily mark for each swap and SBS transaction is made available to you on the relevant daily valuation report.  Where the swap or SBS transaction is entered into pursuant to a Global Swap Confirmation Agreement or Master Confirmation for DPS Transactions, the daily mark will appear in the column named “Total MTM” in the Daily Synthetic MTM report, the Open Position report and/or the Closed Position report.