Jefferies

Important Information Regarding Marks for Swaps

Information For All Swaps:

Each mid-market mark (each, a “Mark”) for a swap (each, a “swap”) between you and Jefferies is provided to you subject to the terms and conditions set forth in these notes.

Each Mark is either the pre-trade mid-market mark for the relevant proposed swap that Jefferies is required to deliver to you pursuant to Section 23.431(a)(3)(i) of the rules promulgated by the CFTC (the “Pre-trade Mark”), or the “daily mark” for the date specified for the relevant swap that Jefferies is required to deliver to you pursuant to Section 23.431(d)(2) of the rules promulgated by the CFTC (the “Daily Mark”).  All Marks are shown from your point of view. Jefferies will not be required to provide a Pre-trade Mark for certain transactions covered by CFTC no-action letters if a counterparty has agreed in advance, in writing, that Jefferies need not disclose such Pre-trade Mark.

Each Mark is Jefferies’ estimate of the value of the swap under market conditions prevailing at the time the Mark is delivered, in the case of Pre-trade Marks, or as of the close of business of the previous business day, in the case of Daily Marks, but in each case without taking into account any amounts for profit, credit reserves, hedging, funding, liquidity and other relevant costs, reserves and adjustments that would be included in an executable price for the swap. The Mark for a swap can change from day to day as a result of changes in the relevant economic markets.  These changes, which can be sudden and material, can make the next Mark for the relevant swap substantially less favorable from your point of view.  

Because a Pre-trade Mark does not include amounts for profit, credit reserves, hedging, funding, liquidity and other relevant costs, reserves and adjustments, it is highly likely to differ from the price at which Jefferies is willing to enter into the relevant proposed swap.   That difference is not indicative of the profit, if any, that Jefferies will realize from the relevant proposed swap, which will be dependent on a number of variables including, without limitation, price volatility, market liquidity and relevant hedging activity, if any, by Jefferies. Because a Mark does not include amounts for profit, credit reserves, hedging, funding, liquidity and other relevant costs, reserves and adjustments, it a) may not represent the price at which Jefferies would agree to replace or terminate the relevant swap, b) may not necessarily be the value assigned to the relevant swap for purposes of the books and records of Jefferies, and c) depending on the terms of the trading relationship documentation between the parties, may not represent the value assigned to the relevant swap for the purposes of computing collateral calls and returns. If Jefferies is obligated pursuant to the terms of any contract or otherwise agrees to quote a live price to terminate a swap prior to its stated maturity, that live price may differ from the most recent Mark for the swap.

Each Mark is provided solely for the information of the counterparty to the swap and is not intended for the benefit of any other party.  Data used in calculating a Mark may be obtained from third party sources that Jefferies believes are reliable, but may not have been independently verified.  Jefferies specifically disclaims liability for any use the recipient may make of any Mark including, without limitation, use of such Mark in the preparation of its own financial books and records.

Additional Information For Interest Rate Transactions:

Each Mark represents an estimate of the net present value (NPV) of the expected future cash flows from the relevant swap calculated using a) the proprietary computer valuation models that are used by Jefferies to prepare its own financial books and records for the relevant type of swap, and b) relevant mid-market price data inputs at the time the Mark is delivered, in the case of Pre-trade Marks, or as of the close of business of the previous business day, in the case of Daily Marks.  Marks do not include a bid-offer spread and other costs, reserves and adjustments that would be included in an actual market price.  In general, the proprietary computer valuation models used by Jefferies are based on appropriate discounting of fixed and floating cash flows as well as the appropriate projection of floating cash flows and reflect assumptions by Jefferies regarding past, present and future market conditions including liquidity of markets, trading volumes and interest rates.  Because of these circumstances, a 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, including a person that is affiliated with Jefferies.

Additional Information For Foreign Exchange Transactions and Commodity Derivative Transactions:

Each Mark is derived from underlying spot prices, applicable futures prices, forward points and implied volatilities obtained from a combination of different independent pricing sources and exchange price files.  These price components are entered into Jefferies’ trading and back-office systems where they are utilized by embedded price interpolation and industry standard option models to calculate each Mark.  Each Mark: a) is generally used by Jefferies to prepare its own financial books and records for the relevant type of swap or forward; and b) is prepared using price data inputs, at the time the Mark is delivered, in the case of Pre-trade Marks, or as of the close of business of the previous business day, in the case of Daily Marks. Marks do not include a bid-offer spread and other costs, reserves and adjustments that would be included in an actual market price. In general, the valuation models used by Jefferies reflect assumptions by Jefferies regarding past, present and future market conditions including liquidity of markets, trading volumes and interest rates. Because of these circumstances, a Mark will not necessarily be indicative of, and may be materially different from, the value which any other person might assign to the relevant proposed swap, including a person that is affiliated with Jefferies.

Additional Information For Equity Derivative Transactions:

Each Mark is calculated on an accrual basis to equal the sum of the Equity Amount (with such Equity Amount including any commission equivalent embedded in the swap), the Floating Amount, and the Dividend Amount, if any, that would be payable under the terms of the swap, if the swap were early terminated with the final Valuation Date of the swap being the day with respect to which the Mark is calculated, and the settlement date being one settlement cycle following such Valuation Date.  In the case of a Pre-trade Mark, applying that methodology results in a Mark that consists of just the commission equivalent that would be embedded in the proposed swap, since no other amounts will have accrued on the swap pre-trade.  In summing such amounts, any such Equity Amount, Floating Amount and Dividend Amount that would be payable by Jefferies will be expressed as a positive number, and any such amount that is payable to Jefferies will be expressed as a negative number.  As used herein, Equity Amount, Floating Amount and Dividend Amount have the meaning given to them in the relevant trading documentation between us, provided that the Equity Amount will be calculated by using the official close on the primary exchange of the underlying equity as of the prior business day.

Marks related to underlying equities that trade outside of the United States are converted into a US Dollar equivalent at the end of every business day based on current market FX rates. Marks do not include amounts for profit, credit reserves, hedging, funding, liquidity and other costs, reserves and adjustments that would be included in an actual market price.  Because of these circumstances, a 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, including a person that is affiliated with Jefferies. 

 

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