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Dodd Frank Material Disclosure Statement
Citadel Securities Swap Dealer LLC (“CSSD”) is a registered swap dealer with the U.S. Commodity Futures Trading Commission (“CFTC”). CSSD is providing this disclosure statement to those of its counterparties who are not registered as a swap dealer, major swap participant, security-based swap dealer or major security-based swap participant (collectively, “counterparties”).
Pursuant to CFTC Rule 23.431(a), at a reasonably sufficient time prior to entering into a swap, a swap dealer such as CSSD must disclose to counterparties material information concerning the swap in a manner reasonably designed to allow the counterparty to assess:
- The material risks of the particular swap, which may include market, credit, liquidity, foreign currency, legal, operational, and any other applicable risks.
- The material characteristics of the particular swap, which must include the material economic terms of the swap, the terms relating to the operation of the swap, and the rights and obligations of the parties during the term of the swap.
- The material incentives and conflicts of interest that the swap dealer may have in connection with the particular swap, which shall include:
- With respect to disclosure of the price of the swap, the price of the swap and the mid-market mark of the swap; and
- Any compensation or other incentive from any source other than the counterparty that the swap dealer may receive in connection with the swap.
Material Risk Disclosures
The International Swaps and Derivatives Association, Inc. (“ISDA”) created standard industry documentation, including general and swap product specific risk disclosures, to assist swap dealers such as CSSD in satisfying ongoing CFTC requirements and to allow counterparties to continue trading with those swap dealers. Please review the following documents, which contain information and disclosures about the relevant material risks of swap transactions related to interest rates and credit instruments:
- ISDA General Disclosure Statement for Transactions
- Interest Rate Derivatives Disclosure Annex
- 2006 ISDA Definitions
- 2021 ISDA Interest Rate Derivatives Definitions
- IBOR Alternative Reference Rates Disclosure
Material Characteristics of Swap Transactions
This disclosure statement describes the manner in which CSSD determines the terms of any Transaction (as defined in the ISDA General Disclosure Statement for Transactions) that it may enter into with counterparties. Before entering into any Transaction, counterparties should conduct a thorough and independent evaluation of the terms of the Transaction in light of their particular circumstances and the nature and extent of their exposure to, and willingness to incur, risk. Counterparties should also consider whether the Transaction is suitable and appropriate for them in light of their experience, objectives, financial and operational resources and other relevant circumstances. CSSD does and will not provide counterparties with legal, financial, tax, accounting or other advice in connection with any Transaction.
The terms of any Transaction between CSSD and counterparties will be set forth in the confirmation or other agreement evidencing the Transaction, including any terms incorporated by reference therein. Subject to the exceptions described below, any Transaction between CSSD and a counterparty will have the terms that CSSD and the counterparty expressly agree upon (orally, via email or in any other manner) in connection with the Transaction, as well as other terms determined as follows:
- Specified prior transaction, form confirmation or terms spreadsheet. If CSSD notifies counterparties that the Transaction will have the terms set forth in a specified prior transaction, form confirmation or terms spreadsheet, the Transaction will have such terms, subject to any express agreement between counterparties and CSSD in connection with the Transaction.
- Master confirmation agreement. If (1) above does not apply and counterparties and CSSD are party to a master confirmation agreement that governs the Transaction, the Transaction will have the terms set forth in the master confirmation agreement, subject to any express agreement between CSSD and a counterparty in connection with the Transaction.
- Unspecified prior transaction. If neither (1) nor (2) above applies and counterparties and CSSD have previously entered into a transaction of the same type, the Transaction will have the terms set forth in the most recent transaction of the same type that CSSD and the counterparty entered into, subject to any express agreement between the counterparty and CSSD in connection with the Transaction.
- Unspecified form confirmation or terms spreadsheet. If neither (1), (2) nor (3) above applies and the Transaction is of a type that is covered by a form confirmation or a terms spreadsheet that is available on this site, then the Transaction will have the terms set forth in the form confirmation or terms spreadsheet, as applicable, subject to any express agreement between counterparties and CSSD in connection with the Transaction. In the event of any inconsistency between a form confirmation and a terms spreadsheet that relate to the same type of transaction, the terms set forth in the terms spreadsheet control.
The description above of the manner in which the terms of any Transaction between counterparties and CSSD will be determined is subject to the following exceptions:
- Transactions that are cleared through a clearinghouse or executed through a trading platform that prescribes the terms of the Transaction will have the terms specified by the applicable clearinghouse or trading platform and, subject to the rules of the clearinghouse or trading platform, any additional terms that counterparties and CSSD expressly agree upon in connection with the Transaction.
- If counterparties and CSSD enter into a Transaction for “give-up” to a third party, the terms of the Transaction will be subject to the terms of any agreement with that third party.
With respect to each referenced product, the terms set out in the documents below constitute the material economic terms that would generally apply to any Transaction of that type that CSSD would execute with counterparties. Please read the documents prior to entering into Transactions with CSSD.
Material Incentives and Conflicts of Interest
CSSD is required under CFTC rules to disclose to its counterparties a “pre-trade mid-market mark” (the “PTMMM”) for each swap. CSSD must also provide an explanation of the methodologies and assumptions that are the bases for its PTMMM calculations. Accordingly, please note that, subject to the qualifications and exceptions set forth below, any PTMMM CSSD provides to counterparties will be prepared in accordance with the inputs and components of CSSD’s proprietary methodology.
CSSD’s PTMMM is derived from the present value of a swap, which is calculated based on discounting future cash flows. To estimate both these future cash flows and the discount factors, CSSD uses a variety of proprietary models, observable market inputs (including, but not limited to, forward curves, volatility levels and correlations), and estimates of observable and unobservable market inputs, which includes CSSD’s own data. Although CSSD’s methodology generally includes the inputs described above, CSSD may, in its sole discretion, use other inputs or approaches – which may include a variety of pricing models- in connection with particular types of transactions. CSSD has no obligation to disclose to counterparties the specific methodology or inputs used in connection with the calculation of PTMMMs for any particular transaction CSSD enters into with counterparties.
Any PTMMM that CSSD provides to counterparties, by definition, represents a mid-market price and not an actual bid or offer price. As a result, the PTMMMs generally do not reflect prices at which CSSD would agree to enter into, modify, replace or terminate a swap with a counterparty. Moreover, CSSD’s valuations of swaps for purposes of determining margin requirements generally will be calculated on bases other than the PTMMM provided to counterparties. Similarly, the value of the swap that is marked on CSSD’s books generally will not be consistent with the PTMMM.
Additionally, the PTMMM, as required under CFTC rules, is exclusive of profit, credit reserve, hedging, funding, liquidity or any other costs or adjustments.
Any PTMMM CSSD provides to counterparties is current only as of the time at which it is provided. As a result, the PTMMM counterparties receive for a transaction may change with the passage of time even if the price at which CSSD would agree to enter into, replace or terminate such swap has not changed over the same period of time.
For additional information on the material incentives and conflicts of interest that CSSD may have in connection with a particular swap, please refer to the Swap Dealer Disclosure Document, which can be found below:
This website contains links to spreadsheets of material economic terms relating to a variety of types of Transactions that CSSD may enter into with counterparties from time to time. Any confirmation or other documentation CSSD directly provides to counterparties in respect of an actual or potential Transaction will supersede the information on this website and, to the extent inconsistent, such confirmation or other documentation will control. In addition, the agreed upon terms of any Transaction between counterparties and CSSD will be set forth in the confirmation or other agreement that counterparties and CSSD enter into with respect to that Transaction and may differ materially from the terms set forth in the forms and spreadsheets available on or through this website. By making this website available, CSSD is not indicating that it is willing to enter into any Transaction with any counterparty on any terms.
With respect to the material terms and characteristics of any swap entered into or to be entered into between counterparties and CSSD, counterparties should also refer to the applicable transaction-level and relationship-level documentation, including, without limitation, any termsheet, confirmation, master agreement or master confirmation agreement.
If counterparties believe that a material term of the swap has not been provided, please contact your CSSD representative, who will provide this information upon request. It is the responsibility of counterparties to contact CSSD with any additional questions regarding any swap that have not been otherwise addressed by the information and documents that have been provided to counterparties prior to entering into the swap.
By entering into a swap, counterparties will be deemed to acknowledge that they have received from CSSD, prior to entry into such swap and in an acceptable manner, disclosures, notifications and other information sufficient for counterparties to evaluate: (i) the material risks of the swap, including market, credit, liquidity, foreign currency, legal, operational and other applicable risks, (ii) the material characteristics of the swap, including the material economic terms, operational terms, and the rights and obligations of the parties during the term of the swap, and (iii) the material incentives and conflicts of interest that may apply with respect to the swap. Where applicable or relevant, CSSD may from time to time provide counterparties with additional notifications and disclosures relating to a particular swap or trading strategy, including disclosures regarding the material risks and characteristics of such swap or trading strategy, in addition to the notifications and disclosures provided on this website.
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