Important Information Regarding Marks for Swaps and Security-Based 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 or Section 15Fh-3(c) of the rules promulgated by the SEC (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. Jefferies will also not be required to provide a Pre-trade Mark for any security-based swap transaction.

Each Mark is the midpoint between the bid and offer, or the calculated equivalent thereof 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 or security-based swap, b) may not necessarily be the value assigned to the relevant swap or security-based 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 or security-based 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 or security-based swap prior to its stated maturity, that live price may differ from the most recent Mark for the swap or security-based 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. Jefferies provides each Mark without charge and without restrictions on the internal use of the Mark by the counterparty.

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:

The following Pre-trade Mark disclosure solely applies to certain swaps you may enter into with Jefferies that reference an underlier that is an equity security classified by Jefferies as “general collateral” (“GC swaps”).  These swaps are primarily financing transactions, providing exposure to an underlying security.  The price of the underlying equity is the price at which Jefferies is able to enter its hedge and is provided in the transaction supplement, and is repriced daily based on the closing price on the relevant stock exchange.  The cost of the financing is variable, based on the underlying security.  In that situation Jefferies believes the base interest rate for the funding leg of the GC swap referenced in the transaction is the best indicator of Pre-trade Mark for that swap for purposes of CFTC rules.

Additional Information For Credit Derivative 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 the fixed and floating amounts as well as the appropriate projection of the floating amount and reflect assumptions by Jefferies regarding past, present and future credit and market conditions.  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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