Member Article

At its Singapore 2006 AGM, ISDA announced the publication of a new set of definitions – the ISDA 2006 Fund Derivative Definitions (Fund Definitions). The Fund Definitions are intended to provide basis terminology for use in confirmations of derivatives transactions linked to interests in various types of pooled investment vehicles, such as hedge funds and mutual funds, for which a liquid secondary market may not exist. The Fund Definitions are a streamlined version of the 2002 ISDA Equity Derivatives Definitions, tailored to account for the particular valuation and settlement characteristics of fund interests. For example, the Fund Definitions provide two new methods – the Reported Value Method and the Deemed Payout Method – for valuation of fund interests as an alternative to the methodology of the 2002 Definitions, which is more suitable for equity securities whose value is primarily derived from secondary market transactions.