Common use of Off-Exchange Transactions in Derivatives Clause in Contracts

Off-Exchange Transactions in Derivatives. It may not always be apparent whether or not a particular derivative is on or off-exchange. While some off-exchange markets are highly liquid, transactions in off-exchange or non transferable derivatives may involve greater risk than investing in on-exchange derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid and offer prices need not be quoted, and even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what a fair price is. VKAM should only permit MSIM in the Investment Guidelines to invest the Fund in off-exchange derivatives transactions if VKAM is fully aware of the risks involved.

Off-Exchange Transactions in Derivatives. It may not always be apparent whether or not a particular derivative is on or off-exchange. While some off-exchange markets are highly liquid, transactions in off-exchange or non transferable derivatives may involve greater risk than investing in on-exchange derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid and offer prices need not be quoted, and even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what a fair price is. VKAM should only permit MSIM in the Investment Guidelines to invest the Fund Funds in off-exchange derivatives transactions if VKAM is fully aware of the risks involved.