Reversal to MandM after hours on SSF valuation

[#1]

The reversal to M&M valuations after the close of the market really distorts the real value of the portfolio. Can SFM (Simon?) perhaps give us the logic behind this. This might be something that goed back to mediaval times when computers were not in existence. But what can be easier than giving a valuation according to bid and offer closing prices and adjust the cash balance accordingly. Please give me one good reason why this is done.

[#2]

In the case of NHM today the MTM Long Position was based one rand below the closing price of 5825. This on a day where NHM closed 2.73% higher. I suspect this will the opposite case tomorrow?

[#3]

This morning I printed a valuation of my portfolio which states : PORTFOLIO AS AT 23 JUL 2007 19.21. Yesterday I printed a valuation of my portfolio which states : PORTFOLIO AS AT 23 JUL 2007 19.21 Exactly same date same time. The two valuations differ substantially. Explanation please?

[#4]

You better check carefully!!!!!

[#5]

I mean the underlying bid price of NHM.

[SimonPB]

Patrik, at 5pm the market closes and we value your SSF portfolio at bid (if long) and offer (if short). Naturally as the market is now closed the bid/offer may be wider then during trading times. Then some time between 7pm and 8pm we get the official and independent M-T-M value from the JSE, this is then the value of your portfolio until we once again revert to using bid/offer pre-opening the next mroning. Hence the value of ones portfolio could well change when the official JSE M-T-M value is applied to ones portfolio and then change again when we revert to bid/offer again.

On the second point, as Kurt Pagel explained to yourself, the margin requirements on a number of SSF contracts changed effective last night. As such you would have had to add margin to existing trades and hence you'd have less free cash after this process was affected last night.

[#7]

This does not answer my question. I know what is happening but I am looking for the logic behind this. The changeover to the new margins happened smoothfully this time and I do not have a query on these. Yesterday I was looking for a difference of R 12000 and suddenly this morning they were back on my account. Nothing to do with the IM. I have the printouts to prove my statements. But please explain the meaningfulness of reverting to the MM and not to the clocing prices be it bid or offer!!

[SimonPB]

why do we use M-T-M? it is a JSE process and as a member of the JSE we follow their rules. In truth it gives a better indicator of value as the bid/offer could be well out of kilta after the close (in truth we usually we get the complaints about using bid/offer not M-T-M).

[#9]

Still no answer. What is the logic behind it?

[SimonPB]

Logic is simple. We need a fair value for the future every evening, we can't use bid or offer as this could be well out. We can't use ruling (last trade) as two important bits are missing from the price - cost of carry and dividend assumptions. So we use M-T-M as this gives the fair value relative to the ruling including cost of carry and dividend assumptions, remembering that your futures contract trades with the cost of carry and dividend assumptions included.

[#11]

Why not use the matrix prices for bids and offers. By that I mean the matrix price based on the closing prices I see more logic in thst than your way. With computers now the referal to these matrix prices should be easy. Although you do not seem to get it right at present. Very confusing sometimes. SFM should make an agreement with one of those big US brokers like AMERITRADE and send their IT specialists over to have a look at their programs. Faster and certainly more accurate!

[SimonPB]

Two things. We would then be using the bid or offer price, and as already mentioned the bid and/or offer is often way out after the close. Example, at 5pm, last trade is R100 but after the close the bid falls away to R95 and offer moves to R106. This would give horrid data and the call centre would be piled on with irate clients.

Secondly, we don't use M-T-M on a whim. It is a JSE and FSB requirement of the instrument (SSF). In other words it is their rules and we, at all times, follow their rules. If we didn't we'd be closed down.

[#13]

I mean the bid and offer price as shown on the matrix for the final closing price! It seems to me that I will not get an answer about the logic of using the MM price. To me this is totally illogical and does not reflect the true value of the portfolio. Are you sure this is a requirement of the FSB and not of SAFEX (which is way behind modern times!)? Can you give me an e-mail address of the FSB to enable me to direct my query to them and why they make this a requirement?

[SimonPB]

yes, sure. And the JSE owns SAFEX, so same diffs.