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Cake day: July 1st, 2023

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  • I’m not familiar with the mechanics, but the specific derivative valuation method was listed at Level 3 which is used for transactions that rely on unobservable factors to evaluate value.

    Level 1 derivatives are like interest rate swaps where there is a liquid exchange market that can easily be valued.

    Level 2 derivatives are like Futures contracts where the terms may be more bespoke, but value can be derived from an established market.

    Level 3 derivatives I’ve seen described in textbooks as marked to magic lol. Meaning there is no liquid market to mark the value to.

    Somehow, they categorized an instrument that was used to fund the SPAC as a Level 3 derivative. That on surface sounds incorrect for an option or debt conversion of a publicly traded stock.

    This should trigger an audit or something by the regulator, but again, my area of expertise is in Corp Finance, not Treasury.