We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is Variation Settlement? A Comprehensive Legal Overview
Definition & Meaning
Variation settlement refers to the daily or intraday adjustments made to a customer's account to reflect the current market value of a security future or a similar contract. These adjustments can result in either a credit or a debit to the account. The contracts involved must be issued by a registered clearing agency or guaranteed by a registered derivatives clearing organization and must be traded under the rules of a self-regulatory authority.
Table of content
Legal Use & context
This term is primarily used in the context of financial markets and trading, particularly in relation to security futures. Variation settlements are crucial for ensuring that accounts accurately reflect current market conditions. Legal professionals may encounter this term in areas related to securities regulation, trading compliance, and risk management. Users can manage related documentation through legal templates available on platforms like US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A trader holds a security future that fluctuates in value throughout the day. At the end of the trading day, the clearing agency calculates the difference in value and applies a debit to the trader's account if the value decreased, or a credit if it increased.
Example 2: A hedge fund utilizes variation settlement to manage its risk exposure on multiple security futures, adjusting accounts based on market performance at regular intervals. (hypothetical example)
Relevant laws & statutes
Variation settlements are governed by regulations outlined in the Commodity Exchange Act and the rules set forth by the Commodity Futures Trading Commission (CFTC). Key references include:
17 CFR 41.43 - Security Futures Products
Section 17A of the Exchange Act
Section 5b of the Commodity Exchange Act
Comparison with related terms
Term
Definition
Difference
Margin Call
A demand for additional funds to maintain a margin account.
The process of recording the value of an asset to reflect current market conditions.
Variation settlements are a specific application of marking to market for customer accounts.
Common misunderstandings
What to do if this term applies to you
If you are involved in trading security futures, it's important to monitor your account for variation settlements regularly. Ensure you understand how these adjustments affect your overall trading strategy. For assistance, consider using US Legal Forms to access legal templates that can help you manage your trading documents effectively. If your situation is complex, consulting with a financial advisor or legal professional may be necessary.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.