Leveraged Derivatives Transaction (LDT)

As defined in an agreement between the Federal Reserve Bank of New York and Bankers Trust Company (December 4, 1994), a derivatives transaction '(i) where a market move of two standard deviations in the first month would lead to a reduction in value to the counterparty of the lower of 15 percent of the notional amount or $10 million, and (ii) for notes or transactions with a final exchange of principal, where counterparty principal (rather than coupon) is at risk at maturity, and (iii) for coupon swaps, where the coupon can drop to zero (or below) or exceed twice the market rate for that market and maturity, and (iv) for spread trades that include an explicit leverage factor, where a spread is defined as the difference in the yield between two asset classes.' A leveraged derivative transaction may require special disclosure and documentation. See also Highly Leveraged Transaction (HLT), Leveraged Floating Rate Note, Leveraged Reverse Floating Rate Note, Leveraged Structured Note, Leveraged Swap.

Glossary * L