Illiquid securities: Generally considered to be a financial instrument that is not actively traded or that cannot be sold quickly due to the lack of a ready market for the security. The lack of ready buyers also leads to larger discrepancies between the bid and ask prices than would be found in an active market with daily trading frequency.
Securities that are not actively traded are valued using Level 2 or Level 3 inputs.
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When applicable Level 1 inputs are available for a particular security, the fair value of the security shall be equal to the quoted price multiplied by the quantity held. Adjustments shall not be applied to the quoted price due to the size of a position relative to trading volume (that is, blockage).
Securities that are not actively traded are valued using Level 2 or Level 3 inputs. Level 2 inputs are inputs other than quoted prices included within Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs can include:
• Quoted prices for similar assets or liabilities in active markets.
• Quoted prices for identical or similar assets or liabilities in markets that are not active.
• Inputs other than quoted prices that are observable for the asset or liability (that is, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates).
• Observable market-based inputs.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs should be used in the absence of observable inputs. Level 3 inputs should reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
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