Company: SVIX
Filing Date: 2025-11-13
Form Type: 10-Q
Source: 0001213900-25-109885
Chunk: 328

Company: VS Trust
Filing Date: 2025-11-13
Form: 10-Q
Item: Part II, Item 8
Chunk 328
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 not subject to regulation (in the case of commodities other
than currencies) or subject to the federal securities laws (in the case of securities). Title VII of the Dodd-Frank Act (“Title
VII”) created a regulatory regime for derivatives, with the CFTC responsible for the regulation of swaps and the SEC responsible
for the regulation of “security-based swaps.” The SEC requirements have largely yet to be made effective, but the CFTC requirements
are largely in place. The CFTC requirements have included rules for some of the types of transactions in which the Funds will engage,
including mandatory clearing and exchange trading, reporting, and margin for OTC swaps. Title VII also created new categories of regulated
market participants, such as “swap dealers,” “security-based swap dealers,” “major swap participants,”
and “major security-based swap participants” who are, or will be, subject to significant new capital, registration, recordkeeping,
reporting, disclosure, business conduct and other regulatory requirements. The regulatory requirements under Title VII continue to be
developed and there may be further modifications that could materially and adversely impact the Funds, the markets in which a Fund trades
and the counterparties with which the Fund engages in transactions.

As noted, the CFTC rules may not apply to all of
the swap agreements and forward contracts entered into by the Funds. Investors, therefore, may not receive the protection of CFTC regulation
or the statutory scheme of the Commodity Exchange Act (the “CEA”) in connection with each Fund’s swap agreements or
forward contracts. The lack of regulation in these markets could expose investors to significant losses under certain circumstances, including
in the event of trading abuses or financial failure by participants.

Counterparty Credit Risk

The Funds will be subject to the credit risk of
the counterparties to the derivatives. In the case of cleared derivatives, the Funds will have credit risk to the clearing corporation
in a similar manner as the Funds would for futures contracts. In the case of OTC derivatives, the Funds will be subject to the credit
risk of the counterparty to the transaction - typically a single bank or financial institution. As a result, a Fund is subject to increased
credit risk with respect to the amount it expects to receive from counterparties to OTC derivatives entered into as part of that Fund’s
principal investment strategy. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties,
a Fund could suffer significant losses on these contracts and the value