Barclays 2014 Annual Report Download - page 332

330 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Notes to the financial statements
Scope of consolidation
37 Structured entities continued
Secured financing arrangements, short term traded interests and traded derivatives are typically managed under market risk management
described in page 175 which includes an indication of the change of risk measures compared to last year. For this reason, the total assets of these
entities are not considered meaningful for the purposes of understanding the related risks and so have not been presented. Other interests include
a Non-Core portfolio which is being managed down, conduits and corporate lending where the interest is driven by normal customer demand.
Secured financing
The Group routinely enters into reverse repurchase contracts, stock borrowing and similar arrangements on normal commercial terms where the
counterparty to the arrangement is a structured entity. Due to the nature of these arrangements, especially the transfer of collateral and ongoing
margining, the Group has minimal exposure to the performance of the structured entity counterparty. A description of these transactions is
included in Note 22.
Short-term traded interests
The Group buys and sells interests in structured entities as part of its trading activities, for example, retail mortgage backed securities,
collateralised debt obligations and similar interests. Such interests are typically held individually or as part of a larger portfolio for no more than 90
days. In such cases, the Group typically has no other involvement with the structured entity other than the securities it holds as part of trading
activities and its maximum exposure to loss is restricted to the carrying value of the asset.
As at 31 December 2014, £12,058m (2013: £11,634m) of the Group’s £14,538m (2013: £12,729m) short-term traded interests were comprised of
debt securities issued by asset securitisation vehicles.
Traded derivatives
The Group enters into a variety of derivative contracts with structured entities which reference market risk variables such as interest rates, foreign
exchange rates and credit indices amongst other things. The main derivative types which are considered interests in structured entities include
index-based and entity specific credit default swaps, balance guaranteed swaps, total return swaps, commodities swaps, and equity swaps. A
description of the types of derivatives and the risk management practices are detailed in Note 15. The risk of loss may be mitigated through
ongoing margining requirements as well as a right to cash flows from the structured entity which are senior in the payment waterfall. Such
margining requirements are consistent with market practice for many derivative arrangements and in line with the Group’s normal credit policies.
Derivative transactions require the counterparty to provide cash or other collateral under margining agreements to mitigate counterparty credit
risk. Included in the traded derivatives total are £445m (2013: £752m) of derivative assets which are ‘cleared derivative’ type arrangements. These
are transactions where the Group enters into a contract with an exchange on behalf of a structured entity client and holds an opposite position
with it. The Group is exposed to settlement risk only on these derivatives which is mitigated through daily margining. Total notionals amounted to
£176,584m (2013: £163,827m).
Except for credit default swaps where the maximum exposure to loss is the swap notional amount, it is not possible to estimate the maximum
exposure to loss in respect of derivative positions as the fair value of derivatives is subject to changes in market rates of interest, exchange rates
and credit indices which by their nature are uncertain. In addition, the Group’s losses would be subject to mitigating action under its traded market
risk and credit risk policies that require the counterparty to provide collateral in cash or other assets on a daily basis in most cases.
Other interests in unconsolidated structured entities
The Group’s interests in structured entities not held for the purposes of short-term trading activities are set out below, summarised by the purpose
of the entities and limited to significant categories, based on maximum exposure to loss.