HSBC 2015 Annual Report Download - page 397

HSBC HOLDINGS PLC
395
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. A gain or loss on the effective
portion of the hedging instrument is recognised in other comprehensive income; the residual change in fair value is recognised immediately
in the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on
the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.
Fair values of derivatives by product contract type held by HSBC
Assets Liabilities
Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m
Foreign exchange 95,201 1,140 96,341 94,843 755 95,598
Interest rate 277,496 1,658 279,154 267,609 3,758 271,367
Equities 8,732
–
8,732 10,383
–
10,383
Credit 6,961
–
6,961 6,884
–
6,884
Commodity and other 3,148
–
3,148 2,699
–
2,699
Gross total fair values 391,538 2,798 394,336 382,418 4,513 386,931
Offset (Note 32) (105,860) (105,860)
At 31 December 2015 288,476 281,071
Foreign exchange 95,584 1,728 97,312 95,187 572 95,759
Interest rate 471,379 1,864 473,243 463,456 4,696 468,152
Equities 11,694
–
11,694 13,654
–
13,654
Credit 9,340
–
9,340 10,061
–
10,061
Commodity and other 3,884
–
3,884 3,508
–
3,508
Gross total fair values 591,881 3,592 595,473 585,866 5,268 591,134
Offset (Note 32) (250,465) (250,465)
At 31 December 2014 345,008 340,669
Derivative assets and liabilities decreased during 2015, primarily driven by ‘portfolio compression’ exercises, with a
corresponding decrease in the offset amount.
Fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Assets Liabilities
Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m
Foreign exchange 390
–
390 2,065 213 2,278
Interest rate 1,600 477 2,077
–
–
–
At 31 December 2015 1,990 477 2,467 2,065 213 2,278
Foreign exchange 680
–
680 1,066 103 1,169
Interest rate 1,607 484 2,091
–
–
–
At 31 December 2014 2,287 484 2,771 1,066 103 1,169
Use of derivatives
For details regarding use of derivatives, see page 171 under Market Risk.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks.
Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices to other
market participants for the purpose of generating revenues based on spread and volume. Risk management activity is
undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client margin. Other
derivatives classified as held for trading include non-qualifying hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial
liabilities designated at fair value.
The notional contract amounts of derivatives held for trading purposes indicate the nominal value of transactions outstanding
at the balance sheet date; they do not represent amounts at risk.