ING Direct 2004 Annual Report Download - page 99

ING Group Annual Report 2004 97
for its services that were in the opinion of the NMa anti-competive. Both Interpay and the Dutch banks (including ING Bank
N.V.) have appealed the NMa decision, which is as a result currently under reconsideration by the NMa. If the NMa upon
reconsideration decides to maintain its original decision, that decision will be open to judicial review in two instances.
It is therefore uncertain whether or not (and to what extent) the NMa decision will become definitive.
Like many other companies in the U.S. mutual funds, brokerage, investment products, and insurance industries, several of our
U.S. companies have received informal and formal requests for information from various U.S. and state governmental and self-
regulatory agencies in connection with investigations related to fund trading, compensation, conflicts of interest, and sales
practices. ING is responding to the requests and working to resolve issues with regulators. One U.S. subsidiary has received
notice of recommended disciplinary action by a U.S. regulator. We believe that any issues that have been identified thus far
do not represent a systemic problem in the businesses involved and that the outcome of the investigations will not be material to
ING Group.
DERIVATIVES
Use of derivatives ING Group uses derivative financial instruments in the normal course of business for non-trading and trading
purposes. Derivatives are financial instruments, which include forwards, futures, options and swaps, whose value is based on an
underlying asset, index or reference rate.
Non-trading activities ING Group's principal objective in holding or issuing derivatives for non-trading purposes is risk
management. To achieve its risk-management objective, ING Group uses a combination of interest-rate instruments, primarily
interest-rate swaps. Net positions in foreign currencies are subject to changes in value as exchange rates change. These
fluctuations are managed by entering into currency swaps, forwards and options.
NOTIONAL AMOUNTS AND THE POSITIVE AND NEGATIVE FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS USED FOR
NON-TRADING PURPOSES
Notional Positive year-end Negative year-end
amount fair value fair value
2004 2003 2004 2003 2004 2003
Interest-rate contracts 413,574 332,779 7,875 4,512 6,397 5,169
Currency contracts 56,239 23,654 750 664 1,052 459
Equity contracts 5,044 4,499 155 80 75 21
474,857 360,932 8,780 5,256 7,524 5,649
ING Group's use of these instruments is changed from time to time in response to changing market conditions as well as
changes in the mix of the related assets and liabilities.
Trading activities ING Group trades derivative financial instruments on behalf of clients and for its own account. Derivative
financial instruments used for risk-management purposes to control risks of trading portfolios are reported as being held for
trading purposes.
NOTIONAL AMOUNTS, THE AVERAGE FAIR VALUES AND YEAR-END FAIR VALUES OF TRADING DERIVATIVE FINANCIAL INSTRUMENTS
Notional Average positive Average negative Positive year-end Negative year-end
amount fair value fair value fair value fair value
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
Interest-rate contracts 967,298 859,161 12,971 14,542 12,948 14,437 10,078 11,370 11,077 11,152
Currency contracts 259,584 269,394 5,123 5,300 5,497 6,155 7,064 5,672 7,495 6,785
Equity contracts 37,924 42,156 1,686 2,391 1,186 1,525 1,576 1,441 975 1,122
1,264,806 1,170,711 19,780 22,233 19,631 22,117 18,718 18,483 19,547 19,059
Credit derivatives As part of its trading activities, ING is also active in the field of credit derivatives. Credit derivatives are
contracts in which the credit risk regarding a specified party with respect to certain types of financial instruments is transferred.
As at 31 December 2004, ING has sold protection via total return swaps and credit default swaps for a total of EUR 10,060
million (2003: EUR 6,307 million). ING also has bought protection via total return swaps and credit default swaps for a total
of EUR 10,903 million (2003: EUR 8,173 million). The fair value of the total return swaps and credit default swaps used to sell
protection amounts to EUR 136 million at 31 December 2004 (2003: EUR 123 million). For the total return swaps and credit
default swaps used to buy protection the fair value amounts to EUR –145 million at 31 December 2004 (2003: EUR –88 million).