Morgan Stanley 2009 Annual Report Download - page 110

OTC Derivative Products—Financial Instruments Sold, Not Yet Purchased at December 31, 2008(1)
Years to Maturity
Cross-Maturity
and
Cash Collateral
Netting(2) TotalProduct Type Less than 1 1-3 3-5 Over 5
(dollars in millions)
Interest rate and currency swaps, interest rate
options, credit derivatives and other fixed
income securities contracts ................. $ 8,547 $17,356 $24,777 $55,237 $(69,985) $35,932
Foreign exchange forward contracts and
options ................................ 7,355 1,660 377 159 (3,110) 6,441
Equity securities contracts (including equity
swaps, warrants and options) ............... 2,661 3,446 1,685 1,858 (6,149) 3,501
Commodity forwards, options and swaps ....... 7,764 10,283 2,321 1,082 (8,302) 13,148
Total ................................ $26,327 $32,745 $29,160 $58,336 $(87,546) $59,022
(1) Since these amounts are liabilities of the Company, they do not result in credit exposures.
(2) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity and product
categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within the maturity
category, where appropriate. Cash collateral paid is netted on a counterparty basis, provided legal right of offset exists.
The Company’s derivatives (both listed and OTC), on a net of counterparty and cash collateral basis, as of
December 31, 2009 and December 31, 2008 are summarized in the table below, showing the fair value of the
related assets and liabilities by product category:
At December 31, 2009 At December 31, 2008
Product Type Assets Liabilities Assets Liabilities
(dollars in millions)
Interest rate and currency swaps, interest rate options, credit
derivatives and other fixed income securities contracts .......... $33,307 $20,911 $52,391 $36,146
Foreign exchange forward contracts and options ................. 3,022 2,824 7,334 6,425
Equity securities contracts (including equity swaps, warrants and
options) ............................................... 3,619 7,371 8,738 8,920
Commodity forwards, options and swaps ....................... 9,133 7,103 20,955 17,063
Total ................................................ $49,081 $38,209 $89,418 $68,554
Each category of derivative products in the above tables includes a variety of instruments, which can differ
substantially in their characteristics. Instruments in each category can be denominated in U.S. dollars or in one or
more non-U.S. currencies.
The Company determines the fair values recorded in the above tables using various pricing models. For a
discussion of fair value as it affects the consolidated financial statements, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Part II, Item 7,
herein and Notes 1 and 4 to the consolidated financial statements.
Credit Derivatives. A credit derivative is a contract between a seller (guarantor) and buyer (beneficiary) of
protection against the risk of a credit event occurring on a set of debt obligations issued by a specified reference
entity. The beneficiary pays a periodic premium (typically quarterly) over the life of the contract and is protected
for the period. If a credit event occurs, the guarantor is required to make payment to the beneficiary based on the
terms of the credit derivative contract. Credit events include bankruptcy, dissolution or insolvency of the
referenced entity, failure to pay, obligation acceleration, repudiation and payment moratorium. Debt
restructurings are also considered a credit event in some cases. In certain transactions referenced to a portfolio of
referenced entities or asset-backed securities, deductibles and caps may limit the guarantor’s obligations.
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