Morgan Stanley 2009 Annual Report Download - page 160

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2009 and December 31, 2008, cash and securities deposited with clearing organizations or
segregated under federal and other regulations or requirements were as follows:
December 31,
2009
December 31,
2008
(dollars in millions)
Cash deposited with clearing organizations or segregated under federal
and other regulations or requirements .......................... $23,712 $24,039
Securities(1) ................................................ 11,296 38,670
Total .................................................. $35,008 $62,709
(1) Securities deposited with clearing organizations or segregated under federal and other regulations or requirements are sourced from
Federal funds sold and securities purchased under agreements to resell and Financial instruments owned in the consolidated statements of
financial condition.
6. Securitization Activities and Variable Interest Entities.
Securitization Activities and Qualifying Special Purpose Entities.
Securitization Activities. In a securitization transaction, the Company transfers assets (generally commercial or
residential mortgage loans or U.S. agency securities) to a special purpose entity (an “SPE”), sells to investors
most of the beneficial interests, such as notes or certificates, issued by the SPE and in many cases retains other
beneficial interests. In many securitization transactions involving commercial mortgage loans, the Company
transfers a portion of the assets to the SPE with unrelated parties transferring the remaining assets.
The purchase of the transferred assets by the SPE is financed through the sale of these interests. In some of these
transactions, primarily involving residential mortgage loans in the U.S. and Europe and commercial mortgage
loans in Europe, the Company acts as servicer for some or all of the transferred loans. In many securitizations,
particularly involving residential mortgage loans, the Company also enters into derivative transactions, primarily
interest rate swaps or interest rate caps, with the SPE.
In most of these transactions, the SPE met the criteria to be a QSPE under the accounting guidance effective prior
to January 1, 2010 for the transfer and servicing of financial assets. The Company did not consolidate QSPEs if
they met certain criteria regarding the types of assets and derivatives they may hold, the activities in which they
may engage and the range of discretion they may exercise in connection with the assets they hold. The
determination of whether an SPE met the criteria to be a QSPE required considerable judgment, particularly in
evaluating whether the permitted activities of the SPE were significantly limited and in determining whether
derivatives held by the SPE were passive and not excessive.
The primary risk retained by the Company in connection with these transactions generally was limited to the
beneficial interests issued by the SPE that were owned by the Company, with the risk highest on the most
subordinate class of beneficial interests. Where the QSPE criteria were met, these beneficial interests generally
were included in Financial instruments owned—corporate and other debt and were measured at fair value. The
Company did not provide additional support in these transactions through contractual facilities, such as liquidity
facilities, guarantees, or similar derivatives.
Although not obligated, the Company generally makes a market in the securities issued by SPEs in these
transactions. As a market maker, the Company offers to buy these securities from, and sell these securities to,
investors. Securities purchased through these market-making activities are not considered to be retained interests,
although these beneficial interests generally are included in Financial instruments owned—corporate and other
debt and are measured at fair value.
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