Morgan Stanley 2009 Annual Report Download - page 76

• Purchasing and selling (in both a market-making and a proprietary-trading capacity) securities issued by
SPEs/variable interest entities (“VIE”), whether such vehicles are sponsored by the Company or not;
• Entering into derivative transactions with SPEs (whether or not sponsored by the Company);
• Providing warehouse financing to collateralized debt obligations and collateralized loan obligations;
• Entering into derivative agreements with non-SPEs whose value is derived from securities issued by
SPEs;
• Servicing assets held by SPEs or holding servicing rights related to assets held by SPEs that are serviced
by others under subservicing arrangements;
• Serving as an asset manager to various investment funds that may invest in securities that are backed, in
whole or in part, by SPEs; and
• Structuring and/or investing in other structured transactions designed to provide enhanced, tax-efficient
yields to the Company or its clients.
The Company engages in securitization activities related to commercial and residential mortgage loans, U.S.
agency collateralized mortgage obligations, corporate bonds and loans, municipal bonds and other types of
financial instruments. The Company’s involvement with SPEs is discussed further in Note 6 to the consolidated
financial statements.
In most cases, these SPEs are deemed for accounting purposes to be VIEs. Unless a VIE was determined to be a
QSPE (see Note 1 to the consolidated financial statements) under the accounting guidance effective prior to
January 1, 2010, the Company was required to perform an analysis of each VIE at the date upon which the
Company became involved with it to determine whether the Company was the primary beneficiary of the VIE, in
which case the Company had to consolidate the VIE. QSPEs were not consolidated under the accounting
guidance effective prior to January 1, 2010. QSPEs are eliminated under the accounting guidance effective
January 1, 2010.
In addition, the Company serves as an investment advisor to unconsolidated money market and other funds.
Under the accounting guidance effective prior to January 1, 2010, the Company was required to reassess whether
it was the primary beneficiary of a VIE only upon the occurrence of certain reconsideration events. Under
accounting guidance adopted on January 1, 2010, the Company is required to reassess whether it is the primary
beneficiary on an ongoing basis and not only upon the occurrence of certain events.
If the Company’s initial assessment resulted in a determination that it was not the primary beneficiary of a VIE,
then under the accounting guidance effective prior to January 1, 2010, the Company reassessed this
determination upon the occurrence of:
• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocated the
obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE
between the primary beneficiary at that time and the other variable interest holders, including the
Company.
• Acquisition by the Company of additional variable interests in the VIE.
If the Company’s initial assessment resulted in a determination that it was the primary beneficiary, then under the
accounting guidance effective prior to January 1, 2010, the Company reassessed this determination upon the
occurrence of:
• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocated the
obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE
between the primary beneficiary at that time and the other variable interest holders.
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