Morgan Stanley 2014 Annual Report Download - page 102

Securities financing assets and liabilities also include matched book transactions with minimal market, credit
and/or liquidity risk. Matched book transactions accommodate customers, as well as obtain securities for the
settlement and financing of inventory positions. The customer receivable portion of the securities financing
transactions includes customer margin loans, collateralized by customer-owned securities, and customer cash,
which is segregated in accordance with regulatory requirements. The customer payable portion of the securities
financing transactions primarily includes customer payables to the Company’s prime brokerage customers. The
Company’s risk exposure on these transactions is mitigated by collateral maintenance policies that limit the
Company’s credit exposure to customers. Included within securities financing assets were $21 billion at
December 31, 2014 and December 31, 2013, recorded in accordance with accounting guidance for the transfer of
financial assets that represented offsetting assets and liabilities for fully collateralized non-cash loan transactions.
Liquidity Risk Management Framework.
The primary goal of the Company’s liquidity risk management framework is to ensure that the Company has
access to adequate funding across a wide range of market conditions. The framework is designed to enable the
Company to fulfill its financial obligations and support the execution of the Company’s business strategies.
The following principles guide the Company’s liquidity risk management framework:
• Sufficient liquid assets should be maintained to cover maturing liabilities and other planned and
contingent outflows;
• Maturity profile of assets and liabilities should be aligned, with limited reliance on short-term funding;
• Source, counterparty, currency, region, and term of funding should be diversified; and
• Contingency Funding Plan (“CFP”) should anticipate, and account for, periods of limited access to
funding.
The core components of the Company’s liquidity risk management framework are the CFP, Liquidity Stress
Tests and the Global Liquidity Reserve (as defined below), which support the Company’s target liquidity profile.
Contingency Funding Plan.
The Company’s CFP describes the data and information flows, limits, targets, operating environment indicators,
escalation procedures, roles and responsibilities, and available mitigating actions in the event of a liquidity stress.
The CFP also sets forth the principal elements of the Company’s liquidity stress testing, which identifies stress
events of different severity and duration, assesses current funding sources, and uses and establishes a plan for
monitoring and managing a potential liquidity stress event.
Liquidity Stress Tests.
The Company uses Liquidity Stress Tests to model liquidity outflows across multiple scenarios over a range of
time horizons. These scenarios contain various combinations of idiosyncratic and systemic stress events.
The assumptions underpinning the Liquidity Stress Tests include, but are not limited to, the following:
• No government support;
• No access to equity and unsecured debt markets;
• Repayment of all unsecured debt maturing within the stress horizon;
• Higher haircuts and significantly lower availability of secured funding;
• Additional collateral that would be required by trading counterparties, certain exchanges and clearing
organizations related to credit rating downgrades;
• Additional collateral that would be required due to collateral substitutions, collateral disputes and
uncalled collateral;
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