Morgan Stanley 2014 Annual Report Download - page 192

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) Total realized and unrealized gains (losses) are primarily included in Trading revenues in the Company’s consolidated statements of
income except for $523 million related to Trading assets—Investments, which is included in Investments revenues.
(2) Amounts represent unrealized gains (losses) for 2012 related to assets and liabilities still outstanding at December 31, 2012.
(3) Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and
other contracts. For further information on derivative instruments and hedging activities, see Note 12.
Trading assets—Corporate and other debt. During 2012, the Company reclassified approximately $1.9 billion
of certain Corporate and other debt, primarily corporate loans, from Level 3 to Level 2. The Company
reclassified these corporate loans as external prices and/or spread inputs for these instruments became
observable.
The Company also reclassified approximately $0.5 billion of certain Corporate and other debt from Level 2 to
Level 3. The reclassifications were primarily related to corporate loans and were generally due to a reduction in
market price quotations for these or comparable instruments, or a lack of available broker quotes, such that
unobservable inputs had to be utilized for the fair value measurement of these instruments.
Trading assets—Net derivative and other contracts. During 2012, the Company reclassified approximately
$1.4 billion of certain credit derivative assets and approximately $1.2 billion of certain credit derivative liabilities
from Level 3 to Level 2. These reclassifications were primarily related to single name credit default swaps and
basket credit default swaps for which certain unobservable inputs became insignificant to the overall
measurement.
The Company also reclassified approximately $0.6 billion of certain credit derivative assets and approximately
$0.3 billion of certain credit derivative liabilities from Level 2 to Level 3. The reclassifications were primarily
related to basket credit default swaps for which certain unobservable inputs became significant to the overall
measurement.
Quantitative Information about and Sensitivity of Significant Unobservable Inputs Used in Recurring
Level 3 Fair Value Measurements at December 31, 2014 and December 31, 2013.
The disclosures below provide information on the valuation techniques, significant unobservable inputs, and their
ranges and averages for each major category of assets and liabilities measured at fair value on a recurring basis
with a significant Level 3 balance. The level of aggregation and breadth of products cause the range of inputs to
be wide and not evenly distributed across the inventory. Further, the range of unobservable inputs may differ
across firms in the financial services industry because of diversity in the types of products included in each firm’s
inventory. The following disclosures also include qualitative information on the sensitivity of the fair value
measurements to changes in the significant unobservable inputs.
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