Morgan Stanley 2014 Annual Report Download - page 215

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(2) Amounts relate to master netting agreements and collateral agreements, which have been determined by the Company to be legally
enforceable in the event of default and where certain other criteria are met in accordance with applicable offsetting accounting guidance.
(3) Amounts relate to master netting agreements and collateral agreements, which have been determined by the Company to be legally enforceable
in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.
The Company also engages in margin lending to clients that allows the client to borrow against the value of
qualifying securities and is included within Customer and other receivables in the Company’s consolidated
statement of financial condition. Under these agreements and transactions, the Company either receives or
provides collateral, including U.S. government and agency securities, other sovereign government obligations,
corporate and other debt, and corporate equities. Customer receivables generated from margin lending activities
are collateralized by customer-owned securities held by the Company. The Company monitors required margin
levels and established credit limits daily and, pursuant to such guidelines, requires customers to deposit
additional collateral, or reduce positions, when necessary. Margin loans are extended on a demand basis and are
not committed facilities. Factors considered in the review of margin loans are the amount of the loan, the
intended purpose, the degree of leverage being employed in the account, and overall evaluation of the portfolio to
ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of the underlying
collateral or potential hedging strategies to reduce risk. Additionally, transactions relating to concentrated or
restricted positions require a review of any legal impediments to liquidation of the underlying collateral.
Underlying collateral for margin loans is reviewed with respect to the liquidity of the proposed collateral
positions, valuation of securities, historic trading range, volatility analysis and an evaluation of industry
concentrations. For these transactions, adherence to the Company’s collateral policies significantly limits the
Company’s credit exposure in the event of a customer default. The Company may request additional margin
collateral from customers, if appropriate, and, if necessary, may sell securities that have not been paid for or
purchase securities sold but not delivered from customers. At December 31, 2014 and December 31, 2013, there
were approximately $29.0 billion and $29.2 billion, respectively, of customer margin loans outstanding.
Other secured financings include the liabilities related to transfers of financial assets that are accounted for as
financings rather than sales, consolidated VIEs where the Company is deemed to be the primary beneficiary, and
certain equity-linked notes and other secured borrowings. These liabilities are generally payable from the cash
flows of the related assets accounted for as Trading assets (see Notes 7 and 11).
The Company pledges its trading assets to collateralize repurchase agreements and other secured financings.
Pledged financial instruments that can be sold or repledged by the secured party are identified as Trading assets
(pledged to various parties) in the Company’s consolidated statements of financial condition. The carrying value
and classification of Trading assets by the Company that have been loaned or pledged to counterparties where
those counterparties do not have the right to sell or repledge the collateral were as follows:
At
December 31,
2014
At
December 31,
2013
(dollars in millions)
Trading assets:
U.S. government and agency securities ....................... $11,769 $16,292
Other sovereign government obligations ...................... 6,084 5,748
Corporate and other debt .................................. 6,061 7,388
Corporate equities ....................................... 7,421 8,713
Total .............................................. $31,335 $38,141
The Company receives collateral in the form of securities in connection with reverse repurchase agreements,
securities borrowed and derivative transactions, customer margin loans and securities-based lending. In many
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