Morgan Stanley 2015 Annual Report Download - page 83

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 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
$11 billion and $21 billion at December 31, 2015 and December 31, 2014, respectively, 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 its 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
• Liquidity Stress Tests should anticipate, and account for, periods of limited access to funding.
The core components of the Company’s Liquidity Risk Management are the Required Liquidity Framework, Liquidity Stress
Tests and the Global Liquidity Reserve (as defined below), which support its target liquidity profile.
Required Liquidity Framework.
The Company’s Required Liquidity Framework reflects the amount of liquidity the Company must hold in both normal and
stressed environments to ensure that its financial condition and overall soundness is not adversely affected by an inability (or
perceived inability) to meet its financial obligations in a timely manner. The Required Liquidity Framework considers the
most constraining liquidity requirement to satisfy all regulatory and internal limits at a consolidated and legal entity level.
Liquidity Stress Tests.
The Company uses Liquidity Stress Tests to model liquidity inflows and outflows across multiple scenarios over a range of
time horizons. These scenarios contain various combinations of idiosyncratic and systemic stress events of different severity
and duration. The methodology, implementation, production and analysis of the Company’s Liquidity Stress Tests are
important components of the Required Liquidity Framework.
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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