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HSBC BANK PLC
Notes on the Financial Statements (continued)
152
Fair values of derivatives by product contract type held by
The group
Assets
Liabilities
Trading
Hedging
Total
Trading
Hedging
Total
£m
£m
£m
£m
£m
£m
Foreign exchange
43,265
378
43,643
(44,754)
(53)
(44,807)
Interest rate
275,371
1,037
276,408
(271,602)
(2,068)
(273,670)
Equities
7,379
–
7,379
(8,916)
–
(8,916)
Credit
4,650
–
4,650
(5,214)
–
(5,214)
Commodity and other
1,826
–
1,826
(1,841)
–
(1,841)
Gross total fair values
332,491
1,415
333,906
(332,327)
(2,121)
(334,448)
Offset
(146,170)
146,170
At 31 December 2014
187,736
(188,278)
Foreign exchange
32,851
245
33,096
(33,644)
(159)
(33,803)
Interest rate
244,392
997
245,389
(240,448)
(1,809)
(242,257)
Equities
10,296
–
10,296
(13,001)
–
(13,001)
Credit
3,713
–
3,713
(3,582)
–
(3,582)
Commodity and other
865
–
865
(829)
–
(829)
Gross total fair values
292,117
1,242
293,359
(291,504)
(1,968)
(293,472)
Offset
(156,120)
156,120
At 31 December 2013
137,239
(137,352)
The bank
Assets
Liabilities
Trading
Hedging
Total
Trading
Hedging
Total
£m
£m
£m
£m
£m
£m
Foreign exchange
43,315
336
43,651
(44,865)
(43)
(44,908)
Interest rate
192,861
680
193,541
(189,841)
(1,402)
(191,243)
Equities
6,869
–
6,869
(8,545)
–
(8,545)
Credit
4,650
–
4,650
(5,209)
–
(5,209)
Commodity and other
1,843
–
1,843
(1,859)
–
(1,859)
Gross total fair values
249,538
1,016
250,554
(250,319)
(1,445)
(251,764)
Offset
(90,322)
90,322
At 31 December 2014
160,232
(161,442)
Foreign exchange
33,260
192
33,452
(33,965)
(159)
(34,124)
Interest rate
163,636
746
164,382
(162,402)
(1,123)
(163,525)
Equities
10,137
–
10,137
(12,578)
–
(12,578)
Credit
3,713
–
3,713
(3,579)
–
(3,579)
Commodity and other
880
–
880
(845)
–
(845)
Gross total fair values
211,626
938
212,564
(213,369)
(1,282)
(214,651)
Offset
(99,941)
99,941
At 31 December 2013
112,623
(114,710)
Use of derivatives
The group transacts derivatives for three primary purposes: to create risk management solutions for clients, to manage
the portfolio risks arising from client business and to manage and hedge the group’s own risks.
The group’s derivative activities give rise to significant open positions in portfolios of derivatives. These positions
are managed constantly to ensure that they remain within acceptable risk levels. When entering into derivative
transactions, the group employs the same credit risk management framework to assess and approve potential credit
exposures that it uses for traditional lending.
Trading derivatives
Most of the group’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected
risks. Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices
to other market participants for the purpose of generating revenues based on spread and volume. Risk management
activity is undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client
margin.
Other derivatives classified as held for trading include non-qualifying hedging derivatives, ineffective hedging derivatives
and the components of hedging derivatives that are excluded from assessing hedge effectiveness. Non-qualifying hedging
derivatives are entered into for risk management purposes but do not meet the criteria for hedge accounting. Trading
derivatives also include derivatives managed in conjunction with financial instruments designated at fair value.