HSBC 2015 Annual Report Download - page 144

Report of the Directors: Risk (continued)
Credit risk
HSBC HOLDINGS PLC
142
Notional contract amounts and fair values of derivatives by product type
2015 2014
Notional Fair value Notional Fair value
amount Assets Liabilities amount Assets Liabilities
$m $m $m $m $m $m
Foreign exchange 5,690,354 96,341 95,598 5,573,415 97,312 95,759
–
exchange traded 195,612 167 76 81,785 229 369
–
central counterparty cleared OTC 29,263 406 443 18,567 321 349
–
non-central counterparty cleared OTC 5,465,479 95,768 95,079 5,473,063 96,762 95,041
Interest rate 14,675,036 279,154 271,367 22,328,518 473,243 468,152
–
exchange traded 1,259,888 49 81,432,333 112 161
–
central counterparty cleared OTC 8,774,674 117,877 117,695 15,039,001 261,880 264,509
–
non-central counterparty cleared OTC 4,640,474 161,228 153,664 5,857,184 211,251 203,482
Equity 501,834 8,732 10,383 568,932 11,694 13,654
–
exchange traded 265,129 1,888 2,601 289,140 2,318 3,201
–
non-central counterparty cleared OTC 236,705 6,844 7,782 279,792 9,376 10,453
Credit 463,344 6,961 6,884 550,197 9,340 10,061
–
central counterparty cleared OTC 90,863 1,779 2,069 126,115 1,999 2,111
–
non-central counterparty cleared OTC 372,481 5,182 4,815 424,082 7,341 7,950
Commodity and other 51,683 3,148 2,699 77,565 3,884 3,508
–
exchange traded 8,136 38
–
7,015 80 23
–
non-central counterparty cleared OTC 43,547 3,110 2,699 70,550 3,804 3,485
Total OTC derivatives 19,653,486 392,194 384,246 27,288,354 592,735 587,379
–
total OTC derivatives cleared by central
counterparties 8,894,800 120,062 120,207 15,183,683 264,200 266,968
–
total OTC derivatives not cleared by central
counterparties 10,758,686 272,132 264,039 12,104,671 328,535 320,411
Total exchange traded derivatives 1,728,765 2,142 2,685 1,810,273 2,739 3,755
Gross 21,382,251 394,336 386,931 29,098,627 595,473 591,134
Offset (105,860) (105,860) (250,465) (250,465)
Total at 31 December 288,476 281,071 345,008 340,669
The purposes for which HSBC uses derivatives are described in
Note 16 on the Financial Statements.
The International Swaps and Derivatives Association
(‘ISDA’) Master Agreement is our preferred agreement
for documenting derivatives activity. It provides the
contractual framework within which dealing activity
across a full range of OTC products is conducted, and
contractually binds both parties to apply close-out
netting across all outstanding transactions covered by an
agreement if either party defaults or another pre-agreed
termination event occurs. It is common, and our preferred
practice, for the parties to execute a Credit Support Annex
(‘CSA’) in conjunction with the ISDA Master Agreement.
Under a CSA, collateral is passed between the parties to
mitigate the counterparty risk inherent in outstanding
positions.
We manage the counterparty exposure arising from market
risk on our OTC derivative contracts by using collateral
agreements with counterparties and netting agreements.
Currently, we do not actively manage our general OTC
derivative counterparty exposure in the credit markets,
although we may manage individual exposures in certain
circumstances.
We place strict policy restrictions on collateral types and as
a consequence the types of collateral received and pledged
are, by value, highly liquid and of a strong quality, being
predominantly cash.
Where a collateral type is required to be approved outside
the collateral policy (which includes collateral that includes
wrong way risks), a submission to one of three regional
Documentation Approval Committees (‘DAC’s) for approval
is required. These DACs require the participation and sign-
off of senior representatives from regional Markets Chief
Operating Officers, Legal and Risk.
The majority of our CSAs are with financial institutional
clients.
As a consequence of our policy, the type of agreement
we enter into is predominately ISDA CSAs, the majority
of which are written under English law. The table below
provides a breakdown of OTC collateral agreements by
agreement type:
OTC collateral agreements by type
Number of
agreements
ISDA CSA (English law) 2,670
ISDA CSA (New York law) 1,702
ISDA CSA (Japanese law) 17
French Master Agreement and CSA equivalent14 223
German Master Agreement and CSA equivalent15 93
Others 395
At 31 December 2015 5,100
For footnotes, see page 191.