Morgan Stanley 2014 Annual Report Download - page 240

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
positions in related securities and financial instruments, including a variety of derivative products (e.g., futures,
forwards, swaps and options). The Company manages the market risk associated with its trading activities on a
Company-wide basis, on a worldwide trading division level and on an individual product basis.
In connection with its derivative activities, the Company generally enters into master netting agreements and
collateral agreements with its counterparties. These agreements provide the Company with the right, in the event
of a default by the counterparty (such as bankruptcy or a failure to pay or perform), to net a counterparty’s rights
and obligations under the agreement and to liquidate and set off collateral against any net amount owed by the
counterparty. However, in certain circumstances: The Company may not have such an agreement in place; the
relevant insolvency regime (which is based on the type of counterparty entity and the jurisdiction of organization
of the counterparty) may not support the enforceability of the agreement; or the Company may not have sought
legal advice to support the enforceability of the agreement. In cases where the Company has not determined an
agreement to be enforceable, the related amounts are not offset in the tabular disclosures below. The Company’s
policy is generally to receive securities and cash posted as collateral (with rights of rehypothecation), irrespective
of the enforceability determination regarding the master netting and collateral agreement. In certain cases, the
Company may agree for such collateral to be posted to a third-party custodian under a control agreement that
enables the Company to take control of such collateral in the event of a counterparty default. The enforceability
of the master netting agreement is taken into account in the Company’s risk management practices and
application of counterparty credit limits. The following tables present information about the offsetting of
derivative instruments and related collateral amounts. See information related to offsetting of certain
collateralized transactions in Note 6.
At December 31, 2014
Gross Amounts(1)
Amounts Offset
in the
Consolidated
Statements of
Financial
Condition(2)
Net Amounts
Presented in the
Consolidated
Statements of
Financial
Condition
Amounts Not Offset in the
Consolidated Statements of Financial
Condition(3)
Net Exposure
Financial
Instruments
Collateral
Other Cash
Collateral
(dollars in millions)
Derivative assets
Bilateral OTC ......... $427,079 $(396,582) $30,497 $ (9,844) $ (19) $20,634
Cleared OTC(4) ....... 217,169 (215,576) 1,593 — — 1,593
Exchange traded ....... 32,123 (27,819) 4,304 — — 4,304
Total derivative
assets .......... $676,371 $(639,977) $36,394 $ (9,844) $ (19) $26,531
Derivative liabilities
Bilateral OTC ......... $410,003 $(375,095) $34,908 $(11,192) $(179) $23,537
Cleared OTC(4) ....... 211,695 (211,180) 515 — (6) 509
Exchange traded ....... 32,608 (27,819) 4,789 (726) — 4,063
Total derivative
liabilities ....... $654,306 $(614,094) $40,212 $(11,918) $(185) $28,109
(1) Amounts include $6.5 billion of derivative assets and $6.9 billion of derivative liabilities, which are either not subject to master netting
agreements or collateral agreements or are subject to such agreements but the Company has not determined the agreements to be legally
enforceable. See also “Fair Value and Notional of Derivative Instruments” for additional disclosure about gross fair values and notionals
for derivative instruments by risk type.
(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.
(4) Amounts include OTC derivatives that are centrally cleared in accordance with certain regulatory requirements.
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