Morgan Stanley 2015 Annual Report Download - page 147

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
This accounting update also requires separate accounting for a transfer of a financial asset executed contemporaneously with
a repurchase agreement with the same counterparty (a repurchase financing), which will result in secured borrowing
accounting for the repurchase agreement. This guidance became effective for the Company beginning January 1, 2015. In
addition, new disclosures are required for sales of financial assets where the Company retains substantially all the exposure
throughout the term and for the collateral pledged and remaining maturity of repurchase and securities lending agreements,
which were effective January 1, 2015 and April 1, 2015, respectively. The adoption of this guidance did not have a material
impact on the consolidated financial statements. For further information on the adoption of this guidance, see Notes 6 and 13.
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
In May 2015, the FASB issued an accounting update that removes the requirement to categorize within the fair value hierarchy
all investments for which fair value is measured at net asset value (“NAV”) per share, or its equivalent using the practical
expedient. The Company adopted this guidance retrospectively during the second quarter of 2015, as early adoption is
permitted. For further information on the adoption of this guidance, see Note 3.
3. Fair Values.
Fair Value Measurements.
Valuation Techniques for Assets and Liabilities Measured at Fair Value on a Recurring Basis.
Asset/Liability Valuation Technique Valuation Hierarchy Classification
Trading Assets and Trading Liabilities
U.S. Government and Agency
Securities
U.S. Treasury Securities
Fair value is determined using quoted market prices; valuation
adjustments are not applied. • Generally Level 1
U.S. Agency Securities Composed of three main categories consisting of:
1. Agency-issued debt
- Non-callable agency-issued debt securities are generally
valued using quoted market prices.
- Callable agency-issued debt securities are valued by
benchmarking model-derived prices to quoted market
prices and trade data for identical or comparable
securities.
2. Agency mortgage pass-through pool securities
- Fair value is model-driven based on spreads of the
comparable to-be-announced security.
3. Collateralized mortgage obligations
- Fair value is determined based on quoted market prices
and trade data adjusted by subsequent changes in related
indices for identical or comparable securities.
• Generally Level 1—actively traded non-
callable agency-issued debt securities
• Generally Level 2—callable agency-
issued debt securities, agency mortgage
pass-through pool securities and
collateralized mortgage obligations
Other Sovereign Government
Obligations
Fair value is determined using quoted prices in active markets
when available.
• Generally Level 1
• Level 2—if the market is less active or
prices are dispersed
• Level 3—in instances where the inputs
are unobservable
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