Morgan Stanley 2015 Annual Report Download - page 188

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s policy is generally to take possession of securities purchased under agreements to resell and securities
borrowed, and to receive securities and cash posted as collateral (with rights of rehypothecation). In certain cases, the
Company may agree for such collateral to be posted to a third-party custodian under a tri-party arrangement that enables the
Company to take control of such collateral in the event of a counterparty default. The Company also monitors the fair value
of the underlying securities as compared with the related receivable or payable, including accrued interest, and, as necessary,
requests additional collateral as provided under the applicable agreement to ensure such transactions are adequately
collateralized. The risk related to a decline in the market value of collateral (pledged or received) is managed by setting
appropriate market-based haircuts. Increases in collateral margin calls on secured financing due to market value declines may
be mitigated by increases in collateral margin calls on reverse repurchase agreements and securities borrowed transactions
with similar quality collateral. Additionally, the Company may request lower quality collateral pledged be replaced with
higher quality collateral through collateral substitution rights in the underlying agreements.
The Company actively manages its secured financing in a manner that reduces the potential refinancing risk of secured
financing for less liquid assets. The Company considers the quality of collateral when negotiating collateral eligibility with
counterparties, as defined by its fundability criteria. The Company utilizes shorter-term secured financing for highly liquid
assets and has established longer tenor limits for less liquid assets, for which funding may be at risk in the event of a market
disruption.
Offsetting of Certain Collateralized Transactions.
At December 31, 2015
Gross
Amounts(1)
Amounts Offset
in the
Consolidated
Statements of
Financial
Condition
Net Amounts
Presented
in the
Consolidated
Statements of
Financial
Condition
Financial
Instruments Not
Offset in the
Consolidated
Statements of
Financial
Condition(2) Net Exposure
(dollars in millions)
Assets
Securities purchased under agreements to resell ..... $ 135,714 $ (48,057) $ 87,657 $ (84,752) $ 2,905
Securities borrowed ........................... 147,445 (5,029) 142,416 (134,250) 8,166
Liabilities
Securities sold under agreements to repurchase ...... $ 84,749 $ (48,057) $ 36,692 $ (31,604) $ 5,088
Securities loaned ............................. 24,387 (5,029) 19,358 (18,881) 477
At December 31, 2014
Gross
Amounts(1)
Amounts Offset
in the
Consolidated
Statements of
Financial
Condition
Net Amounts
Presented
in the
Consolidated
Statements of
Financial
Condition
Financial
Instruments Not
Offset in the
Consolidated
Statements of
Financial
Condition(2) Net Exposure
(dollars in millions)
Assets
Securities purchased under agreements to resell ..... $ 148,234 $ (64,946) $ 83,288 $ (79,343) $ 3,945
Securities borrowed ........................... 145,556 (8,848) 136,708 (128,282) 8,426
Liabilities
Securities sold under agreements to repurchase ...... $ 134,895 $ (64,946) $ 69,949 $ (56,454) $ 13,495
Securities loaned ............................. 34,067 (8,848) 25,219 (24,252) 967
(1) Amounts include $2.6 billion of Securities purchased under agreements to resell, $3.0 billion of Securities borrowed and $4.9 billion of Securities sold under
agreements to repurchase at December 31, 2015 and $3.9 billion of Securities purchased under agreements to resell, $4.2 billion of Securities borrowed, $15.6
billion of Securities sold under agreements to repurchase and $0.7 billion of Securities loaned at December 31, 2014, which are either not subject to master
netting agreements or are subject to such agreements but the Company has not determined the agreements to be legally enforceable.
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