TD Bank 2014 Annual Report Download - page 149

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TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 147
The Bank’s policy is to record transfers of assets and liabilities between
the different levels of the fair value hierarchy using the fair values
as at the end of each reporting period. Assets are transferred between
Level 1 and Level 2 depending on if there is sufficient frequency and
volume in an active market.
During the year ended October 31, 2014, the Bank transferred
$1 billion of trading securities and $1 billion obligations related to
securities sold short from Level 1 to Level 2. These transfers repre-
sented previously on-the-run treasury securities that are now off-the-
run. During the year ended October 31, 2013, the Bank transferred
$4 billion off-the run treasury securities classified as trading and
$4 billion classified as available for sale from Level 1 to Level 2. In
addition, the Bank transferred $2 billion off-the-run treasury securities
sold short from Level 1 to Level 2.
Movements of Level 3 instruments
Significant transfers into and out of Level 3 occur mainly due to the
following reasons:
• Transfers from Level 3 to Level 2 occur when techniques used for
valuing the instrument incorporate significant observable market
inputs or broker-dealer quotes which were previously not observable.
• Transfers from Level 2 to Level 3 occur when an instrument’s fair
value, which was previously determined using valuation techniques
with significant observable market inputs, is now determined using
valuation techniques with significant non-observable inputs.
Due to the unobservable nature of the inputs used to value Level 3
financial instruments there may be uncertainty about the valuation of
these instruments. The fair value of Level 3 instruments may be drawn
from a range of reasonably possible alternatives. In determining the
appropriate levels for these unobservable inputs, parameters are
chosen so that they are consistent with prevailing market evidence
and management judgement.