| Derivatives and Hedging Activities | Derivatives and Hedging Activities
Derivative Activities Derivatives are instruments that derive their value
from underlying asset prices, indices, reference rates and other
inputs, or a combination of these factors. Derivatives may be
traded on an exchange (exchange-traded) or they may be privately
negotiated contracts, which are usually referred to as OTC
derivatives. Certain of the firm’s OTC derivatives are
cleared and settled through central clearing counterparties
(OTC-cleared), while others are bilateral contracts between two
counterparties (bilateral OTC). Market-Making. As a market maker, the firm enters
into derivative transactions to provide liquidity to clients and to
facilitate the transfer and hedging of their risks. In this
capacity, the firm typically acts as principal and is consequently
required to commit capital to provide execution. As a market maker,
it is essential to maintain an inventory of financial instruments
sufficient to meet expected client and market demands. Risk
Management. The firm also enters into
derivatives to actively manage risk exposures that arise from its
market-making and investing and lending activities in derivative
and cash instruments. The firm’s holdings and exposures are
hedged, in many cases, on either a portfolio or risk-specific
basis, as opposed to an instrument-by-instrument basis. The
offsetting impact of this economic hedging is reflected in the same
business segment as the related revenues. In addition, the firm may
enter into derivatives designated as hedges under U.S. GAAP. These
derivatives are used to manage interest rate exposure in certain
fixed-rate unsecured long-term and short-term borrowings, and
deposits, and to manage foreign currency exposure on the net
investment in certain non-U.S. operations.
The firm enters into various types of derivatives,
including:
•
Futures and
Forwards.
•
Swaps.
•
Options. Derivatives are reported on a net-by-counterparty
basis (i.e., the net payable or receivable for derivative assets
and liabilities for a given counterparty) when a legal right of
setoff exists under an enforceable netting agreement (counterparty
netting). Derivatives are accounted for at fair value, net of cash
collateral received or posted under enforceable credit support
agreements (cash collateral netting). Derivative assets and
liabilities are included in “Financial instruments owned, at
fair value” and “Financial instruments sold, but not
yet purchased, at fair value,” respectively. Realized and
unrealized gains and losses on derivatives not designated as hedges
under ASC 815 are included in “Market making” and
“Other principal transactions” in Note 4.
The table below presents the gross fair value and
the notional amount of derivative contracts by major product type,
the amounts of counterparty and cash collateral netting in the
condensed consolidated statements of financial condition, as well
as cash and securities collateral posted and received under
enforceable credit support agreements that do not meet the criteria
for netting under U.S. GAAP.
In the table below:
•
Gross fair values exclude the effects of both
counterparty netting and collateral, and therefore are not
representative of the firm’s exposure.
•
Where the firm has received or posted collateral under
credit support agreements, but has not yet determined such
agreements are enforceable, the related collateral has not been
netted.
•
Notional amounts, which represent the sum of gross long
and short derivative contracts, provide an indication of the volume
of the firm’s derivative activity and do not represent
anticipated losses.
As of September 2015
As of December 2014
$
in millions
Derivative
Derivative
Notional
Derivative
Derivative
Notional
Derivatives not accounted for as hedges
Exchange-traded
$ 365
$ 389
$ 4,365,237
$ 228
$ 238 $ 3,151,865
OTC-cleared 272,253 250,611 23,715,996 351,801 330,298 30,408,636
Bilateral OTC
380,259
356,608
13,083,131
434,333
409,071
13,552,017
Total interest rates
652,877
607,608
41,164,364
786,362
739,607
47,112,518
OTC-cleared 5,732 6,087 453,464 5,812 5,663 378,099
Bilateral OTC
36,903
32,609
1,740,633
49,036
44,491
2,122,859
Total credit
42,635
38,696
2,194,097
54,848
50,154
2,500,958
Exchange-traded 332 248 26,526 69 69 17,214
OTC-cleared 215 164 18,174 100 96 13,304
Bilateral OTC
102,439
107,568
5,668,553
109,747
108,442
5,535,685
Total currencies
102,986
107,980
5,713,253
109,916
108,607
5,566,203
Exchange-traded 5,235 5,274 297,402 7,683 7,166 321,378
OTC-cleared 226 233 2,888 313 315 3,036
Bilateral OTC
16,271
17,701
272,286
20,994
21,065
345,065
Total commodities
21,732
23,208
572,576
28,990
28,546
669,479
Exchange-traded 11,202 10,284 651,206 9,592 9,636 541,711
Bilateral OTC
44,975
43,384
999,681
49,339
49,013
983,784
Total equities
56,177
53,668
1,650,887
58,931
58,649
1,525,495
Subtotal
876,407
831,160
51,295,177
1,039,047
985,563
57,374,653
Derivatives accounted for as hedges
OTC-cleared 2,224 72 42,149 2,713 228 31,109
Bilateral OTC
10,223
11
72,868
11,559
34
95,389
Total interest rates
12,447
83
115,017
14,272
262
126,498
OTC-cleared 22 4 1,191 12 3 1,205
Bilateral OTC
219
9
8,165
113
13
8,431
Total currencies
241
13
9,356
125
16
9,636
Subtotal
12,688
96
124,373
14,397
278
136,134
Total gross fair value/notional amount of derivatives
$ 889,095 1
$ 831,256 1
$51,419,550
$1,053,444 1
$ 985,841 1
$57,510,787
Amounts that have been offset in the condensed consolidated
statements of financial condition
Exchange-traded $ (13,298 ) $ (13,298 )
$ (15,039 ) $ (15,039 )
OTC-cleared (254,089 ) (254,089 ) (335,792 ) (335,792 )
Bilateral OTC
(469,322 )
(469,322 )
(535,839 )
(535,839 )
Total counterparty netting
(736,709 )
(736,709 )
(886,670 )
$(886,670 )
OTC-cleared (26,205 ) (2,973 ) (24,801 ) (738 )
Bilateral OTC
(67,690 )
(40,512 )
(78,703 )
(35,417 )
Total cash collateral netting
(93,895 )
(43,485 )
(103,504 )
(36,155 )
Total counterparty and cash collateral netting
$(830,604 )
$(780,194 )
$ (990,174 )
$(922,825 )
Amounts included in financial instruments owned/financial
instruments sold, but not yet purchased
Exchange-traded
$ 3,836
$ 2,897
$ 2,533
$ 2,070
OTC-cleared 378 109 158 73
Bilateral OTC
54,277
48,056
60,579
60,873
Total amounts included in the condensed consolidated statements
of financial condition
$ 58,491
$ 51,062
$ 63,270
$ 63,016
Amounts that have not been offset in the condensed consolidated
statements of financial condition
Cash collateral received/posted
$ (1,011 )
$ (2,047 )
$ (980 )
$ (2,940 )
Securities collateral received/posted
(15,084 )
(12,472 )
(14,742 )
(18,159 )
Total
$ 42,396
$ 36,543
$ 47,548
$ 41,917
1.
Includes derivative assets and derivative liabilities of
$19.87 billion and $18.64 billion, respectively, as of
September 2015, and derivative assets and derivative
liabilities of $25.93 billion and $26.19 billion,
respectively, as of December 2014, which are not subject to an
enforceable netting agreement or are subject to a netting agreement
that the firm has not yet determined to be enforceable.
Valuation Techniques for Derivatives The firm’s level 2 and level 3
derivatives are valued using derivative pricing models (e.g.,
discounted cash flow models, correlation models, and models that
incorporate option pricing methodologies, such as Monte Carlo
simulations). Price transparency of derivatives can generally be
characterized by product type.
•
Interest
Rate.
•
Credit.
•
Currency.
•
Commodity.
•
Equity. Liquidity is essential to observability of all
product types. If transaction volumes decline, previously
transparent prices and other inputs may become unobservable.
Conversely, even highly structured products may at times have
trading volumes large enough to provide observability of prices and
other inputs. See Note 5 for an overview of the firm’s
fair value measurement policies.
Level 1 Derivatives Level 1 derivatives include short-term
contracts for future delivery of securities when the underlying
security is a level 1 instrument, and exchange-traded
derivatives if they are actively traded and are valued at their
quoted market price.
Level 2 Derivatives Level 2 derivatives include OTC derivatives
for which all significant valuation inputs are corroborated by
market evidence and exchange-traded derivatives that are not
actively traded and/or that are valued using models that calibrate
to market-clearing levels of OTC derivatives. In evaluating the
significance of a valuation input, the firm considers, among other
factors, a portfolio’s net risk exposure to that input.
The selection of a particular model to value a
derivative depends on the contractual terms of and specific risks
inherent in the instrument, as well as the availability of pricing
information in the market. For derivatives that trade in liquid
markets, model selection does not involve significant management
judgment because outputs of models can be calibrated to
market-clearing levels. Valuation models require a variety of inputs, such
as contractual terms, market prices, yield curves, discount rates
(including those derived from interest rates on collateral received
and posted as specified in credit support agreements for
collateralized derivatives), credit curves, measures of volatility,
prepayment rates, loss severity rates and correlations of such
inputs. Significant inputs to the valuations of level 2
derivatives can be verified to market transactions, broker or
dealer quotations or other alternative pricing sources with
reasonable levels of price transparency. Consideration is given to
the nature of the quotations (e.g., indicative or firm) and the
relationship of recent market activity to the prices provided from
alternative pricing sources.
Level 3 Derivatives Level 3 derivatives are valued using models
which utilize observable level 1 and/or level 2 inputs,
as well as unobservable level 3 inputs.
•
For the majority of the firm’s interest rate and
currency derivatives classified within level 3, significant
unobservable inputs include correlations of certain currencies and
interest rates (e.g., the correlation between Euro inflation and
Euro interest rates) and specific interest rate volatilities.
•
For level 3 credit derivatives, significant
unobservable inputs include illiquid credit spreads and upfront
credit points, which are unique to specific reference obligations
and reference entities, recovery rates and certain correlations
required to value credit and mortgage derivatives (e.g., the
likelihood of default of the underlying reference obligation
relative to one another).
•
For level 3 equity derivatives, significant
unobservable inputs generally include equity volatility inputs for
options that are very long-dated and/or have strike prices that
differ significantly from current market prices. In addition, the
valuation of certain structured trades requires the use of
level 3 correlation inputs, such as the correlation of the
price performance of two or more individual stocks or the
correlation of the price performance for a basket of stocks to
another asset class such as commodities.
•
For level 3 commodity derivatives, significant
unobservable inputs include volatilities for options with strike
prices that differ significantly from current market prices and
prices or spreads for certain products for which the product
quality or physical location of the commodity is not aligned with
benchmark indices. Subsequent to the initial valuation of a
level 3 derivative, the firm updates the level 1 and
level 2 inputs to reflect observable market changes and any
resulting gains and losses are recorded in level 3.
Level 3 inputs are changed when corroborated by evidence such
as similar market transactions, third-party pricing services and/or
broker or dealer quotations or other empirical market data. In
circumstances where the firm cannot verify the model value by
reference to market transactions, it is possible that a different
valuation model could produce a materially different estimate of
fair value. See below for further information about significant
unobservable inputs used in the valuation of level 3
derivatives.
Valuation Adjustments Valuation adjustments are integral to determining
the fair value of derivative portfolios and are used to adjust the
mid-market valuations produced by derivative pricing models to the
appropriate exit price valuation. These adjustments incorporate
bid/offer spreads, the cost of liquidity, credit valuation
adjustments and funding valuation adjustments, which account for
the credit and funding risk inherent in the uncollateralized
portion of derivative portfolios. The firm also makes funding
valuation adjustments to collateralized derivatives where the terms
of the agreement do not permit the firm to deliver or repledge
collateral received. Market-based inputs are generally used when
calibrating valuation adjustments to market-clearing levels. In addition, for derivatives that include
significant unobservable inputs, the firm makes model or exit price
adjustments to account for the valuation uncertainty present in the
transaction.
Significant Unobservable Inputs
The table below presents the ranges, averages and
medians of significant unobservable inputs used to value the
firm’s level 3 derivatives. In the table below:
•
Ranges represent the significant unobservable inputs that
were used in the valuation of each type of derivative.
•
Averages represent the arithmetic average of the inputs
and are not weighted by the relative fair value or notional of the
respective financial instruments. An average greater than the
median indicates that the majority of inputs are below the
average.
•
The ranges, averages and medians of these inputs are not
representative of the appropriate inputs to use when calculating
the fair value of any one derivative. For example, the highest
correlation presented in the tables below for interest rate
derivatives is appropriate for valuing a specific interest rate
derivative but may not be appropriate for valuing any other
interest rate derivative. Accordingly, the ranges of inputs
presented below do not represent uncertainty in, or possible ranges
of, fair value measurements of the firm’s level 3
derivatives.
•
The fair value of any one instrument may be determined
using multiple valuation techniques. For example, option pricing
models and discounted cash flows models are typically used together
to determine fair value. Therefore, the level 3 balance
encompasses both of these techniques.
Level 3
Derivative Product Type
Valuation Techniques and
Significant Unobservable Inputs
Range of Significant Unobservable Inputs (Average
/ Median)
As of September 2015 As of December 2014
Interest rates
($200 million and $40 million of net level 3
liabilities as of September 2015 and December 2014,
respectively)
Option pricing models:
• 1
•
(25)% to 92% (56% / 61%)
31 basis points per annum (bpa)
to 152 bpa (84 bpa / 57 bpa)
(16)% to 84% (37% / 40%)
36 basis points per annum (bpa)
to 156 bpa (100 bpa / 115 bpa)
Credit
($3.29 billion and $3.53 billion of net level 3
assets as of September 2015 and December 2014,
respectively)
Option pricing models, correlation models and discounted cash
flows models:
• 1
•
•
•
44% to 99% (70% / 70%)
1 basis points (bps) to 660 bps
(145 bps / 108 bps) 2
0 points to 99 points (40 points / 33 points)
11% to 71% (45% / 40%)
5% to 99% (71% / 72%)
1 basis points (bps) to 700 bps
(116 bps / 79 bps) 2
0 points to 99 points (40 points / 30 points)
14% to 87% (44% / 40%)
Currencies
($160 million of net level 3 assets and $267 million
of net level 3 liabilities as of September 2015 and
December 2014, respectively)
Option pricing models:
• 1
55% to 80% (69% / 73%)
55% to 80% (69% / 73%)
Commodities
($23 million of net level 3 assets and $1.14 billion
of net level 3 liabilities as of September 2015 and
December 2014, respectively)
Option pricing models and discounted cash flows models:
•
•
•
•
13% to 61% (35% / 34%)
$(1.63) to $6.82 ($0.00 / $(0.03))
$(8.00) to $(5.00) ($(7.08) / $(7.46)
$(8.39) to $55.46 ($7.37 / $0.11) 2
16% to 68% (33% / 32%)
$(1.66) to $4.45 ($(0.13) / $(0.03))
$(10.50) to $3.00 ($(4.04) / $(6.74))
$(15.35) to $80.55 ($22.32 / $13.50) 2
Equities
($884 million and $1.38 billion of
Option pricing models:
• 1
•
28% to 94% (62% / 60%)
3% to 103% (28% / 26%)
30% to 99% (62% / 55%)
5% to 90% (23% / 21%)
1.
The
range of unobservable inputs for correlation across derivative
product types (i.e., cross-asset correlation) was (30)% to 80%
(Average: 35% / Median: 43%) as of September 2015, and (34)%
to 80% (Average: 33% / Median: 35%) as of December 2014.
2.
The
difference between the average and the median for these spread
inputs indicates that the majority of the inputs fall in the lower
end of the range.
Range of Significant Unobservable Inputs Below is information about the ranges of
significant unobservable inputs used to value the firm’s
level 3 derivative instruments.
•
Correlation.
•
Volatility.
•
Credit spreads,
upfront credit points and recovery rates.
•
Commodity prices and
spreads.
Sensitivity of Fair Value Measurement to Changes
in Significant Unobservable Inputs Below is a description of the directional
sensitivity of the firm’s level 3 fair value
measurements to changes in significant unobservable inputs, in
isolation. Due to the distinctive nature of each of the
firm’s level 3 derivatives, the interrelationship of
inputs is not necessarily uniform within each product type.
•
Correlation.
•
Volatility.
•
Credit spreads,
upfront credit points and recovery rates.
•
Commodity prices and
spreads.
Fair Value of Derivatives by Level The tables below present the fair value of
derivatives on a gross basis by level and major product type as
well as the impact of netting. In the tables below:
•
The gross fair values exclude the effects of both
counterparty netting and collateral netting, and therefore are not
representative of the firm’s exposure.
•
Counterparty netting is reflected in each level to the
extent that receivable and payable balances are netted within the
same level and is included in “Counterparty netting within
levels.” Where the counterparty netting is across levels, the
netting is reflected in “Cross-level counterparty
netting.”
Derivative Assets at Fair Value as of September 2015
$
in millions
Level 1
Level 2
Level 3
Total
Interest rates $ 5 $ 664,814
$ 505 $ 665,324
Credit
— 35,911 6,724 42,635
Currencies
— 102,870 357 103,227
Commodities
— 21,037 695 21,732
Equities
4
55,498
675
56,177
Gross fair value of derivative assets 9 880,130 8,956 889,095
Counterparty netting within levels
—
(732,874 )
(2,090 )
(734,964 )
Subtotal $ 9 $ 147,256 $ 6,866 $ 154,131
Cross-level counterparty netting (1,745 )
Cash collateral netting
(93,895 )
Fair value included in financial instruments
$ 58,491
Derivative Liabilities at Fair Value as of September 2015
$
in millions
Level 1
Level 2
Level 3
Total
Interest rates $13 $ 606,973
$ 705 $ 607,691
Credit
— 35,266 3,430 38,696
Currencies
— 107,796 197 107,993
Commodities
— 22,536 672 23,208
Equities
15
52,094
1,559
53,668
Gross fair value of derivative assets 28 824,665 6,563 831,256
Counterparty netting within levels
—
(732,874 )
(2,090 )
(734,964 )
Subtotal $28
$ 91,791 $ 4,473
$ 96,292
Cross-level counterparty netting (1,745 )
Cash collateral netting
(43,485 )
Fair value included in financial instruments sold, but not
yet purchased
$ 51,062
Derivative Assets at Fair Value as of December 2014
$
in millions
Level 1
Level 2
Level 3
Total
Interest rates $123 $ 800,028 $ 483 $ 800,634
Credit — 47,190 7,658 54,848
Currencies — 109,891 150 110,041
Commodities — 28,124 866 28,990
Equities
175
58,122
634
58,931
Gross fair value of derivative assets 298 1,043,355 9,791 1,053,444
Counterparty netting within levels
—
(882,841 )
(2,717 )
(885,558 )
Subtotal $298 $ 160,514 $ 7,074 $ 167,886
Cross-level (1,112 )
Cash collateral netting
(103,504 )
Fair value included in financial instruments owned
$ 63,270
Derivative Liabilities at Fair Value as of December 2014
$
in millions
Level 1
Level 2
Level 3
Total
Interest rates $ 14 $ 739,332 $ 523 $ 739,869
Credit — 46,026 4,128 50,154
Currencies — 108,206 417 108,623
Commodities — 26,538 2,008 28,546
Equities
94
56,546
2,009
58,649
Gross fair value of derivative assets 108 976,648 9,085 985,841
Counterparty netting within levels
—
(882,841 )
(2,717 )
(885,558 )
Subtotal $108
$ 93,807 $ 6,368 $ 100,283
Cross-level counterparty netting (1,112 )
Cash collateral netting
(36,155 )
Fair value included in financial instruments sold, but not yet
purchased
$ 63,016
Level 3 Rollforward The table below presents changes in fair value for
all derivatives categorized as level 3 as of the end of the
period. In the table below:
•
If a derivative was transferred to level 3 during a
reporting period, its entire gain or loss for the period is
included in level 3. Transfers between levels are reported at
the beginning of the reporting period in which they occur.
•
Positive amounts for transfers into level 3 and
negative amounts for transfers out of level 3 represent net
transfers of derivative assets. Negative amounts for transfers into
level 3 and positive amounts for transfers out of level 3
represent net transfers of derivative liabilities.
•
A derivative with level 1 and/or level 2 inputs
is classified in level 3 in its entirety if it has at least
one significant level 3 input.
•
If there is one significant level 3 input, the
entire gain or loss from adjusting only observable inputs (i.e.,
level 1 and level 2 inputs) is classified as
level 3.
•
Gains or losses that have been reported in level 3
resulting from changes in level 1 or level 2 inputs are
frequently offset by gains or losses attributable to level 1
or level 2 derivatives and/or level 1, level 2 and
level 3 cash instruments. As a result, gains/(losses) included
in the level 3 rollforward below do not necessarily represent
the overall impact on the firm’s results of operations,
liquidity or capital resources.
•
See “Level 3 Rollforward Commentary”
below for an explanation of the net unrealized gains/(losses) on
level 3 derivative assets and liabilities, and the activity
related to transfers into and transfers out of level 3.
Level 3 Derivative Assets and
Liabilities at Fair Value
$
in millions
Asset/
Net
Net unrealized
Purchases
Sales
Settlements
Transfers
Transfers
Asset/
Three Months Ended September 2015
Interest rates — net
$ (78 ) $ (27 )
$ 1
$ 2
$ (1 )
$ 10 $(112 )
$ 5
$ (200 )
Credit — net 2,968 39 416 32 (46 ) 109 (5 ) (219 ) 3,294
Currencies — net (149 ) (18 ) 183 4
— 37 (4 ) 107 160
Commodities — net (54 ) 1 (27 ) 2 (56 ) (4 ) 7 154 23
Equities — net
(2,349 )
(17 )
318
39
(407 )
1,513
(88 )
107
(884 )
Total derivatives — net
$ 338
$ (22 ) 1
$ 891 1
$ 79
$ (510 )
$ 1,665
$(202 )
$ 154
$ 2,393
Nine Months Ended September 2015
Interest rates — net
$ (40 ) $ (10 )
$ (4 )
$ 5
$ (32 )
$ 31 $(105 )
$ (45 )
$ (200 )
Credit — net 3,530 147 553 56 (151 ) (700 ) 127 (268 ) 3,294
Currencies — net (267 ) (71 ) 301 31 (8 ) 108 (19 ) 85 160
Commodities — net (1,142 ) 9 (68 )
— (87 ) (95 ) (20 ) 1,426 23
Equities — net
(1,375 )
83
185
105
(694 )
942
(148 )
18
(884 )
Total derivatives — net
$ 706
$ 158 1
$ 967 1
$197
$ (972 )
$ 286
$(165 )
$1,216
$ 2,393
Three Months Ended September 2014
Interest rates — net $ (129 ) $ (28 )
$ 6 $ 1
$ (1 )
$ 21 $ 27
$ 5
$ (98 )
Credit — net 3,900 9 170 11 (36 ) (512 ) (116 ) (106 ) 3,320
Currencies — net (81 ) (22 ) (256 ) 6 — 61 9 (3 ) (286 )
Commodities — net (7 ) 6 61 27 (20 ) 4 126 (9 ) 188
Equities — net
(1,499 )
13
(175 )
36
(2,939 )
340
(212 )
1,009
(3,427 )
Total derivatives — net
$ 2,184
$ (22 ) 2
$(194 ) 2
$ 81
$(2,996 )
$ (86 )
$(166 )
$ 896
$ (303 )
Nine Months Ended September 2014
Interest rates — net
$ (86 ) $ (57 ) $ (63 ) $ 4
$ (8 ) $ 103 $ 33 $ (24 )
$ (98 )
Credit — net 4,176 (18 ) 803 174 (139 ) (1,491 ) (102 ) (83 ) 3,320
Currencies — net (200 ) (60 ) (210 ) 15 (24 ) 188 8 (3 ) (286 )
Commodities — net 60 130 73 38 (37 ) (58 ) 41 (59 ) 188
Equities — net
(959 )
(27 )
(253 )
187
(3,204 )
111
(150 )
868
(3,427 )
Total derivatives — net
$ 2,991
$ (32 ) 2
$ 350 2
$418
$(3,412 )
$(1,147 )
$(170 )
$ 699
$ (303 )
1.
The
aggregate amounts include gains of approximately $647 million
and $222 million reported in “Market making” and
“Other principal transactions,” respectively, for the
three months ended September 2015, and approximately
$945 million and $180 million reported in “Market
making” and “Other principal transactions,”
respectively, for the nine months ended September 2015.
2.
The
aggregate amounts include gains/(losses) of approximately
$(243) million and $27 million reported in “Market
making” and “Other principal transactions,”
respectively, for the three months ended September 2014, and
approximately $394 million and $(76) million reported in
“Market making” and “Other principal
transactions,” respectively, for the nine months ended
September 2014.
Level 3 Rollforward Commentary Three Months
Ended September 2015. The net unrealized gain on
level 3 derivatives of $891 million for the three months
ended September 2015 was primarily attributable to gains on
certain credit derivatives, reflecting the impact of a decrease in
interest rates, wider credit spreads, and changes in foreign
exchange rates, and gains on certain equity derivatives, reflecting
the impact of decreases in global equity prices. Transfers into level 3 derivatives during the
three months ended September 2015 primarily reflected
transfers of certain interest rate liabilities from level 2,
principally due to certain unobservable inputs becoming significant
to the valuation of these derivatives, and transfers of certain
equity derivative liabilities from level 2, primarily due to
unobservable volatility inputs becoming significant to the
valuation of these derivatives. Transfers out of level 3 derivatives during
the three months ended September 2015 primarily reflected
transfers of certain commodity derivative liabilities to
level 2, principally due to increased transparency of
volatility inputs used to value these derivatives, transfers of
certain equity derivative liabilities and currency derivative
liabilities to level 2, primarily due to certain unobservable
inputs no longer being significant to the valuation of these
derivatives, and transfers of certain credit derivative assets to
level 2, principally due to unobservable credit spread inputs
not being significant to the net risk of certain portfolios. Nine Months
Ended September 2015. The net unrealized gain on
level 3 derivatives of $967 million for the nine months
ended September 2015 was primarily attributable to gains on
certain credit derivatives, principally reflecting the impact of
wider credit spreads and a decrease in interest rates, and gains on
certain currency derivatives, reflecting the impact of changes in
foreign exchange rates. Transfers into level 3 derivatives during the
nine months ended September 2015 primarily reflected transfers
of certain equity derivative liabilities from level 2,
primarily due to reduced transparency of volatility inputs used to
value these derivatives, transfers of certain interest rate
derivative liabilities from level 2, primarily due to
unobservable inputs becoming significant to the valuations of these
derivatives, and transfers of certain credit derivative assets from
level 2, principally due to unobservable credit spread inputs
becoming significant to the valuation of these derivatives.
Transfers out of level 3 derivatives during
the nine months ended September 2015 primarily reflected
transfers of certain commodity derivative liabilities to
level 2, principally due to increased transparency of oil and
refined product spread inputs used to value these derivatives, and
transfers of certain credit derivative assets to level 2,
principally due to unobservable credit spread inputs not being
significant to the net risk of certain portfolios. Three Months
Ended September 2014. The net unrealized loss on
level 3 derivatives of $194 million for the three months
ended September 2014 principally resulted from changes in
observable inputs and was primarily attributable to the impact of
changes in foreign exchange rates on certain currency derivatives
and a decrease in equity prices on certain equity derivatives,
partially offset by the impact of wider credit spreads on certain
credit derivatives. Transfers into level 3 derivatives during the
three months ended September 2014 primarily reflected
transfers of certain equity derivative liabilities from
level 2, principally due to reduced transparency of volatility
inputs used to value these derivatives, transfers of certain credit
derivative liabilities from level 2, primarily due to reduced
transparency of upfront credit point inputs used to value these
derivatives, and transfers of certain commodity derivative assets
from level 2, reflecting the impact of unobservable volatility
inputs becoming significant to the valuation of these
derivatives. Transfers out of level 3 derivatives during
the three months ended September 2014 primarily reflected
transfers of certain equity derivative liabilities to level 2,
principally due to unobservable correlation inputs no longer being
significant to the valuation of these derivatives. Nine Months
Ended September 2014. The net unrealized gain on
level 3 derivatives of $350 million for the nine months
ended September 2014 principally resulted from changes in
observable inputs and was primarily attributable to the impact of
tighter credit spreads and a decrease in interest rates on certain
credit derivatives, partially offset by the impact of changes in
foreign exchange rates on certain currency derivatives and a
decrease in equity prices on certain equity derivatives. Transfers into level 3 derivatives during the
nine months ended September 2014 primarily reflected transfers
of certain equity derivative liabilities from level 2,
principally due to reduced transparency of volatility inputs used
to value these derivatives, and transfers of certain credit
derivative liabilities from level 2, primarily due to reduced
transparency of upfront credit point inputs used to value these
derivatives.
Transfers out of level 3 derivatives during
the nine months ended September 2014 primarily reflected
transfers of certain equity derivative liabilities to level 2,
principally due to unobservable correlation inputs no longer being
significant to the valuation of these derivatives.
OTC Derivatives The tables below present the fair values of OTC
derivative assets and liabilities by tenor and major product type.
In the tables below:
•
Tenor is based on expected duration for mortgage-related
credit derivatives and generally on remaining contractual maturity
for other derivatives.
•
Counterparty netting within the same product type and
tenor category is included within such product type and tenor
category.
•
Counterparty netting across product types within the same
tenor category is included in “Counterparty netting within
tenors.” Where the counterparty netting is across tenor
categories, the netting is reflected in “Cross-tenor
counterparty netting.”
OTC Derivative Assets as of
September 2015
$
in millions
Less than 1 Year
1 - 5 Years
Greater than 5 Years
Total
Interest rates $ 6,182 $24,494 $86,704 $117,380
Credit 1,224 4,424 6,275 11,923
Currencies 13,366 9,355 6,698 29,419
Commodities 4,978 4,769 101 9,848
Equities 7,913 6,605 3,360 17,878
Counterparty netting within tenors
(3,905 )
(6,938 )
(5,833 )
(16,676 )
Subtotal $29,758 $42,709 $97,305 $169,772
Cross-tenor counterparty netting (21,222 )
Cash collateral netting
(93,895 )
Total
$ 54,655
OTC Derivative Liabilities as of
September 2015
$
in millions
Less than 1 Year
1 - 5 Years
Greater than 5 Years
Total
Interest rates $ 5,420 $17,056 $37,248 $ 59,724
Credit 1,919 3,964 2,101 7,984
Currencies 12,728 10,972 10,569 34,269
Commodities 5,156 3,449 2,680 11,285
Equities 7,084 5,640 3,562 16,286
Counterparty netting within tenors
(3,905 )
(6,938 )
(5,833 )
(16,676 )
Subtotal $28,402 $34,143 $50,327 $112,872
Cross-tenor counterparty netting (21,222 )
Cash collateral netting
(43,485 )
Total
$ 48,165
OTC Derivative Assets as of
December 2014
$
in millions
Less than 1 Year
1 - 5 Years
Greater than 5 Years
Total
Interest rates $ 7,064 $25,049 $ 90,553 $122,666
Credit 1,696 6,093 5,707 13,496
Currencies 17,835 9,897 6,386 34,118
Commodities 8,298 4,068 161 12,527
Equities 4,771 9,285 3,750 17,806
Counterparty netting within tenors
(4,479 )
(7,016 )
(4,058 )
(15,553 )
Subtotal $35,185 $47,376 $102,499 $185,060
Cross-tenor counterparty netting (20,819 )
Cash collateral netting
(103,504 )
Total
$ 60,737
OTC Derivative Liabilities as of
December 20 |
