HSBC 2015 Annual Report Download - page 398

Notes on the Financial Statements (continued)
16 – Derivatives
HSBC HOLDINGS PLC
396
Notional contract amounts of derivatives held for trading purposes by product type
HSBC HSBC Holdings
2015 2014 2015 2014
$m $m $m $m
Foreign exchange 5,658,030 5,548,075 19,036 15,595
Interest rate 14,462,113 22,047,278 10,150 8,650
Equities 501,834 568,932
–
–
Credit 463,344 550,197
–
–
Commodity and other 51,683 77,565
–
–
At 31 December 21,137,004 28,792,047 29,186 24,245
Credit derivatives
HSBC trades credit derivatives through its principal dealing operations and acts as a principal counterparty to a broad range of
users, structuring transactions to produce risk management products for its customers or making markets in certain products.
Risk is typically controlled through entering into offsetting credit derivative contracts with other counterparties.
HSBC manages the credit risk arising on buying and selling credit derivative protection by including the related credit exposures
within its overall credit limit structure for the relevant counterparty. Trading of credit derivatives is restricted to a small number
of offices within the major centres which have the control infrastructure and market skills to manage effectively the credit risk
inherent in the products.
Credit derivatives are also deployed to a limited extent for the risk management of the Group’s loan portfolios. The notional
contract amount of credit derivatives of $463bn (2014: $550bn) consisted of protection bought of $237bn (2014: $272bn) and
protection sold of $226bn (2014: $278bn). The credit derivative business operates within the market risk management
framework described on page 211.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived
had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as
follows:
Unamortised balance of derivatives valued using models with significant unobservable inputs
2015 2014
$m $m
Unamortised balance at 1 January 114 167
Deferral on new transactions 196 177
Recognised in the income statement during the year: (207) (234)
–
amortisation (121) (114)
–
subsequent to unobservable inputs becoming observable (2) (13)
–
maturity, termination or offsetting derivative (84) (107)
–
risk hedged
–
–
Exchange differences (6) 4
Unamortised balance at 31 December197 114
1 This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
HSBC uses derivatives (principally interest rate swaps) for hedging purposes in the management of its asset and liability
portfolios and structural positions. This enables HSBC to optimise the overall cost to the Group of accessing debt capital
markets, and to mitigate the market risk which would otherwise arise from structural imbalances in the maturity and other
profiles of its assets and liabilities.
The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.