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Frequently Asked Questions about Derivatives and Other Off-Balance Sheet Items (OBS)

Q1. Is a firm required to report on the OBS the market value of underwriting commitments entered into on a “best efforts” basis?
A1. No. Underwriting commitments entered into on a “best efforts” basis are not required to be reported on the OBS.
Q2. If a member firm enters into an agreement with a customer or other party, whereby it commits to lend up to a specified dollar amount, whether such loan would be for a specified term (“term”) or callable on demand (“demand”), is such a commitment required to be reported on the OBS?
A2. Yes. The amount of the undrawn portion of a loan commitment (whether term or demand) should be reported on line 1B (Financing commitments not included on items 3F or 3G). A commitment to lend cash to a counterparty should be reported as a debit amount, while a commitment to borrow cash from a counterparty should be reported as a credit amount.
Q3. Are lease commitments (e.g., for office space, equipment) required to be reported on the OBS?
A3. No. Lease commitments are not required to be reported on the OBS. However, if the broker-dealer guarantees a third party’s performance under a lease agreement, such guarantee should be reported on line 1C (Guarantees).
Q4. What types of variable interest entities (VIEs) should be included in line 2A (Unconsolidated VIEs)?
A4. Line 2A should be used to report the amounts related to VIEs pursuant to ASC 810-10, where consolidation of such entities on the balance sheet is not appropriate.
Q5. What amounts should be included in line 2B (Maximum exposure to loss relating to unconsolidated VIEs)?
A5. Line 2B should include such exposures as security positions issued by unconsolidated VIEs and held in inventory on the firm’s balance sheet, retained interests (equity investments) in an unconsolidated VIE recorded on the firm’s balance sheet, any derivative receivables from the VIEs recorded on the firm’s balance sheet and any contingent exposure the firm may have with the VIE (e.g., guarantee of VIE liabilities to a third party or unfunded liquidity commitments to the VIE).
Q6. What amounts should be reported on line 2C (Maximum exposure to loss relating to consolidated VIEs)?
A6. Firms should report retained interests (equity investments) and maximum exposure to loss that may be realized when there is a VIE loss (e.g., security positions issued by consolidated VIEs and held in inventory on the firm’s balance sheet, derivative receivables recorded on the firm’s balance sheet and any contingent exposure the firm may have with the VIE, such as a guarantee of VIE liabilities to a third party or unfunded liquidity commitments to the VIE).
Q7. Should reverse repo and repo transactions that settle through the Fixed Income Clearing Corporation (FICC) be included in line 3A (Reverse Repos and Repos offset pursuant to ASC 210-20-45-11)?
A7. Yes. The gross contract value of all transactions that are netted pursuant to ASC 210-20-45-11, irrespective of counterparty, should be included in line 3A.
Q8. What amounts should be reported for securities borrows versus non-cash collateral pledged and reverse repos versus non-cash collateral pledged on lines 3D (Securities Borrowed vs. Pledge agreements) and 3E (Reverse Repo vs. Pledge agreements), respectively?
A8. Firms should report the market value of the securities borrowed in the long market value column and report the market value of the securities pledged in the short market value column on line 3D. With respect to reverse repos, firms should report the market value of the securities that are the subject of the reverse repo in the long market value column and the market value of the securities pledged in the short market value column on line 3E.
Q9. If a firm reports non-cash securities borrowed and non-cash securities loaned or non-cash reverse repo and non-cash repurchase agreements in Items 536 (Collateral accepted under SFAS 140) and 1686 (Obligation to return securities) on the FOCUS Statement of Financial Condition pursuant to ASC 860, should the firm also report the gross collateral market value for these transactions on OBS lines 3D (Securities Borrowed vs. Pledge agreements) and 3E (Reverse Repo vs. Pledge agreements)?
A9. No. The firm should not report the market value of collateral for non-cash financing transactions on the OBS if the transaction is reported on the FOCUS Statement of Financial Condition pursuant to ASC 860.
Q10. Should forward starting reverse repo and repo transactions, where the counterparty is the FICC, be reported on lines 3F (Forward starting Reverse Repurchase and Securities Borrowing agreements) and 3G (Forward starting Repurchase and Securities Lending agreements)?
A10. Yes, all forward starting reverse repo, repo transactions and securities lending transactions should be reported on lines 3F and 3G, irrespective of counterparty.
Q11. Should a firm report only those contracts where the firm has principal risk on lines 4A-E (Non-Regular Way Settlement Trades) on the OBS?
A11. Yes. A firm should report only contracts where the firm has principal risk on lines 4A-E (Non-Regular Way Settlement Trades) on the OBS. Firms should not report contracts that the firm clears for others if the firm does not have principal risk for such contracts.
Q12. On what line should firms report new issue Federal Agency (FNMA, GNMA and FHLMC) debentures and CMO underwriting commitments (Non-TBA)?
A12. A commitment to purchase a new issue Federal Agency (FNMA, GNMA and FHLMC) debenture or CMO security should be reported on line 4A (When Issued Securities).
Q13. Should firms report the amount of foreign currencies in USD equivalent on line 5A (Foreign Exchange)?
A13. Yes. Firms should reflect the gross amounts of foreign exchange contracts in USD equivalent amounts on line 5A.
Q14. The instructions to OBS line 6 (Total gross notional amount) state that “firms should net offsetting intracompany swaps between desks. No other netting should be done for purposes of reporting on this schedule, even if contracts are subject to bilateral netting agreements.” Should firms net any other intracompany derivative transactions between desks?
A14. Intracompany transactions are transactions between one or more desks within the member firm. Firms should net all intracompany derivative transactions so that no such transactions are reflected on the OBS.
Q15. Should firms report both principal and agency contracts on lines 6 (Derivatives – Total gross notional amount) through 9 (Derivatives – Total Mark-to-Market payable (Credit)) and lines 10 (Credit Derivatives – Total gross notional amount) through 13 (Credit Derivatives – Total Mark-to-Market payable (Credit))?
A15. No. Firms should report only contracts where the firm has principal risk in the respective category on lines 6 through 9 and lines 10 through 13.
Q16. Should a firm report on the OBS centrally cleared derivative contracts (e.g., Credit Default Swaps), where the firm is clearing agent on behalf of a customer or other counterparty?
A16. No. The firm should report on the OBS only derivative contracts where the firm has principal risk, both cleared and uncleared.
Q17. Should a firm report on the OBS contracts in options and futures where the firm has principal risk?
A17. Yes. The firm should report on the OBS the notional amounts of all contracts in options or futures where the firm has principal risk, irrespective of whether such positions were centrally cleared. These positions should be reported on lines 6 (Derivatives – Total gross notional amount) through 9 (Derivatives – Total Mark-to-Market payable (Credit)) and lines 10 (Credit Derivatives – Total gross notional amount) through 13 (Credit Derivatives – Total Mark-to-Market payable (Credit)), as appropriate.
Q18. What types of transactions should be reported on lines 7 (Derivatives – Dollar amount in item 6 that is centrally cleared) and 11 (Credit Derivatives – Dollar amount in item 10 that is centrally cleared)?
A18. Lines 7 and 11 should be used to report the gross notional amounts (both long and short) of transactions that are included on lines 6 and 10 of the OBS and that are centrally cleared.
Q19. Should the net amount or the sum of the long and short notional values be reported on lines 6 (Derivatives – Total gross notional amount) and 10 (Credit Derivatives – Total gross notional amount) and lines 7 (Derivatives – Dollar amount in item 6 that is centrally cleared) and 11 (Credit Derivatives – Dollar amount in item 10 that is centrally cleared)?
A19. The sum of the long and short notional values of such transactions should be reported on lines 6 and 10. The sum of the long and short notional values of transactions reported in items 6 and 10 and are centrally cleared should be reported on lines 7 and 11.