Investor Presentaiton
MORGAN STANLEY BANK ASIA LIMITED
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2020
3.
C.
d.
iv)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
Secured financing
In the course of financing its business, the Company enters into arrangements which involve the
purchase of securities with resale agreements.
Securities received by the Company under resale arrangements are generally not recognised on the
statement of financial position. Where cash collateralised, the resulting cash collateral receivable and
accrued interest arising under resale agreements are classified as 'Non-trading at FVPL' as they are
managed on a fair value basis.
Fair value
Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e.
the "exit price") in an orderly transaction between market participants at the measurement date.
Fair value is a market-based measure considered from the perspective of a market participant rather than
an entity-specific measure. Therefore, even when market assumptions are not readily available,
assumptions are set to reflect those that the Company believes market participants would use in pricing
the asset or liability at the measurement date.
Where the Company manages a group of financial assets and financial liabilities on the basis of its net
exposure to either market risks or credit risk, the Company measures the fair value of that group of
financial instruments consistently with how market participants would price the net risk exposure at the
measurement date.
In determining fair value, the Company uses various valuation approaches and establishes a hierarchy
for inputs used in measuring fair value that requires the most observable inputs be used when available
Observable inputs are inputs that market participants would use in pricing the asset or liability that were
developed based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect assumptions the Company believes other market participants would use in
pricing the asset or liability, that are developed based on the best information available in the
circumstances.
The fair value hierarchy is broken down into three levels based on the observability of inputs as follows,
with Level 1 being the highest and Level 3 being the lowest level:
-
• Level 1 Quoted prices (unadjusted) in an active market for identical assets or liabilities
Valuations based on quoted prices in active markets that the Morgan Stanley Group has the ability
to access for identical assets or liabilities. Valuation adjustments, block discounts and discounts
for equity-specific restrictions that would not transfer to market participants are not applied to
Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly
available in an active market, valuation of these products does not entail a significant degree of
judgement.
Level 2 - Valuation techniques using observable inputs
Valuations based on one or more quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly.
Level 3 - Valuation techniques with significant unobservable inputs
Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
16View entire presentation