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Contract | Underlying? | Notional or payment provision? | Smaller initial net investment? | Net settlement? | Does the contract meet the definition of a derivative? | Is the contract within the scope of ASC 815? |
---|---|---|---|---|---|---|
Equity security
| No
| Yes
| No. An initial net investment is required to purchase an equity security.
| No
| No
| No. The contract does not meet the definition of a derivative.
|
Debt security or loan
| No
| Yes
| No. A debt security or loan requires an initial net investment of the principal amount or (if purchased at a discount or premium) an amount calculated to yield a market rate of interest.
| No
| No
| No. The contract does not meet the definition of a derivative.
|
Regular-way security trade (e.g., trade of a debt or equity security)
| Yes, the price of the security
| Yes, a specified number of securities or a specified principal or face amount
| Yes
| It depends on whether or not the security can be net settled through explicit contract terms or is readily convertible to cash.
| It depends on whether or not there is net settlement.
| Not typically. See DH 3.2.3 for discussion of the regular-way trade exception.
|
Forward contract to purchase or sell securities other than the equity securities of the parties involved in the transaction
| Yes, the price of the security
| Yes, a specified number of securities or a specified principal or face amount
| Yes
| It depends on whether or not the security can be net settled through explicit contract terms or is readily convertible to cash.
| It depends on whether or not there is net settlement.
| Yes, provided it meets the definition of a derivative and does not qualify for the regular-way security-trade scope exception. See DH 3.2.3.
|
Lease
| Yes, the value of the leased property
| Yes, its periodic rent
| Yes. A benefit of a lease is that it requires a smaller initial net investment.
| No. A lease requires a payment equal to the value of the right to use the property.
| No
| No. The contract does not meet the definition of a derivative.
|
Mortgage-backed security
| Yes
| Yes
| No. This type of security requires an initial net investment equal to the fair value of the instrument.
| No
| No
| No. The contract does not meet the definition of a derivative.
|
Option to purchase or sell real estate
| Yes, the price of the real estate
| Yes, a specified property
| Yes. The option premium is less than the value of the real estate.
| No, unless there are explicit market settlement terms
| No
| Not typically. See DH 3.2.7 for discussion of scope exception for contracts not traded on an exchange.
|
Option to purchase or sell an exchange-traded security
| Yes, the price of the security
| Yes, a specified number of securities
| Yes. The option premium is less than the value of the security.
| Yes. The underlying is readily convertible to cash as the security is traded on an exchange.
| Yes
| Yes
|
Option to purchase or sell a security not traded on an exchange
| Yes, the price of the security
| Yes, a specified number of securities
| Yes. The option premium is less than the value of the security.
| It depends on whether or not the security can be net settled through explicit contract terms.
| It depends on whether or not there is net settlement.
| Yes, provided it meets the definition of a derivative.
|
Employee stock option
| Yes, the price of the security
| Yes, a specified number of securities
| Yes. The option premium is less than the value of the security.
| It depends on whether or not the security can be net settled through explicit contract terms or is readily convertible to cash.
| It depends on whether or not there is net settlement.
| Not typically. See DH 3.3.1 for discussion of scope exception for share-based payments.
|
Futures contract
| Yes, the price of a commodity or financial instrument
| Yes, a specified quantity or face amount
| Yes
| Yes. A clearinghouse (a market mechanism) exists to facilitate net settlement.
| Yes
| Yes
|
Forward contract to purchase or sell manufactured goods
| Yes, the price of manufactured goods
| Yes, a specified quantity
| Yes
| It depends. The contract may be net settled if it contains symmetrical default provisions and/or the manufactured goods are readily convertible into cash.
| It depends on whether or not there is net settlement.
| |
Nonexchange-traded forward contract to purchase or sell a commodity
| Yes, the price of the commodity
| Yes, a specified quantity or face amount
| Yes
| It depends on whether or not the contracted amount of the commodity is readily convertible to cash.
| It depends on whether or not there is net settlement.
| It depends. If the contract meets the definition of a derivative, it may qualify for the normal purchases and normal sales scope exception. See DH 3.2.4.
|
Forward contract to return securities under a repurchase agreement accounted for as a sale
| Yes, the price of the security
| Yes, a specified number of securities or a specified principal or face amount
| Yes
| It depends on whether or not the security can be net settled through explicit contract terms or is readily convertible to cash.
| It depends on whether or not there is net settlement.
| Yes, provided it meets the definition of a derivative and does not qualify for the regular-way security-trade scope exception. See DH 3.2.3.
|
Forward contract to return securities under a repurchase agreement accounted for as a secured borrowing
| No. The contract is to return a pledged asset.
| No
| No
| No
| No
| No. In addition, if the contract contains an embedded derivative that is an impediment to sale accounting (e.g., call option allowing transferor to repurchase transferred assets), that would also qualify for a scope exception. See DH 3.2.8.
|
Interest rate swap
| Yes, an interest rate
| Yes, a specified amount on which the exchanged interest rates are based
| Yes
| Yes, periodic payments
| Yes
| Yes
|
Currency swap
| Yes, an exchange rate
| Yes, a specified currency amount
| Yes
| Yes
| Yes
| Yes
|
Forward-starting swap or swaption
| Yes, the value of the swap
| Yes, the notional amount of the swap
| Yes
| Yes. Settlement requires the delivery of a derivative (a swap contract).
| Yes
| Yes
|
Interest rate cap
| Yes, an interest rate
| Yes, a specified amount
| Yes
| Yes
| Yes
| Yes
|
Interest rate floor
| Yes, an interest rate
| Yes, a specified amount
| Yes
| Yes
| Yes
| Yes
|
Interest rate collar
| Yes, an interest rate
| Yes, a specified amount
| Yes
| Yes
| Yes
| Yes
|
Stock-purchase warrant
| Yes, the price of stock
| Yes, a specified number of shares
| Yes
| It depends on whether the warrant contains a net share or net cash settlement provision, can be net settled through a market mechanism or the underlying shares are readily convertible to cash.
| It depends on whether or not there is net settlement.
| |
Mortgage loan commitment
| Yes, an interest rate
| Yes, principal amount of the loan commitment
| Yes
| Yes, if the loan commitment can readily be settled net through terms outside of the contract or is readily convertible into cash
| Yes
| |
Traditional property/
casualty insurance contract | Yes, the occurrence of an identifiable insurable event
| Yes, contract value (i.e., the insured amount)
| Yes
| Yes
| Yes
| No. See DH 3.2.5 for discussion of the insurance contracts scope exception.
|
Traditional life insurance
| Yes, the mortality of the insured
| Yes, contract value (i.e., the death benefit)
| Yes
| Yes
| Yes
| No. See DH 3.2.5 for discussion of the insurance contracts scope exception.
|
Financial guarantee contract — payment occurs if a specific debtor fails to pay the guaranteed party
| Yes, failure by the debtor to make payment
| Yes
| Yes
| Yes
| Yes
| It depends. See DH 3.2.6 for discussion of the financial guarantee scope exception.
|
Financial guarantee contract — payment occurs if there is a change in another underlying such as a decrease in a specified debtor’s creditworthiness
| Yes, the decrease in specified debtor’s creditworthiness
| Yes
| Yes
| Yes
| Yes
| Yes. This type of contract does not qualify for the financial guarantee scope exception.
See DH 3.2.6. |
Credit-indexed contract — payment occurs if a credit index (or the creditworthiness of a specified debtor) varies in a specified way
| Yes, the credit index or credit rating
| Yes, a specified payment amount that may (1) vary, depending on the degree of change or (2) be fixed
| Yes
| Yes, for the change in fair value
| Yes
| Yes
|
Royalty agreement
| Yes, the volume of sales
| Yes. Payment is based on a percentage of sales/output.
| Yes. Payment occurs if sales are made.
| Yes
| Yes
| Not typically. A royalty agreement usually qualifies for the nonexchange traded contract scope exception.
See DH 3.2.7.3. |
Synthetic guaranteed-investment contracts
| Yes, the formula by which interest is calculated
| Yes, a specified amount
| Yes
| Yes
| Yes
| Yes
|
Nonexchange traded contract, payment occurs if a weather variable occurs
| Yes, a climatic or geologic variable or other physical attribute
| Yes, a specified amount
| Yes. Payment occurs if a weather variable occurs.
| Yes. Payment is made in cash.
| Yes
| No. Climatic and geologic variables qualify for the nonexchange traded contract scope exception. See DH 3.2.7.1.
|
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