Registered numb
er: 34161590
Registered off
ice:
Luna Aren
a
Herikerberg
weg 238
1101
CM
Amsterdam
The Nether
lands
MORGAN STANLEY B.V.
Report and financial statements
31 December 2021
MORGAN STANLEY B.V.
CONTENTS
PAGE
ANNUAL REPOR
T
Directors’
rep
ort
1
Directors’
resp
onsibility
statement
11
ANNUAL ACCOUN
TS
Statement of c
omprehensive
income
12
Statement of ch
anges in equity
13
Statement of f
inancial position
14
Statement of ca
sh flows
15
Notes to the fin
ancial statements
16
OTHER INFORMA
TION
Additional inf
ormation
69
Independen
t auditors’
report
70
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
1
The Director
s present
their report
and financial
statements (which
comp
ri
se
the
statement
of
com
prehensive
income,
th
e
statement
of
changes
in
equity,
th
e
statement
of
fin
ancial
position
,
the
statement
of
cash
flows,
and
the
related
n
otes,
1
to
27)
for
Morgan
Stanley
B.V.
(the
“Company
”)
for
the
year
end
ed
31
December
20
21.
RESULTS
AND
D
IVIDENDS
The profit f
or the year, af
ter tax,
was
€
2
,129,
000
(20
20
:
€
3,023,000
).
During th
e year,
no
dividends were
paid
or
proposed
(20
20
:
€
15,000,000
).
PRINCIPAL AC
TIVITY
The
p
rincipal
activity
of
the
Com
pany
is
the
issuance
of
financial
instruments
including
notes,
certificates
and warr
ants
(“
structured notes
”)
and
the hedging
of
the obligations arising
pursuant
to
such issuances.
The Company
was
incorporated under Dutch l
aw
on
6 September 2001 and
has
its
statutory seat
in
Amsterdam,
T
he
Neth
erlands.
The
business
o
ffice
of
the
Compan
y
is
at
Lu
na
Arena,
Herikerb
ergweg
238,
1101
CM, Amsterdam, T
he Netherlands.
The
Compan
y’s
ultimate
par
ent
undertaking
and
controlling
en
tity
is
Morgan
Stanley,
which,
together
with
the Compan
y and Morgan
Stanley’s
oth
er subsidiary
undertakings, form
the
“Morgan
Stanley
Group”.
FUTURE OUTLOO
K
There
have
not
been
any
significan
t
changes
in
the
Company’s
principal
activity
in
the
year
under
review
and
no
significant
change
in
the
Company’s
p
rincipal ac
tivity
is
expected.
BUSINESS REVI
EW
Exposure
to
risk
factors
and
the
cur
rent
business
environment
in
which
it
operates
may
impac
t
business
results of the Com
pany’s operations.
Risk facto
rs
Risk is an inh
erent par
t of the Company
’s bu
siness activity. The
Compan
y seeks to
identify, assess, monito
r
and
m
anage
each
of
th
e
various
ty
pes
of
risk
involved
in
its
business
activities,
in
accord
ance
with
defin
ed
policies and p
rocedures.
The
Mo
rgan
Stanley
Group Risk
Appetite
Statem
ent
articulates
the
aggregate
level
and
type
of
risk th
at
the
Group is willing
to accept in order
to execute its business strategy
.
The
Mo
rgan
Stan
ley
Group
has
an
established
Risk
Manag
ement
Framework,
to
supp
ort th
e
identification
,
monitoring an
d management of risk.
The
primary
risk
areas
for
the
Compan
y in
clude
Market,
Credit,
Liq
uidity
and
Operational
Risks
wh
ich
are
discussed in the Risk M
anag
ement section
.
Business environm
ent
During the cour
se
of
2021,
the Compa
ny
has been impacted
by
factors
in
the global environm
ent
in
which
it
operates,
each
of
which
introduces risks an
d unce
rtainties that may
adversely
affect the results
of
op
erations
of
the
Company.
The
continued
prevalen
ce
of
COVID-19
th
rough
2
021
created
on
going
challenges
for
businesses, howev
er the global econo
my which had contrac
ted in 2020 began to recover
.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
2
BUSINESS REVI
EW (CONTINU
ED)
Business environm
ent (co
ntinued)
COVID-
19
Although the
gl
obal ec
onomy
has
begun
to
recover
f
rom
the COVID-19
pandemic,
as
many
health
and
s
afety
restrictions
have
been
lifted
and
vaccine
distribu
tion co
ntinues
to
increase,
cer
tain
adverse co
nsequen
ces of
the
pandem
ic
continue
to
impact
the
glob
al
economy
and
may
p
ersist
f
or
some
time
.
These
inclu
de
labou
r
shortages
and
d
isruptions
of
global
sup
ply
chains.
Th
e
growth
in
economic
activ
ity
and
demand
for
good
s
and
services,
alo
ngside
labour
shortag
es
and
supply
chain
co
mplications,
has
also
con
tributed
to
rising
inflationary
p
ressures.
Should
these
ongoing
e
ffects
of
the
p
andemic
continue
for
an
extended
period
or
worsen, the Co
mpany could experien
ce reduced client activ
ity and demand for products and
services.
Morgan Stanley
and
the
Company continue
to
be fully
oper
ational
an
d,
recognising
th
at
local conditi
on
s
vary
for offices around the world and that
th
e trajectory of the
virus continues to
b
e uncertain, employees are able
to
work
fro
m
home
and
in
offices
as
deemed
necessary.
If
signif
icant
portions
of
the
wo
rkforce,
in
cluding
key
personnel, are
unable to
work effectively
because o
f illness, go
vernment
actions, or
other restrictio
ns in
connection
with
the pandemic,
th
e impact
o
f the
pand
emic on
the Company’s business
co
uld be
exacerbated.
The
extent
to
wh
ich
th
e
consequences
of
the
COVID
-1
9
p
andemic
affect
s
the
Company’s
b
usiness,
results
of o
perations an
d financial
condition
and
ability to
take
capital actions,
will dep
end
on fu
ture developm
ents
that
r
emain
u
ncertain.
This
in
clud
es
the
rate
of
distribution
and
administration
of
vac
cines
glob
ally,
the
severity and
du
ration
of any
resurg
ence
of COVID-19 variants,
future acti
o
ns
taken by
gov
ernmental
authorities,
central
banks
and
o
ther
third
party
service
providers.
Moreover,
the
effects
o
f
the
COVID
-
19
pandemic
may heighten many of the
other risks described
in the Directors’ Repo
rt.
Escalation of Wa
r in Ukraine
The Company has
limited direct
exp
osure to
Russia and Ukraine.
Th
ere may
be negative ef
f
ects to
the global
economy
due
to
the
curren
t
disruption
to
th
e
financial
mar
kets,
global
trade
payment
systems
a
nd
capital
flows as
well as
from
the impact
of
sanctions. The
extent
to which
the impac
t to the
global eco
nomy affects
the
Com
pany
will
depend
on
fu
ture
dev
elopments
th
at
are
high
ly
uncer
tain
and
cannot
be
pred
icted.
The
Company will c
ontinue to closely mo
nito
r events and their poten
tial impact.
Replacement of London Interbank Offered Rate (
“L
IBOR”)
and replacement or reform of other interest
rat
e
benchmarks
The
Com
pany
contin
ues
to
implement
its
Mo
rgan
Stanley
-wide
transition
plan
for
IBOR
ex
posures.
As
of
31
Dec
ember
2021,
the
Company’
s
exposure
to
LIBOR
-refer
enced
co
ntracts
comprised
one
ex
ternally
-
issued GBP-link
ed stru
ctured note,
which m
atures during 2022.
This str
uctured note
is not significan
t to the
Company.
See note
26
for further d
etail.
Overview
of
20
21
The
issued
structur
ed
notes
expose
the
Com
pany
to
the
risk
of
ch
anges
in
market
pr
ices
of
th
e
under
lying
securities,
interest
rate
risk
and,
where
d
enominated
in
currencies
other
than
Euros,
the
risk
of
changes
in
rates
of
exchan
ge b
etween
the
Eur
o
and
the o
ther
relev
ant
currencies.
The
Comp
any
uses
the
co
ntracts
that
it
purchases
from
other
Mo
rgan
Stanley
Group
undertakings
to
hedge
the
market
price,
interest
rate
an
d
foreign cu
rrency risks associate
d with the
issuance
of
the structu
red notes.
The
statement
of
comprehensive
income
for
the
year
is
set
out
on
page
12
.
The
Company
reported
a
pr
ofit
before
income
tax
of
€
2,
825
,000 for
the year
ended
31
Dec
ember 202
1, compar
ed
to
a
profit befo
re inco
me
tax
of
€
4,031,00
0
for
the
prior
year.
The
decrease
in
profit
before
income
tax
is
driven
b
y a
d
ecrease
in
the
Company’s sh
are of business revenu
es
.
Other
revenu
e
of
€3,848
,000
for
the
year ended
31
December
20
2
1
primarily
comprises
man
agement
re
ch
arges
of
€
2
,8
25
,000
and
net
foreign
exchange
gains
of
€
1,023,000
compar
ed
to
€
5,1
09,000
of
managemen
t
re
ch
arges
received
in
the
prior
yea
r.
The
d
ecrease
is
in
line
with
the
d
ecrease
in
profit
befo
re
tax.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
3
BUSINESS REVIEW (
CONTINUED)
Overview
of
2021 (continued)
The
Comp
any
has
reco
gnised
a
net
expense
of
€
79
,
521
,
0
00
in
‘Net
trading
ex
pense
’
compared
to
a
net
expense
of
€
57,448,000
for
the
prior
year,
with
a
correspond
ing
net
income
of
€
79
,521,000
recogn
ised
in
‘Net
income
on
other financial instruments held
at
fair
value’
(20
20
: net income
of
€
57,448,000).
T
h
is
is
due
to
fair
value
changes
attributable
to
market
movements
on
the secu
rities un
derlying
structured no
tes hedged
by
derivatives classified
as
trading f
inancial instrumen
ts.
The statement o
f financial
position for the Com
pany is set o
ut on pag
e 1
4
. The Comp
any’s total assets at 31
December 202
1 are
€
9,793,864,
000, an
in
crease
of
€
1,365,702
,000
or
16
% when compared to 31 December
2020
. Total liabilities of €
9,762,
272
,000 rep
resent a
n
in
crease of €
1,363,
573
,000 or
16
% when
compared
to
total
liabilities
at
3
1
December
2
0
20
.
These
movem
ents
are
primarily
attributable
t
o
the
value
of
issued
structured notes and the relate
d hedging instruments held at
31 December 202
1. Structured notes reflected in
‘Debt
and
other
borrowings’
in
creased
by
15
%
compared
to
31
December
20
20
.
This
is
a
r
esult
of
new
issuances
and
fair
value
movements
in
the
yea
r
partially
bein
g
o
ffset
by
maturities.
The
net
in
crease
in
the
value of the relate
d hedging instruments is pr
imarily the result of
the n
et issuances and
market movem
ents.
The
performance
of
the
Company
is
inclu
ded
in
the
resu
lts
o
f
the
Morgan
Stanley
Group.
The
Comp
any
’s
Directors believe that
pr
oviding further performance indicators
fo
r the
Comp
any itself
wo
uld not enhance an
understand
ing of the development, p
erformance or position of
the business of the Com
pany.
The risk managemen
t section below sets
out
the Company's and
the Morgan Stanley Group's policies for the
managemen
t
of
liquidity and cash flow
risk and
other significant b
usiness risks.
Risk mana
gement
Risk
is
an
inh
erent p
art
of
the
Company’s
business activity
. The Com
pany
seeks
to
iden
tify, assess, monitor
and
manage
each
of
the
various
typ
es
of
risk
in
volved
in
its
b
usiness
activ
ities,
in
accord
ance
with
de
fin
ed
policies and pro
cedures. The Company
ha
s leveraged the risk managem
ent policy framework
of
the Morgan
Stanley
Group.
The
risk
managemen
t
policy
framework
includes
escalation
to
the
Company’
s
Bo
ard
of
Directors
an
d
to
appro
priate
senior
managemen
t
personnel
as
well
as
o
versight
through
th
e
Company’s
Boar
d
of
Directors.
Set
out
below
is
an
overview
of
the
Company’s
policies
for
the
management
of
fi
nancial
risk
and
other
significant business risks. More detailed
qualitative and quantitative disclosures about the
Company
’s
managemen
t
of
and
ex
posure
to
fin
ancial risks ar
e included
in
n
ote
20
to
the finan
cial statements.
Market risk
Market
risk
refers
to
the r
isk that
a
change
in
the
level
of
one
or
more
market p
rices,
rates, spreads,
indices,
implied
vo
latilities,
correlations
or
other
market
factors,
such
as
market
liquidity,
will
result
in
losses
for
a
position
or
portfolio.
The Compan
y man
ages the mark
et risk associated
with it
s tradin
g activities
at
a
legal entit
y tradin
g division
and
at
an
individual
product
level.
Sound market
risk management
is
an
integral
part
of
the
Compan
y’s
culture.
Th
e C
o
mpany
is
r
esponsible for
ensuring
that
market
risk
exposures
are
well-man
aged
and
mon
itored.
The
Company
also
ensures
transparency
of
material market risks,
monitors compliance with
established
limits,
and escalates
risk
concentratio
ns
to
appropr
iate senior man
agement.
The
market
risk
m
anagement
policies
and
procedures
for
the
Compan
y
are
con
sistent
with
those
of
the
Morgan
Stanley
Group
and
include
escalation
to
the
Company’
s
Board
of
Directors
and
appropriate
senior
managemen
t personnel.
It
is
the policy
and objective
of
the Com
pany not
to
be
exposed
to
net m
arket risk.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
4
BUSINESS REVI
EW (CONTINU
ED)
Risk mana
gement (continued)
Credit risk
Credit
r
isk
r
efers
to
the risk
of
loss arising
when a
borr
ower,
cou
nterparty
or
issuer d
oes
not
m
eet
its
finan
cial
obligations
to
the Compan
y. Credit risk
includes coun
try risk, which
is
fu
rther describ
ed below.
Credit
risk
management
policies
and
pr
ocedures
for
the
Company
are
consistent
with
those
of
the
Morgan
Stanley
Group
and
include
escalation
to
the
Company’s
Board
of
Directors
and
appropriate
senio
r
managemen
t personnel.
Credit risk exposure
is
managed
on
a global basis and
in
consideration
of
each
significant legal entity within
the Morgan Stanley
Group. The credit risk management
policies and procedures establish the framewo
rk for
identifying
, measuring, monitoring and
controlling
credit
risk
whilst
ensurin
g transparency
of
material credit
risks,
compliance
with
established
limits
and
escalating
risk
co
ncentration
s
to
appropriate
senior
managemen
t.
Additional
information
on
the primary
credit exposur
es, credit risk manag
ement and
mitigation, exposure
to
credit risk,
including th
e maximum exposur
e
to
credit r
isk
by
cr
edit rating
is
p
resented
in
note 20.
Country
risk expo
sure
Country
risk
expo
sure
is
th
e
risk
that
even
ts
in,
or
affecting,
a
foreign
country
mig
ht
adversely
affec
t
the
Company.
“For
eign
coun
try”
mea
ns an
y coun
try oth
er
than The
Netherland
s. So
vereign
risk,
by
contrast,
is
the
risk
that
a
go
vernment
will
be
u
nwilling
or
un
able
to
meet
its
debt
oblig
ations,
or
renege
on
the
debt
it
guarantees.
Sovereign
risk
is
sing
le-name
r
isk
for
a
sovereign
governm
ent,
its
ag
encies
and
guaranteed
entities.
The
Com
pany
enters
into
the
majo
rity
of
its
financial
asset
tr
ansactions
with
oth
er
Mo
rgan
Stanley
Gro
up
undertak
ings,
p
rimarily
in
Luxembourg
,
the
United
Kingdom
(“UK”)
and
the
United
States
of
America
(“
US
A”)
.
Both
the
Comp
any
and
th
e
other
Morgan
Stanley
Group
undertak
ings
are
wholly
-owned
subsidiaries
of
the
sam
e
u
ltimate parent
entity, Morgan Stanl
ey
.
As
a result
of
the
implicit support that
would
be
provid
ed
by
Morgan
Stanley,
th
e
Company’
s
coun
try
risk
is
consider
ed
a
component
of
the
Mo
rgan
Stanley
Grou
p’s
credit r
isk.
Country risk
exposure
is
measured
in
accordance with
the
Morgan
Stan
ley
Group’s
internal
risk
man
agement
standards
and in
cludes o
bligations f
rom sov
ereign gov
ernments, co
rporations,
clearing
houses and
fin
ancial
institutions.
The
Morgan
Stanley
Group
actively
manages
country
risk
exposure
through
a
co
mprehensive
risk
managem
ent
framework
that
combines
credit
and
market
fun
damentals
and
allows
the
Mor
gan
Stanley
Group
to
effectively
identify, monitor and
limit country
risk.
The Morgan Stanley
Group’s
o
bligor credit evaluation process
may also identify indirect e
x
posures whereby
an
obligor
has
v
ulnerability
or
exposure
to
another
country
or
jurisdictio
n.
Examples
of
indirect
exposures
include
mutual
f
unds
that
invest
in
a
single
country,
o
ffshore
companies
whose
assets
reside
in
another
country
to
that
of
the
offshore jurisdiction
and
finance company
subsidiaries
of
corporations.
Indirect
exposures
identified thr
ough the cred
it evaluation pro
cess may result
in
a reclassificatio
n of cou
ntry of risk.
Stress
testing
is
one
of
th
e
Mor
gan
Stanley
Gro
up’s
pr
incipal
risk
managem
ent
tools,
used
to
identify
and
assess the
imp
act
of
sever
e stresses
on
its
portfolios. A number
of
different
scenarios are
used
to
measu
re the
impact
on
credit risks
and
market risks
stemming
from neg
ative econom
ic and
political
scenarios, in
cluding
possible
contag
ion
ef
fects
where
appr
opriate.
The
results
of
th
e
stress
tests
m
ay
result
in
the
am
endment
of
limits
or
exposure
mitigation.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
5
BUSINESS REVI
EW (CONTINU
ED)
Risk mana
gement (continued)
Liquidity risk
Liquidity
risk
re
fers
to
the
risk
that
the
Company
will
be
unable
to
finance
its
operations
due
to
a
loss
of
access
to
the capital markets
or
difficulty
in
liquidating
its
ass
ets. Liquidity risk
en
compasses the
Com
pany’s
ability
(
or
perce
ived
ab
ility)
to
meet
its
fi
nancial
o
bligations
with
out
experiencing
significant
bu
siness
disruption
or
reputation
al
d
amage
that
may
threaten
the
Company’s
viability
as
a
going
concern
as
well
as
the associated funding risks triggered
by
th
e market
or
idiosyncratic
stress events that may
cause unexpected
changes
in
funding n
eeds
or
an
inab
ility
to
r
aise new funding.
The
primary go
al
of
the
Morgan
Stanley
Group’s
liqu
idity risk m
anagement
framework
is
to
ensure
that
the
Morgan
Stanley
Group,
including
the
Comp
any,
has
access
to
adequate
fund
ing
across
a
wide
range
of
market
conditions
and
tim
e
horizons.
The
framework
is
designed
to
enable
the
Mo
rgan
Stan
ley
Gr
oup
to
fulfil
its
financial
obligations
and
su
pport
the
execution
of
the
Company’s
bu
siness
strategies.
The
framewor
k
is
further
described
in
no
te
20
.
The C
ompany
co
ntinues
to
actively manage
its
capital
an
d liquidity
position
to
ensur
e
ad
equate resources
ar
e
available
to
support
its
activ
ities,
to
enab
le
it
to
with
stand market
stresses.
The
Company
hedges
all
of
its
fin
ancial
liabilities
with
f
inancial
assets
entered
in
to
with
other
Morg
an
Stanley
Grou
p
undertakings,
wh
ere
bo
th
the
Company
and
other
Morg
an
Stanley
Gr
oup
undertakings
are
wholly-o
wned subsidiaries
of
the same parent,
Morgan Stanley.
Operational
risk
Operational
risk refers
to
the ris
k
of
loss,
or
of
da
m
age
to
the
Company’s
reputation, resulting
from
inadequate
or
failed processes
or
systems, from
human factors
or
from external
ev
ents (e.g.
fraud
,
theft, legal
and
compliance
risks,
cyber-attacks
or
damage
to
physical
assets).
Operation
al
risk
relates
to
the
following
risk
event
ca
tegories
as
def
ined
by
Basel
Capital
Standar
ds:
internal
fraud;
external
fraud;
employment
practices
and
workplace
safety;
clients,
pro
ducts
and
business
practices;
business
disrup
tion
and
system
failure; dam
age
to
physical
assets; and execu
tion, delivery
and process man
agemen
t.
The Company
may incur
operational risk
across the f
ull scope
of
its
business
activities.
The
Com
pany
has
established
an
oper
ational
risk
framework
to
id
entify
mea
sure,
monitor
and
control
r
isk
across
the
Company.
This
framework
is
consistent
with
the
framework
established
by
the
Morgan
Stan
ley
Group
and
includes
escalation
to
the
Company’s
Board
of
Directors
and
appropriate
senior
management
personnel.
The
framewo
rk
is
con
tinually
evolving
to
reflect
ch
anges
in
th
e
Com
pany
and
to
respo
nd
to
the
changing r
egulatory
and business environmen
t.
The C
ompany
h
as
imp
lemented operational risk
data and
assessment systems
to
m
onitor and
an
alyse internal
and
external
oper
ational
r
isk
even
ts,
to
assess
b
usiness
env
ironment
and
internal
contr
ol
fac
tors
and
to
perform scenario analysis.
The collect
ed
d
ata elements
are incorporated
in
the
operation
al ri
sk capital model.
The
m
odel
encomp
asses
bo
th q
uantitative
and
qualitativ
e
elements.
Internal
loss
d
ata
and
scenario
analy
sis
results are direc
t inputs
to
the
capital mo
del, while
external o
perational
incidents, bu
siness env
ironment
and
internal co
ntrol factors
are evaluated
as
part
of
the scenario analysis p
rocess.
In
additio
n,
the
Company
employs
a
variety
of
risk
processes
an
d
m
itigants
to
man
age
its
op
erational
risk
exposures.
These
include
a go
vernance
framework,
a
comprehen
sive
risk
management
program
and
insurance.
Oper
ational
risks and
associated
risk exp
osures ar
e asse
ssed
relative
to
the
risk
tolerance
established
by
the
Board and
are prioritised
accordingly.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
6
BUSINESS REVI
EW (CONTINU
ED)
Risk mana
gement (continued)
Operational
risk (continued)
The
breadth
and
variety
of
operational
r
isk
are
such
that
th
e typ
es
of
mitigating
activities
ar
e
wide-ranging
.
Examples
of
such
activ
ities
include
continuous
en
hancement
of
defences
against
cy
ber-attacks;
use
of
legal
agreements and
contracts
to
transfer and
/
or
limit
operation
al
risk exposures;
due
diligence; implemen
tation
of
enhanced
policies
and
procedures;
exception
management p
rocessing
controls;
and seg
regation
of
duties.
The
Oper
ational
Risk
Ma
nagement
Framework
requires,
amo
ng
other
things,
policies
and
procedu
res
to
record
pr
operly
and
ver
ify
a
large
number
of
tran
sactions
and
events,
however
at
times,
these
po
licies
and
procedures
m
ay
not
be
fully
effective.
The
trading
risk
man
agement
strateg
ies
and
techniques
seek to
balance
our ability to profi
t from trad
ing positions with our expo
sure to potential lo
sses
.
Primary
responsibility
for
the
management
of
operational
risk
is
with
the
business
segments,
the
con
trol
groups and
the business man
agers ther
ein. Th
e business manag
ers maintain
processes and
controls d
esigned
to
identify,
assess,
manage,
m
itigate
and
report
o
perational
risk.
Each
of
the
business
segm
ents
has
a
designated
oper
ational
risk
coordinator.
The
operational
risk
coord
inator
r
egularly
reviews
operation
al
r
isk
issues and reports
to
the
Company’s
senior management within
each
business. Each
control group also has a
designated
operational
r
isk co
ordinator
and
a
forum
for discussing
operation
al
risk matter
s with
the
Company’s
senior management. Oversight
of
operational risk
is
provided
by
t
he
Operational R
isk
Oversight
Committee,
regional
risk
committees
and
senior
m
anagement.
In
the
ev
ent
of
a
m
erger;
join
t
venture;
divestiture; reorganisation
;
or
creation
of
a new legal
en
tity,
a new
p
roduct
or
a business
ac
tivity, operational
risks are
co
n
sidered, and
any necessary chan
ges
in
pro
cesses
or
controls are
implemented.
T
he
Op
erational
Risk
Department
provides in
dependent
oversight
of
operational
risk
manag
ement
and
assesses mea
sures
and
monito
rs o
perational
risk
again
st toleran
ce.
The
Operation
al
Risk
Departmen
t wo
rks
with
the
business
divisions
and
control
groups
to
help
ensure
a
transpar
ent,
consistent
an
d
comprehen
sive
framework
for managing
operational risk with
in
each
area and
across the Com
pany.
The
Operatio
nal
Risk
Depa
rtment
scop
e
includes
o
versight
of
techn
ology
risk,
cybersecurity
risk
,
information secur
ity risk, the fraud
risk management and prev
ention programm
e and third party
risk
managemen
t
(supp
lier
and
r
isk
ov
ersight
an
d
assessment)
programme.
Furthermore,
the
Op
erational
Risk
Department
supports
the
collection
and
repor
ting
of
operational
risk
incidents
an
d
the
ex
ecution
of
operational
risk assessments; provides the infrastru
cture needed for risk measurement
and risk management;
and
ensur
es
o
ngoing
validatio
n
and
ver
ification
of
th
e
Company’s
adv
anced
measurement
ap
proach
for
operational
risk capital.
The
Fu
sion
Resilience
Centre’s
mission
is
to
understand,
prepare
for,
respond
to,
r
ecover
an
d
lear
n
from
operational threa
ts and incidents that impact the Morgan Stanley Group, from cyber and fraud to technology
incidents,
climate
related
events,
terror
at
tack,
geopo
litical
un
rest
and
pandemics
.
The
Company
Business
Continuity
and
Disaster
r
ecovery
program
s
ar
e
design
ed
to
p
rovide
assurance
of
business
con
tinuity
in
the
event of disruption
s impacting the Company’s people, technology
, facilities and third pa
rties, and to comply
with
regulato
ry
requirements.
The
key
elemen
ts
of
these
p
rograms
includ
e
cr
isis
m
anagemen
t,
business
continuity p
lanning, disaster recov
ery, testing verificatio
n, and process impr
ovement. Business un
its within
the Morgan Stanley Group ma
in
tain business
co
ntinuity plans,
including
identifying
processes and
strateg
ies
to con
tinue bu
siness critical
processes dur
ing a
business co
ntinuity
inciden
t. The
business units
also test
the
documented
preparation
to
provide
a
reasonab
le
expectation
t
hat,
du
ring
a
bu
siness
continuity
incident,
the
business unit
will
be
ab
le to
co
ntinu
e its
critical business processes and limit
the impact of
t
he incident to
th
e
Morgan Stanley Group and its clients. Technical recovery pl
an
s are maintained for critical techn
ology assets
and
d
etail
the
steps
to
be
implem
ented
to
reco
ver
from
a
disruption
impacting
the
assets’
pr
imary
location.
Disaster recovery
testing is performed to
validate the recovery capab
ility of these critical techno
logy assets
.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
7
BUSINESS REVI
EW (CON
TINUED)
Risk mana
gement (continued)
Operational
risk (continued)
The
Compan
y
maintains
a
prog
ramme
that
oversees
o
ur
cyber
and
information
security
r
isks.
Our
cybersecurity
and
inform
ation
secu
rity
policies
are
designed
to
protect
the
Com
pany’s
i
n
formation
assets
against
un
authorised
disclosure,
modification
or
misuse
and
are
also
designed
to
address
reg
ulatory
requirements. These
policies
and
procedur
es
cover a
broad
range
of
ar
eas,
includi
ng:
id
entification
of
intern
al
and
external threats,
access
control, d
ata secu
rity protective co
ntrols, detec
tion
of
malicio
us
or
unau
thorised
activity, incid
ent response
and recovery
planning.
In
co
nnection
with
its
ongoing
o
perations,
the
Company
utilises
th
ird
party
supp
liers,
which
it
anticipates
that such
usage
will
continue
a
n
d may
increase
in
t
h
e future.
These services include,
for
e
x
ample, outsourced
processing
and suppor
t functions
and con
sulting and
other professional
services. Th
e
Company
’s
risk-b
ased
approach
to
m
anaging exposure
to
these services includes the exec
ution
of
due
diligence, implementatio
n
of
service
level
and
other
contr
actual
agreements,
consider
ation
of
operation
al
risk
and
ongoing
monitoring
of
third
party
supp
liers’
performance.
T
he
Company
maintains
a
third
party
risk
progr
amme
with
appr
opriate
governance,
pol
icies,
proce
dures,
and
technology
th
at
suppo
rts
alignment
with
our
risk
tolerance
and
is
designed
to
meet
regulato
ry
requirem
ents.
The
p
rogram
includes
governance,
policies,
p
rocedures,
and
enabling. The
thir
d-party risk
pro
gramme includes
the adoption o
f
appropriate risk
management controls and
practices throu
ghout the third
-party m
anagement lifecy
cle to manage r
isk of service failur
e, risk of data loss
and reputation
al risk, among others.
Legal, regu
latory and co
mpliance risk
Legal,
regulatory
and
co
mpliance
risk
includes
the
risk
of
legal
or
regulatory
sanctions,
material
financial
loss;
inclu
ding
fines,
penalties,
judgemen
ts,
damages
and
/
or
settlemen
ts,
limitations
on
our
business,
or
loss
to
reputation
wh
ich
the
Company
may
suffer
as
a
r
esult
of
a
fa
ilure
to
comply
with
laws,
regu
lations,
rules,
related
self-
regulatory
o
rganisation
standards
and
cod
es
of
conduct
ap
plicable
to
our
business
activities. This
risk
also
includes
co
ntractual
and
comm
ercial
risk,
su
ch
as
the
risk
that
a
counterparty’s
performan
ce
obligations
will
be
un
enforceable.
It
also
includes
complian
ce
with
Anti-Money
Launder
ing,
anti-corruption
and
terrorist
f
inancing
rules
and
regulation
s. The
Company
is
generally
subject
to
exten
sive
regulation
in
the different
jurisdictions
in
which
it
con
ducts its business.
The Company, principally through
the Morgan Stanley
Group’s
Legal and Compliance Division, has
established proced
ures based
on
legal and regulatory requirements
on
a worldwide basis that are designed
to
facilitate
comp
liance
with
applicable
statutor
y
and
reg
ulatory
requirem
ents
and
to
require
that
the
C
o
mpany’s
policies relating
to
business co
nduct,
ethics and prac
tices are followed
globally.
In
add
ition,
the
Compan
y
has
established
proced
ures
to
mitigate
the
risk
that
a
coun
terparty’s
per
formance
obligations
will
be
un
enforceable,
inclu
ding
con
sideration
of
co
unterparty
legal
authority
and
cap
acity,
adequacy
of
legal
do
cumentation,
the
p
ermissibility
of
a
transaction
under
applicab
le
law
and
wh
ether
applicable
bankruptcy
or
in
solvency
laws
lim
it
or
alter
contractual
rem
edies. The
heightened
legal
and
regulatory focus
on
the
financial
serv
ices
in
dustry presents
a continuing
bu
siness
ch
allenge
fo
r
the
Company.
Cyber
and
information
security risk man
agement
The Company maintain
s a program that oversees its cyber and information secu
rity risks. Cybersecurity and
information
s
ecurity
policies,
procedures
and
technologies
are
designed
to
protect
the
Company’s
information
assets
against
u
nauthorised
disclosur
e, mo
dification
or
misuse
and
ar
e also
designed
to
address
regulatory
r
equirements.
Th
ese
policies
and procedures
cover
a
bro
ad
range
of
area
s,
including:
identification
of
inter
nal
and
external
th
reats,
access
co
ntrol,
data
security,
protectiv
e
controls,
detec
tion
of
malicious
o
r
unauthorised ac
tivity, incident response an
d recovery planning.
A
cyber attack,
informatio
n
o
r
security b
r
each
or
a
technology failure
could adversely
affect
Morgan
Stanle
y’s
ability
to
con
duct
business,
man
age
exp
osure
to ris
k or
result
in
disclosu
re
or
misuse
of
con
fidential
or
proprietary
informatio
n
and
o
therwise
adversely
imp
act
results
of
operations,
liquidity
and
financial
condition, as well as cau
se reputation
al har
m.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
8
BUSINESS REVI
EW (CONTINU
ED)
Risk mana
gement (continued)
Cyber
and
information
security risk man
agement
(continued)
Morgan Stanley maintain
a s
ig
nificant amount of personal information on customers, clients,
em
ployees and
certain
counterparties
that
Mor
gan
Stanley
are
required
to
p
rotect
und
er
v
arious
state,
federal
and
international
data protection and privacy
laws.
These
laws
may
be
in
co
n
flict
with
o
ne
another,
or
courts
and
regulators
may
interpret
them
in
ways
that
Morgan Stan
ley had not anticipated o
r that adversely affects its business.
Cybersecurity
risks
for
f
inancial
in
stitutions
hav
e
significantly
increased
in
recent
years
in
par
t
becau
se
o
f
the
proliferation
of
new
technologies,
the
use o
f
the internet,
mobile
telecommunications
and
cloud
technolog
ies
to
conduct
financial
transactions,
and
the
increased
sophisticatio
n
and
activities
o
f
organised
crime, hackers,
terrorists and oth
er external extremist parties, inclu
ding foreign state acto
rs, in some
circumstances as a m
eans to promo
te political ends.
In addition
to the
growing sophistication
of certain
par
ties,
th
e
co
mmoditisation of
cyber tools
which are
able
to
be
wea
ponised
by
less
sop
histicated
actor
s
has
led
to
an
increase
in
th
e
exploitation
o
f
technolog
ical
vulnerab
ilities. Further,
foreign state actors
hav
e become more
soph
isticated over time,
increasing the risk
o
f
such
an
attack.
Any
of
these
p
arties
may
also
attem
pt
to
f
r
audulently
induce
employ
ees,
customers,
clients,
vendors or o
ther third parties or users of
Morgan Stanley systems.
Cybersecurity
risks
may
also
derive
from
human
error,
fraud
or
malice
on
the
part
of
employ
ees
or
third
parties, includ
ing third party
pro
viders, or may
result from
accidental techno
logical failure. These risks may
be
heightened
by
the
COVID
-19
pandemic,
which
has
caused
the
majority
of
employees
to
wo
rk
remotely
and access Mor
gan Stanley secure
networks through
their home networks.
There is
no
gu
arantee
th
at
the
m
easures
Morgan Stanley
takes
will provide a
bso
lute
secu
rity
or recoverability
given
the
techniques
used
in
cy
ber
-attacks
are
complex
and
frequen
tly
change,
and
m
ay
no
t
b
e
able
to
be
anticipated.
Like
other
financial
serv
ices
firms,
Mor
gan
Stanley,
its
third
party
providers,
and
its
clients
continu
e
to
be
the
subject
of
unauthorised
access
attacks,
mi
shandling
or
m
isuse
of
informatio
n,
computer
viruses
o
r
malware, and
cyber-
attacks.
Such
events could
cau
se interruptions
or
malfuncti
ons
in Morgan
Stanley’s,
its clients’,
employees’,
partners’, vendors’,
counterparties’ or
third
parties’ operations,
as
well
as the
unauthorised
release,
gath
ering,
monitoring, misuse, loss
or destruction of
confidential,
pro
prietary and
other information
of
Mo
rgan Stanley,
its employees, its customers or
of other third parties. Any
o
f t
h
ese events could result
in reputational damage
with
Morg
an
Stan
ley’s
clients
and
the
market,
client
dissatisfaction,
ad
ditional
costs
to
Morg
an
Stanley
to
maintain and upd
ate its operational and security systems and infrastructure, regulatory investigations,
litigation
o
r
enforcemen
t,
or
regulato
ry
fines
or
penalties,
any
of
which
could
adversely
affect
Morgan
Stanley’s business, fin
ancial condition
or results of operations
.
Given Morgan Stanley’s global footprint and the
hig
h volume of transactions processed, the
large number of
clients, partners, vendors
an
d counterparties
with
which
it does business,
and the increasing
sophistication of
cyber
attacks,
information or
security
breach
could occu
r and p
ersist for
an exten
ded period
of time
withou
t
detection.
Morgan
Stan
ley
expects
that
an
y
investigatio
n
of
a
cyb
er attack
would
be
inherently
unpredictable
an
d
that
it
would
tak
e
time
bef
ore
the
completion
of
any
in
vestigation
a
nd
before
there
is
availability
of
full
and
reliable
information
.
Dur
ing
such
time
Morgan
Stanley
would
not
necessarily
know
th
e
extent
of
the
harm
or
how
best
to
rem
ediate
it,
and
certain
errors
or
actions
could
be
repeated
or
compounded
before
they
are
discovered
and remediated, all
or
any of which
would further increase the costs
an
d consequences of a cyber
attack.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
9
BUSINESS REVI
EW (CONTINU
ED)
Risk mana
gement (continued)
Cyber
and
information
security risk man
agement
(continued)
While man
y of
Mo
rgan
Stanley’s ag
reements
with p
artners
and
third
party ven
dors inclu
de indemn
ification
provisions,
Mo
rgan
Stan
ley
may
not
b
e
able
to
recover
suff
iciently,
or
at
all,
under
such
provision
s
to
adequately
offset
any losses
it
may
incur.
In addition,
althou
gh
Morgan
Stanley
main
tains
insurance
coverage
that
may, subject
to
policy
terms
and
conditions,
cover
certain
aspects
o
f
cyber
and
information
secur
ity
risks,
such insuran
ce coverage may be in
sufficient to cover all losses.
Morgan
Stan
ley
continues
to
make
investmen
ts
with
a
v
iew
toward
maintaining
and
enhancing
its
cybersecurity
posture.
Th
e
c
ost
of
managing
cyber
and
information
security
risks
and
attacks
alo
ng
with
complying
with
new,
in
creasingly
expansive,
and
evolving
regulato
ry
requi
rem
ents
could
adver
sely
affect
the results of o
perations and business.
Culture, values
and
conduct
of
emp
loyees
Employees
of
the Morg
an Stanley
Group
are
accountable
for conducting
them
selves in
accordance
with
the
Morgan
Stanley
Group’s
core
values
Put
Cl
ients
First,
Do
the
Right
Thing,
Lead
with
Excep
tional
Ideas,
Commit to
Diversity
and
Inclusion
and
Give
Back. The
Morgan
Stanley
Group’s
core values
drive
a shar
ed
set o
f
behav
iours
and
attrib
utes that
h
elp
employ
ees
make
dec
isions
consistent
with
the
exp
ectatio
ns
of
our
clients, shareholders, regulators,
Boar
d of
Dir
ectors and t
he public. The Mo
rgan Stanley Group
is committed
to
reinforcing
and
confirm
ing
adherence
to
the
co
re
values
through
o
ur
gover
nance
framewor
k,
tone
from
the top,
management oversight, risk management
and controls, and
a three
lines of
defen
ce structure
(business, contr
ol functions such as Risk Man
agement an
d Compliance, and Intern
al Audit).
The Morgan Stanley Group’
s Board is responsible for overseeing the Morgan Stanley Group’
s pra
ctice
s and
procedures
relating
to
cu
lture,
values
and
conduct.
The
Mo
rgan
Stanley
Group’s
Culture,
Values
and
Conduct
Committee,
along
with
the
Comp
liance
and
Conduct
Risk
Comm
ittee,
are
the
senior
managemen
t
committees
that
ov
ersee
the
Morgan
Stanley-
wide
cu
lture,
valu
es
and
conduct
pr
ogram,
r
eport
regularly
to
the
Morgan
Stanley Grou
p Board; and complemen
t ongoing business and r
egion
-spec
ific culture initiatives.
A
fu
ndamental
building
block
of
th
is
progr
am
is
the
Morgan
Stanley
Group’s
Cod
e
o
f
Cond
uct,
w
hich
establishes
standar
ds
for
emp
loyee
conduct
th
at
further
r
einforce
the
Morgan
Stanley
Group’s
co
mmitment
to
integ
rity
an
d
ethical
conduct.
Ev
ery
n
ew
hire
and
every
emp
loyee
,
annually,
is
req
uired
to
attest
to
their
understand
ing
of
and
ad
herence
to
the
Cod
e
of
Con
duct.
Morgan
Stanley’s
Glo
bal
Conduct
Risk
Managemen
t
Policy
also
sets
out
a
consistent
global
framework
for
managing
conduct
r
isk
(i.e.,
the
risk
arising from misconduct
by employees or
contingen
t workers)
and conduct risk incidents
at Morgan
Stan
ley.
Morgan Stanley’s
rem
uneration
p
olicies
an
d practices
ensure that
there is
an alignment between
reward, risk,
culture
and
conduct.
Conduct,
culture,
and
core
v
alues
are
considered
in
the
em
ployee
annual
performan
ce
evaluation process. The
p
erforman
ce review process
also
includes
ev
aluation of employee
con
duct related to
risk
management
practices
and
the
Morgan
Stanley
Group’s
expectatio
ns.
The
Morg
an
Stan
ley
Group
also
has
several mutually
reinforcing processes
to identify e
m
ployee conduct
th
at
may hav
e
an impact
on
employment status, cu
rrent year comp
ensation and
/ or prior year
compensation.
MORGAN STANLEY B.V.
DIRECTORS’
REPORT
10
BUSINESS REVI
EW (CONTINU
ED)
Going concer
n
Business
risks
associated
with
the
unce
rtain
market
and
economic
condition
s
ar
e
being
actively
monitored
and managed by the
Company. Retaining sufficien
t capital and liquidity to withstand these mark
et pressures
remains
cen
tral
to
the
Company
’s
strategy
.
I
n
particu
lar,
the
Company’s
cap
ital
and
liquidity
is
deemed
sufficient
to
exceed
regu
latory
min
imums
u
nder
bo
th
a
no
rmal
an
d
in
a
stressed
market
environment,
including
the
current
and
potential
stresses
of
the
war
in
Ukraine
and
the
COVID
-19
pandemic
for
the
foreseeable future. The
existing and
potential effects
of the w
ar
in
Ukraine and
o
f COVID-19 on
the business
of the Company have been considered as part of
th
e going concern analysis, including impact on operational
capacity, access
to
liquid
ity
and capital,
contractual obligations,
asset
valu
ations a
n
d
other c
r
itical
acco
unting
judgemen
ts and key sources of estimation
uncertainty.
Taking
all
of
these
factors
into
consideration
,
the
Directors
believ
e
it
is
reason
able
to
assume
that
the
Company
will
hav
e
access
to
adequate
resources
to
co
ntinue
in
op
erational
existence
for
the
foreseeab
le
future.
Accordingly,
they
continue
to
adopt
th
e
going
co
ncern
basis
in
prep
aring
th
e
annual
repor
ts
and
financial statemen
ts.
DIRECTORS
The
follo
wing
Directors
h
eld
office
th
roughout
the
year
and
to
the
date
of
approval
of
this
repo
rt
(except
where oth
erwise shown)
:
A. Doppenber
g
H. Herrmann
S. Ibanez
P.J.G. de Reus
TMF Managem
ent B.V.
EVENTS AFTER
THE REP
ORTING DATE
Following
Russia’s
invasion
of
Ukrain
e
on
24
Februar
y
2022,
the
European
and
g
lobal
fin
ancial
mar
kets
have
been
and
are
expected
to
continue
to
be
significan
tly
impacted
in
2022.
However,
the
Company
has
limited
direct
exposure
to
Russia
and
Uk
raine.
The
Comp
any
will
continue
to
clo
sely
monitor
even
ts
and
their poten
tial impact.
AUDIT COMMI
TTEE
The
Company
qu
alifies
as
an
organisation
of
public
interest
pursuant
to
Dutch
and
EU
law
a
nd
has
established
its
own
aud
it
committee
wh
ich
complies
with
the
applicable
corporate
governance
ru
les
and
composition
requirements
as
d
etailed
in
the Articles
of
Association
of
th
e Company.
AUDITOR
Deloitte Acco
untants
B.V.
have
expressed
their
willing
ness
to
con
tinue
in
of
fice
as
auditor
of
th
e Comp
any
and a reso
luti
on
to
re
-appoint them will
be
pr
oposed
at
the forthco
ming annual
general meeting.
Approved
by
the
Board and
signed
on
its
b
ehalf
by:
28 April
2022
A. Doppenber
g
H. Herrmann
S. Ibanez
P.J.G. de Reus
TMF Managemen
t B.V.
MORGAN STANLEY B.V.
DIRECTORS’
RESPONSIBILITY STATEMENT
11
The
Directors
are respo
nsible fo
r prep
aring th
e financial
statements
of
the
Company
in
compliance
with
the
European
Single
Electronic
Format
Regulatory
Technical
Standard
(
“
ESEF
RTS
”
).
In
preparing
the
Company’s
financial
statemen
ts
in
compliance
with
ESEF
RTS,
the
Direc
tors
are
required
to
prepare
the
financial statemen
ts
in
a v
al
id
xHTML fo
rmat.
T
he
Directors, th
e names
of
whom ar
e set out below,
confirm
to
the
best
of
their knowledge:
-
the
financial statements
have
been
prepared
in
acco
rdance
with
International
Financial
Reporting
Standards
(“IFRSs”)
as
issued
by
the
Intern
ational
Acco
unting
Standards
Boar
d
(“IASB”)
and
as
endorsed
by
the
EU
and
giv
e a
tru
e
and
f
air
view
of
the
assets,
liabilities,
fin
ancial
positi
on
an
d
profit
or
loss
of
the Company
; and
-
the
man
agement
report
represented
by
the
Directors’
report
in
cludes
a
fair
review
of
the
development
and
perfo
rmance
of
the
business
and
the
position
of
the
Company
together
with
a
description
of
the
principal
risks and unce
rtainties that the Com
pany faces.
Approved
by
the
Board and
signed
on
its
b
ehalf
by:
28 April
2022
A. Doppenber
g
H. Herrmann
S. Ibanez
P.J.G. de Reus
TMF Managemen
t B.V.
MORGAN STANLEY B.V.
STATEMENT
OF
COMPREHENSIVE INCOME
Year ended 31 December 2021
12
Note
20
21
€’000
2020
€’000
(
235
,
970
)
(372,108)
156
,449
314,660
(
79
,521)
(57,448)
(7,841)
57,303
87,362
145
4
79,521
57,448
5
3,
848
5,109
3,
848
5,109
11,240
10,519
(
10
,360)
(8,775)
6
880
1,744
4,
728
6,853
7
(2,
52
4)
(2,202)
8
62
1
(620)
2,
825
4,031
9
(
696
)
(1,008)
2,
129
3,023
All operation
s were contin
uing
in
the
current and prior
year.
The notes
on
pag
es 16
to
68 form
an
integral p
art
of
the financial statements.
MORGAN STANLEY B.V.
STATEMENT
OF
CHANGES
IN
EQUITY
Year ended 31 December 2021
13
Share
capital
Retained
earnings
Total
equity
€'000
€'000
€'000
Balance at 1 Jan
uary 20
20
15,018
26,422
41,440
Profit and to
tal comprehensive income
for the year
-
3,023
3,023
Dividends
16
-
(15,000)
(15,000)
Balance at 31
December 20
20
15,018
14,445
29,463
Profit and to
tal comprehensive income
for the year
-
2,
129
2,
129
Balance at 31
December 20
21
15,018
16,574
31
,592
The notes
on
pag
es 16
to
68 form
an
integral p
art
of
the financial statements.
MORGAN STANLEY B.V.
Registered numbe
r: 34161590
STATEMENT
OF
FINANCIAL POSITION
As
at 31 December 2021
14
Note
20
21
2020
€'000
€'000
ASSETS
Cash and sho
rt-term depo
sits
10
3,
012
7,050
Trading finan
cial assets
10
3
73
,722
350,624
Loan and ad
vances
10
8,
117
,998
6,763,892
Trade and oth
er receivables
12
1,299
,132
1,306,596
TOTAL ASSETS
9,
793
,864
8,428,162
LIABILITIES AN
D EQUITY
LIABILITIES
Bank overdraf
t
10
952
-
Trading finan
cial liabilities
10
650
,317
317,233
Convertible p
referred equity certificates
11
1,125,281
1,125,281
Trade and oth
er payables
13
149
,697
123,016
Debt and o
ther borrowings
14
7,
835
,669
6,832,657
Current tax liab
ility
356
512
TOTAL LIABILIT
IES
9,
762
,272
8,398,699
EQUITY
Share capital
15
15,018
15,018
Retained earnin
gs
16,574
14,445
Equity attributable to
owners of t
he Company
31
,592
29,463
TOTAL EQUITY
31
,592
29,463
TOTAL LIABILIT
IES AND EQUI
TY
9,
793
,864
8,428,162
These finan
cial statements wer
e approved
by
the Board and autho
rised for issue
on
28 April
2022
.
Signed
on
behalf
of
the Board
A. Doppenber
g
H. Herrmann
S. Ibanez
P.J.G. de Reus
TMF Managemen
t B.V.
Director
The notes
on
pag
es 16
to
68 form
an
integral p
art
of
the financial statements.
MORGAN STANLEY B.V.
STATEMENT
OF
CASH FLOWS
Year ended 31 December 2021
15
Note
20
21
2020
€'000
€'000
NET CASH FLOWS F
ROM OPERAT
ING ACTIVITIE
S
17
(4
,990)
17,507
INVESTING AC
TIVITIES
Repayment o
f interest from
another Morgan Stanley
Group
undertak
ing
11,1
72
10,
382
NET CASH FLOWS F
ROM INVESTI
NG
ACTIVITIES
11,1
72
10,382
FINANCING ACT
IVITIES
Yield paid o
n convertible preferred equity
ce
rtificates
(1
0,2
37
)
(11,494)
Financing
(paid to) / receiv
ed from
another Morgan Stanley Grou
p
undertak
ing
(935)
1,112
Dividends paid
-
(15,000
)
NET CASH FLOWS US
ED IN FINAN
CING
ACTIVITIES
17
(
11
,1
72
)
(25,382)
NET (INCREAS
E) /
DE
CREAS
E IN CASH AND CAS
H
EQUIVALENTS
(4
,990)
2,507
CASH AND CASH
EQUIVALENTS
AT THE BEGINN
ING
OF THE YEAR
7,
050
4,543
CASH AND CASH
EQUIVALENTS
AT THE END OF
THE YEAR
17
2,0
60
7,050
The notes
on
pag
es 16
to
68 form
an
integral p
art
of
the financial statements.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
16
1.
CORPORATE INFOR
MATION
The Company
is
incorporated
and d
omiciled
in
Th
e Netherlands,
at
the
following addr
ess:
Luna Aren
a, Herikerbergweg
238,
1101 CM, Amsterdam
, The Nether
lands.
The
Company
is
engaged
in
the
issuance
of
structured
notes
an
d
the
hedging
of
the
obligations
arising
pursuant
to
such
issuances
with
prepaid
equity
secu
rities
contrac
ts,
loans
d
esignated
at
fair
valu
e
through
profit
or
loss
(“FVPL”)
and d
erivatives entered
into with other
Morgan Stanley
Group undertak
ings.
The
issued
structur
ed
notes
expose
the
Com
pany
to
the
risk
of
ch
anges
in
market
pr
ices
of
th
e
under
lying
securities,
interest
rate
risk
and,
where
d
enominated
in
currencies
other
than
Euros,
the
risk
of
changes
in
rates
of
exchan
ge b
etween
the
Eur
o
and
the o
ther
relev
ant
currencies.
The
Comp
any
uses
the
co
ntracts
that
it
purchases
from
other
Mo
rgan
Stanley
Group
undertakings
to
hedge
the
market
price,
interest
rate
an
d
foreign cu
rrency risks associate
d with the
issuance
of
the structu
red notes.
2.
BASIS OF PREPARA
TION
Statement
of
complia
nce
The
Company
has p
repared
its
an
nual
financial
statemen
ts
in
accord
ance
with
IFRSs issued
by
the
IASB
as
adopted
by
the
EU,
Interpretations issued
by
the
IFRS Interpretations
Committee and Part
9
of
Book 2
of
the
Dutch Civil Code
.
The Compan
y has
prepared
and filed the
financial
statements
of
the Com
pany
in
comp
liance with the
ESEF
RTS with the relevant member
state
regulator’s
storage mechanisms.
In
preparing the fi
n
ancial statements
in
compliance
with
ESEF
RTS,
the
Company
is
requ
ired
to
prepar
e
Comp
any
fin
ancial
statem
ents
in
a
valid
xHTML fo
rmat.
New
standards and i
nterpret
ations ado
pted during the y
ear
The following amendments
to
standards relevant
to
the
Company’s
operations were adopted during the
year.
These
st
andard
s, amendments
to
standards and
interpretations did
not
have a material impact
on
the
Company’s
financial statemen
ts.
Interest Rate Bench
mark Reform Phase
2 amendments
to
IFRS 9
‘Finan
cial
Instrumen
ts’,
IAS
39
‘Financial
Instruments:
Recog
nition
and
M
easurement’,
IFRS
7
‘Financial
Instruments:
Disclosur
es’,
IFRS
4
‘Insurance
Contracts’
and
IFRS
16
‘Leases’
were
issued
by
the
IASB
in
August
2020.
The
amendments
outline
the
accounting
and
disclosu
re
requirements
fo
r
th
e
f
inancial
instrumen
ts
wh
ich
are
tr
ansitioned
to
alter
native
benchmark
rates.
T
he
amendments
ar
e
applicable
retrospectively
and
are
effective
from
and
will
be
applied
for periods
beginning
on
or
after 1 Jan
uary 2021. Th
e amendments were
adopted an
d endorsed
by
the
EU
in
January
2021.
There wer
e
no
o
ther standards
or
interpretatio
ns relev
ant
to
the
Company’s
operations wh
ich were ad
opted
during the
year.
New standards and inte
rpretat
ions not yet adopted
At the date of au
thorisation of these financial statemen
ts, the following
amendments to standard
s relevant to
the
Company’s
oper
ations
wer
e
issued
by
the
IASB
but
not
mandato
ry
for
accoun
ting
p
eriods
beginning
1
January
20
21
The
Company
does
not
expect
that
the
adoption
o
f
the
following
stand
ards,
am
endments
to
standards and
interpretation
s will have a material im
pact
on the Company’s finan
cial statements.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
17
2.
BASIS OF PREPARA
TION (
CONTINUED)
New standards and inte
rpretat
ions not yet adopted (
continued)
Amendmen
ts
to
IAS
37
‘
Provisions,
Conting
ent
Liabilities
and
Contingent
Assets
’:
Onerous
Contracts
–
Cost
of
Fulfilling
a
Contract
were
issued
by
the
IASB
in
May
20
20,
for
m
odif
ied
retrospective
application
in
accounting
periods
beginning
on
or
after
1
January
2022.
Early
ap
plication
is
permitted.
The
am
endments
were endo
rsed by the EU in July 20
21.
As
part
of
the
2018-2
020
Annual
Improvements
Cycle
published
in
May
2020,
the
IAS
B
made
an
amen
dment
to
IFRS
9
‘Finan
cial
In
struments’
,
relatin
g
to
the
treatmen
t
of
fees
in
the
asses
sment
o
f
wheth
er
finan
cial
liabilities
are
mo
dified
or
exch
anged,
wh
ere
su
ch
tran
sactions
o
ccur
on
o
r
after
1
January
2022.
Early
application is p
ermitted.
The amendments wer
e endorsed by the EU in
July 2021.
Amendmen
ts
to
I
AS
8
‘
Accounting
Policies,
Changes
in
Accoun
ting
Estimates
and
Errors
’:
Definition
of
Accounting
Estimates
were
issued
by
the
IASB
in
Febr
uary
2021,
for
prospective
application
in
accounting
periods beginning
on
or
after
1 January
2
023. Ea
r
ly application
is
permitted.
Th
e
amendments
were endorsed
by
the
EU
in
March
2022.
Amendmen
ts
to
IAS
1
‘
Presentation
of
Financial
Sta
tements
’:
Disclosure
of
Accounting Pol
icies
were
issued
by
the
IASB
in
February
2021,
f
or
prospective
ap
plication
in
acco
unting
p
eriods
b
eginning
on
or
after
1
January
2023. Early
application
is
permitted
. The amendments were en
dorsed
by the E
U in March 2022.
Amendmen
ts
to
IAS
12
‘
Income Taxes
’:
Deferred Tax related
to
Assets and
Liabilities arising from
a Single
Transaction
were
issued
by
the
IASB
in
May
2021,
for
retrospective
applicatio
n
in
accounting
periods
beginning
on
or
after 1
January 2023.
Early application
is
p
ermitted.
Basis of measurem
ent
The
finan
cial
statements
of
the
Compan
y
are
prepar
ed
under
the
historical
cost
basis,
excep
t
for
certain
financial instru
ments that have been m
easured at fair value as explain
ed in the acco
unting po
licies below.
Critical acco
unting judgem
ents and key
sources
of
estimation
uncertainty
In
preparing
the
financial
statemen
ts,
the
Company
makes
jud
gements
and
estimates
th
at
affect
the
application
of
accounting policies and r
eported am
ounts.
Critical accountin
g judgem
ents are key decision
s made
by
management
in
the application
of
the
Company’
s
accounting
policies,
other
than
those
in
volving
estimations,
which
have
the
m
ost
significant
effects
on
the
amounts r
ecognised
in
the financial statements.
Key
so
urces
of
estimation u
ncertainty represent
assum
ptions
an
d esti
mations made
by
m
anagement that
have
a
significant
r
isk
of
resu
lting
in
a
m
aterial
adjustment
to
the carr
ying
amount
of
assets
and
liab
ilities with
in
the next
financial year.
No
critical
acco
unting
judgements
have
been
made
in
the
proce
ss
of
applyin
g
the
Company’s
accounting
policies that h
ave had a
significant effect
on
the
amounts recognised
in
the fin
ancial statements.
The key
source
of
estimation uncertainty
is
the
v
aluation of
Level
3 financial
instruments. Valuation
techniques used to
measure the
fai
r value
of instruments categorised in
Lev
el
3
of
the fair
value hierarchy are
dependent
on
unobservable
parameter
s,
and
as
such
require
the
application
o
f
judgement,
involving
estimations
and
assump
tions.
The
fair
value
for
th
ese
financial
instrumen
ts
h
as
b
een
determ
ined
using
parameters
appropriate
for the
valuation m
ethodology
based on
prevailing
market ev
idence. It
is rec
ognised
that
the
unobserv
able
parameters
could
have
a
r
ange
of
reasonably
po
ssible
alternative
values.
See
accounting
policy 3(d) and note 22
‘Sensitivity of fair
values to changing
sig
nificant assumptions to reasonably possible
alternatives’.
The
Company
evalu
ates th
e critical
accounting
judgements
and
key
source
s
of
estimation
uncertainty
on
an
ongoing
basis and believes
that these are reason
able.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
18
2.
BASIS OF PREPARA
TION (CONTINU
ED)
The going concer
n assumpti
on
The
Comp
any’s
bu
siness
activities,
together
with
the
factors
likely
to
affect
its
future
development,
performance
and
position
, are r
eflected
in
the
Future Ou
tlook an
d Busin
ess Review
section
of
the
Directors’
report
on
p
ages
1
to
10.
In
addition,
the
no
tes
to
the
fin
ancial
statements
in
clude
the
Company’s
objectives,
policies
and
processes
for
manag
ing
its
capital;
its
financial
risk
manag
ement
objectives;
details
of
its
financial
instruments; an
d
its
exp
osures
to
cred
it risk and liqu
idity risk.
The
existing
an
d
potential
effects
of
war
in
Ukraine
and
COVID
-19
on
the
operational
capacity
of
the
business, access to liqu
idity and ca
pital, contractual obligatio
ns have been
considered on pages 1
and 2.
Taking the
above
factors
into
consider
ation, t
he
Directors beli
ev
e
it
is
r
easonable
to
assume
th
at
the
Company
will
hav
e
acce
ss
to
adequate
resources
to
continue
in
operational
existence
for
the
foreseeable
future
and
continue
to
adopt the goin
g concern basis
in
preparing th
e annual report
and finan
cial statements.
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING
POLICIES
a.
Functional currency
Items in
cluded
in
the fin
ancial statemen
ts are
measured
an
d presen
ted
in
E
uros, th
e cu
rrency
of
the prim
ary
economic
environment
in
which the
Company operates.
All
cu
rrency
amounts
in
th
e
financial
statements
and
Director
s’
repor
t
are
rounded
to
the
n
earest
thousan
d
Euros.
b.
Foreign currencies
All monetary
assets and
liab
ilities
denominated
in
curren
cies
o
ther than
Euros are
translated into
Euros
at
the
rates
ruling
at
the
reporting
date. Tra
n
sactions
and
non
-mon
etary
assets
an
d
liabilities
den
ominated
in
currencies other than
Eu
ros ar
e
recorded
at
the rates
pr
evailing
at
the dates
of
the transactions. All
translation
differences
are
taken
through
the
statemen
t
of
comp
rehensive
income.
Exchange
dif
ferences
reco
gnised
in
the
statement
of
comprehensive
income
are
presented
in
‘Other
revenu
e
’
or
‘Oth
er
expense’,
ex
cept
wh
ere
noted in 3(c)
below.
c.
Financial instrument
s
i)
F
inancial instruments
manda
torily
at
fair
value through profit
and loss
Trading financial instrum
ents
Trading
finan
cial
instruments,
which
includ
es
all
derivative
contrac
ts,
are
initially
reco
rded
on
trade
date
at
fair
value
(see
no
te
3(d)
below).
All
subsequent
ch
anges
in
fair
value,
foreign
ex
change
differences
and
unrealised
interest
are
reflected
in
th
e statemen
t
of
comprehensive
income
in
‘
Net
trading
in
come /
(expense)
’.
Realised interest
is
in
cluded
within
‘Interest
in
come’
or
‘Interest
expense
’.
Transaction
costs
are
incremental
costs th
at are
direc
tly attr
ibutable
to
the
acquisition,
issue
or
disposal
of
a
financial
instrumen
t.
Transaction
costs are
exclu
ded
from
the initial
fair
value
measur
ement
of
th
e fin
ancial
instrument.
These costs ar
e recognised
in
the statement
of
comprehensive in
come
in
‘Other
expense’.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
19
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
c.
Financial instrum
ents (continued)
i)
Financial instrument
s manda
torily
at
fa
ir value through profit
and loss (continued)
Non-trad
ing
financial a
ssets
at
FVPL
Non-trad
ing financial assets
at
FVPL include
prepaid eq
uity securities contracts.
Non-trad
ing
f
inancial
assets
at
FVPL
are
principally
financial
assets
where
the
Company
m
akes
decisions
based
upon
the
asse
ts’
fair
v
alue
and
gener
ally
recognised
on
settlem
ent
date
at
fair
v
alue
(see
no
te
3
(d)
below), since they are neither regular
way
nor
are they
d
erivatives. From the date the terms are agreed (trade
date),
until the
financial
asset
is
fund
ed (settlemen
t d
ate),
the Company
recognises
any
unrealised fair
va
lue
changes
in
the
financial
asset
as
non
-tradin
g
fin
ancial
assets
at
FVPL.
On
settlemen
t
date,
the
fair
valu
e
of
consideration
giv
en
is
r
ecognised
as
a
non
-tra
ding
financial
asset
at
FV
PL.
All
subseq
uent
changes
in
fair
value,
foreign
exchange
differences
an
d
interest
are
reflected
in
th
e
statement
of
comprehensive
inco
me
in
‘
Net
(expen
se)/ income
on
other f
inancial instru
ments held
at
fair v
alue
’.
Transaction
costs
are excluded
f
rom the
initial fair
v
alue mea
surement
of
the
fin
ancial ass
ets. These
co
sts are
recognised
in
the statement
of
comprehensive
income
in
‘
Other
expense’.
ii)
Financial instrument
s desig
nated
at
fa
ir value through profit
or
loss
Financial instrum
ents design
ated
at
FVPL in
clude loan
s and f
inancial liab
ilities designated
at
FVPL include
structured
notes.
The
Company
has d
esignated
certain
financial
assets
at
FVPL
when
the
designation
at
f
air value
eliminates
or
significan
tly
reduce
s
an
accounting
mismatch
which
wou
ld
oth
erwise
arise.
The
Company
has
also
designated
certain
financial
liabilities
at
FVPL
where
the
financial
liabilities
are
managed,
ev
aluated
and
reported inter
nally
on
a fair value b
asis.
From
the
date
the
transaction
in
a
financial
instrument
designated
at
FVPL
is
enter
ed
into
(trad
e
date)
until
settlement
date,
th
e
Company
recognises
an
y
u
nrealised
fair
valu
e
ch
anges
in
the
contract
as
finan
cial
instruments
designated
at
FVPL
in
the
statement
of
fin
ancial
position.
On
settlement
date,
the
fair
valu
e
of
consideratio
n
given
or
r
eceived
is
rec
ognised
as
a
financial
in
strument
designated
at
FVPL
(see
note
3(d)
below).
All s
ubsequen
t changes
in
fair
value,
foreign e
x
change differences and
unrea
lised interest
are reflected
in
the
income
statement
in
‘Net
income
/
(expense)
fr
om
other
financial
instru
ments
held
at
fair
value’
.
Realised
interest
is
includ
ed within
‘Interest
incom
e’
or
‘Interest
expense’.
Transaction
costs
are
excluded
from
the
initial
fair
value
measuremen
t
of
the
financial
instru
ment.
These
costs are recog
nised
as
incurr
ed
in
the statem
ent
of
comprehensive in
come
in
‘Other
expense’.
i
ii
)
Financial assets a
nd financial
liabilities
at
amo
rtised cost
Financial
assets classified
at
amortised
cost in
clude cash
and sho
rt-term dep
osits and
certain tr
ade and
other
receivables. Financial
liab
ilities
classified
at
amortised
co
st
include
Con
vertible Preferred
Equity Certificates
(“
CPECs
”)
, bank
overdraft and tr
ade and oth
er payables.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
20
3.
SUMMARY OF S
IGNIFIC
ANT ACCOUNT
ING POLICIES (CO
NTINUED)
c.
Financial instrum
ents (continued)
i
ii
)
Financial assets a
nd financial
liabilities
at
amo
rtised cost (continued)
Financial assets are r
ecognised
at
amortised
cost when the
Company
’s
business mod
el objective
is
to
collect
the
co
ntractual
cash
flo
ws
of
the
assets
and
wher
e
these
cash
flows
are
solely
p
ayments
of
princip
al
an
d
interest
on
the
princip
al
amount
outstand
ing
until
matu
rity.
Such
assets
are
recog
nised
when
the
Company
becomes a
par
ty
to
the contractual
provisions
of
the instrument. The
instrumen
ts a
re initiall
y measured
at
fair
value (see n
o
te 3(d)
below
) a
nd subsequently measured
at
amortised cost
less expected credit
losses
(“
ECL
”)
allowance.
Interest
is
r
ecognised
in
the
statemen
t
of
com
prehensive
in
come
in
‘Interest
in
come’,
using
the
effective
interest
rate
(“EIR”)
meth
od
as
described
below.
Transaction
co
sts
that
are
directly
attrib
utable
to
the
ac
quisition
of
the
financial
asset
ar
e
ad
ded
to
the
fair
valu
e
on
initial
reco
gnition.
ECL
and
rev
ersals
thereof
are
recognised
in
the
statemen
t
of
co
mprehensive
incom
e
in
‘
Net
im
pairment
loss
on
financial
instruments
’
.
Financial
liabilities
are
classif
ied
as
being
subsequen
tly
m
easured
at
amortised
cost,
except
where
they
are
held for
trading or are design
ated as measured at
FVPL.
They ar
e recognised
when th
e Company beco
mes a
party
to
the
contractual
provisions
of
the
instrument
and
are
initially
m
easured
at
fair
value
(see
note
3(d
)
below)
and
subsequently
measured
at
amortised
cost.
Inter
est
is
recognised
in
the
statement
of
comprehensive
income
in
‘Interest
expense’
u
sing
the
EIR
method
as
descr
ibed
below.
Transaction
costs
that
are
directly
attributable
to
the issue
of
the financi
al
liability are
deducted from
the fair value
on
initial recog
nition.
The CPECs issued
by
the Co
mpany are classified
as
financial liabilities
at
amortised cost
in
accordance with
the
substan
ce
of
the
contractual
arrangemen
t
and
I
AS
32
‘
Financial
In
strument
s:
Presentation
–
o
ffsetting
financial
instruments’
.
The
yield
on
the
CPECs
is
r
ecognise
d
in
th
e
statemen
t
of
comprehensive
income
in
‘Interest
ex
pense’
using
the EIR method
as
d
escribed below.
The
EIR
method
is
a
method
of
calculating
the
amortised
cost
of
a
financial
instrument
(or
a
group
of
financial
instruments)
an
d
of
alloca
ting
the
interest
inco
me
or
interest
ex
pense
ov
er
the
ex
pected
life
of
the
financial
instrument.
The
EIR
is
the
rate
that
ex
actly
disco
unts
the
estimated
f
uture
cash
paymen
ts
and
receip
ts
through
the
expected
life
of
the
f
inancial instru
ment
(o
r,
wher
e
appropriate
a
sho
rter
per
iod)
to
the
carry
ing
amoun
t
of
the
financial
instrument.
T
he
EIR
is
established
on
in
itial
reco
gnition
of
the
financial
instrument.
The
calculation
of
the
EIR
includes
all fees
and commissions paid
or
receiv
ed, transaction costs,
and
discounts
or
premiums
that are
an
integral part
of
the
EIR
.
d.
Fair value
Fair value
measurement
Fair valu
e
is
d
efined
as
the price
that would
be
received
to
sell
an
asset
or
paid
to
transfer
a liab
ility (i.e.
the
“exit
price”)
in
an
orderly
transaction between
market participants
at
th
e measurem
ent date.
Fair valu
e
is
a
market-
based
measure
consider
ed
from
the perspectiv
e
of
a
market
participant
rather
than
an
entity-specific
measure.
Th
erefore, even
when market ass
umptions are
not
readily available,
assumptio
ns are
set
to
reflect
those
that
the
Compan
y
be
lieves
market
participan
ts
wou
ld
use
in
pricing
the
asset
or
liability
at
the measurem
ent date.
Where
the
Company
m
anages
a
group
of
finan
cial
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 co
nsistently with
how
market participan
ts would pr
ice the net
risk exposure
at
the mea
surement
date.
In
determining
fair
val
ue,
the
Comp
any
uses
various
valu
ation
approaches
an
d
establish
es
a
hierar
chy
for
inputs used
in
measuring
fair value requires
that the mo
st observable in
puts
be
used when availab
le.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
21
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
d.
Fair value
(continued)
Fair value
measurement (
continued)
Observable
inputs
are
inputs
that
mark
et
p
articipants
would
use
in
pricing
th
e
asset
or
liability
that
wer
e
developed
b
ased
on
market
data
o
btained
f
rom
sourc
es
indepen
dent
of
the
Compan
y.
Unobservab
le
inputs
are in
puts th
at ref
lect assum
ption
s the
Comp
any
believes
other
mark
et p
articipants
would
use
in
p
ricing
the
asset
or
liability, that
are developed
based
on
the best in
formation availab
le
in
the circu
mstances.
The fair
value hierarchy
is broken
do
wn
into th
ree
lev
els
based
on
th
e
o
bservability of
inputs
as follows, with
Level 1 being
the highest and Level 3 b
eing the lowest level:
•
Level 1
–
Quoted prices (u
nadjusted) in an active mark
et for identical assets or liabilities
Valuations
based
on
quoted
prices
in
active
markets
that
the Mo
rgan
Stanley
Group
has
the
ability
to
ac
cess
for identical
assets
or
liabilities. Valuation
ad
justments and
block
discounts a
r
e
not
applied
to
Level
1
instru
ments.
Since
v
aluations
ar
e
based
on
quoted
prices
that
are
read
ily
and
regu
larly
available
in
an
active
market,
valu
ation
of
these
products
d
oes
not
entail
a
significant
degree
of
judgemen
t.
•
Level
2
–
Valu
ation techniques using ob
servable inputs
Valuations
based
on
on
e
or
more
quo
ted
prices
in
m
arkets
that
are
not
active
or
for
which
all
significant inp
uts are observable, eith
er directly or indirectly
.
•
Level 3
–
Valuation tech
niques with significan
t unobservab
le inputs
Valuations
b
ased
o
n
inpu
ts
that
are
uno
bservable
and
significant
to
the
overall
fair
valu
e
measurement.
The
av
ailability
of
ob
servable
in
puts
can
var
y
f
rom
product
to
produ
ct
an
d
is
affected
by
a
wide
variety
of
factors, for example, the ty
pe
of
product, whether the p
rod
uct
is
new and not yet
established
in
the
marketplace,
the
liquidity
of
markets
and
other
characteristics
p
articular
to
the
produ
ct.
To
the
exten
t
that
valuation
is
based
on
mo
dels
or
in
puts
that
are
less
observable
or
unobservable
in
the
market,
the
determination
of
fair value requires
more
judgement. Accordingly, the degree
of
judgemen
t exercised
by
the
Company
in
d
etermining
fair
value
is
g
reatest
for
instruments
categ
orised
in
Lev
el
3
of
the
fair
v
alue
hierarchy.
T
he
Company
considers
prices
and
inputs
that
are
cu
rrent
as
of
the
measurement
date,
including
du
ring
periods
of
market dislocation.
In
periods
of
market
dislocation, the observability
of
prices and inputs
m
ay
be
reduced
for
man
y
instruments.
This
con
dition
could
cause
an
instrumen
t
to
be
reclassified
from
Level
1
to
Level 2
or
from Lev
el 2
to
Level 3
of
the fair value
hierarchy.
In
cer
tain cases,
the
in
puts used
to
measure
fair
v
alue ma
y
f
all
in
to
different
lev
els
of
the
fair value
hierarchy.
In
such
cases,
the
total
fair
valu
e
amou
nt
is
disclosed
in
the
level
ap
propriate
for
the
lowest level
input
th
at
is
significant
to
the total
fair value
of
the asset
or
liab
ility.
The Company
incorporates Funding Valuatio
n Adjustment
(“FVA”)
in
the fair value measurements
of
over-
the-coun
ter
(“OTC”)
uncollateralised
or
p
artially
collateralised
derivativ
es,
and
in
collateralised
d
erivatives
where
the
term
s
of
t
h
e
agreement
do
not
perm
it
the
re
-u
se
of
th
e
collateral
received.
In
general,
th
e
FVA
reflects
a
market
fun
ding
r
isk
prem
ium
inherent
in
the
noted
derivative
instruments.
The
meth
odology
for
measuring
FVA
leverages
th
e
Com
pany’s
existi
ng
credit-related
valu
ation
adjustment
calculatio
n
methodologies,
which
apply
to
both assets and
liabilities.
For assets and liab
ilities that ar
e transferr
ed between
levels
in
the
fair value h
ierarchy during
the period,
fair
values are ascr
ibed
as
if
the assets
or
liabilities had bee
n transferred
as
of
the beginning
of
the p
eriod.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
22
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
d.
Fair value
(continued)
Valuation
techniques
Many
cash
instruments
an
d
OTC
d
erivative
contracts
h
ave
bid
and
ask
prices
that
can
be
observed
in
th
e
marketplace.
Bid
pr
ices
reflect
the
h
ighest
price
that
a
party
is
willing
to
pay
for
an
asset.
As
k
p
rices
represen
t
the
lo
west
price
that
a
party
is
willing
to
acc
ept
for
an
asset.
Th
e
Com
pany
carries
positions
at
the
point
within
the
bid
-ask
range
that
meets
it
s
best
estimate
of
fair
value.
Fo
r
offsetting
positions
in
the
same
financial
instrument,
the same price
within the
bid-ask spread
is
u
sed
to
mea
sure both
th
e long and short
positions.
Fair value for many
cash instruments and OTC derivative contracts
is
derived using pricing models.
Pricing
models tak
e into
account the co
ntract ter
ms,
as
well
as
m
ultiple inp
uts inclu
ding, wher
e applicab
le,
commodity p
rices, equity prices, inter
est rate yield
curves, credit cu
rves, correlation,
creditworthiness
of
the
counterp
arty, creditworthin
ess
of
the Company
, option vo
latility and currency
rates.
Where approp
riate, valuation adjustmen
ts are made
to
account f
or various
fa
ctors such
as
liquidity risk (bid-
ask
adju
stments),
credit
q
uality,
model
uncertainty
and
concentration
risk
and
funding
in
ord
er
to
arrive
at
fair value
.
Adjustments
for
liquidity
risk
ad
just
model-der
ived
mid-market
levels
of
L
evel
2
and
Lev
el
3
fin
ancial
instruments
for
the
bid-mid
or
mid-
ask
spread
required
to
proper
ly
reflect
the
exit
price
of
a
risk
position
.
Bid-mid and m
id-ask spreads are m
arked
to
levels observ
ed
in
trade activity, broker
quotes
or
ot
her external
th
ird-p
arty
data.
Wher
e
these
spreads
are
unobservable
for
the
particu
lar
position
in
q
uestion,
spread
s
are
derived fro
m observable lev
els
of
similar positions.
The
Company
applies
cred
it-related
valuation
adjustments
to
its
b
orrowing
s
(primarily
stru
ctured
no
tes)
which are designated
at
fair
value through profit
or
loss and
to
OTC derivatives. The Company considers the
impact
of
ch
anges
in
own
credit
spreads
based
upon
observations
of
the
secon
dary
bond
market s
p
reads
wh
en
measuring
the fair value f
or Borrowings.
For
OTC
d
erivatives,
the
impact
of
changes
in
both
the
Company’s
and
the
counterparty’s
credit
rating
is
considered
when
measuring
fair
value.
In
determining
the
exp
ected
exposure
the
Company
simulates
th
e
distribution
of
the
futur
e
exposure
to
a
counterparty,
then
applies
market-
based
defau
lt
probabilities
to
the
future exposure, leveraging ex
ter
nal third-party credit
default
swap
(“CDS”)
sp
read data.
Wh
ere CDS
spread
data are
unav
ailable for
a
spec
ific counterparty,
bond m
ar
ket spreads,
CDS
spr
ead
data based
on
th
e
counterp
arty’s
credit
rating
or
CDS
spread
d
ata
that
reference
a
comparab
le
counterparty
may
be
utilised.
The
Company
also con
siders collateral
held
and leg
ally enforceab
le m
aster netting
agreements
that
mitigate
its
exposure
to
each
counterp
arty.
Adjustments for
mo
del uncertainty
are taken
f
or positions
who
se
u
nderlying
mo
dels are
reliant
on
significant
inputs
that
are
neither
directly
nor
indirectly
observable,
hence
requirin
g
relian
ce
on
established
theoretical
concepts
in
their d
erivation. These ad
justments are
derived
by
making
assessments
of
the possible
degree
of
variability u
sing statistical app
roaches an
d market-based
information wh
ere possible.
The
Company
may ap
ply concentration
ad
justments to
certain
of
its
OTC d
erivative
portfolios
to
reflect
the
additional
cost
of
closing
out
a particularly large risk exposure.
Where possible, th
ese adjustments are based
on
observable
market
information
but
in
many
instances
sign
ificant
judgem
ent
is
requir
ed
to
estimate
the
costs
of
closing
out
concen
trated risk ex
posures
due
to
the lack
of
liquidity
in
the mark
etplace.
Valuation
process
Valuation
Control
(“
VC
”)
within
Finance
is
respo
nsible
for
the
Company’s
fair
value
valuation
policies,
processes and
procedures.
VC
is
indep
endent
of
the business units and repor
ts
to
the Chief Financial Officer
of
the
Mo
rgan
Stanley
Gr
oup
(“CFO”),
wh
o
has final
authority
over
the
valuation
of
the
Co
mpany’s
financial
instruments.
VC
implements valuation
contro
l
processes
d
esigned
to
validate
the
fair value
of
the
Company’s
financial in
struments m
easured
at
fair v
alue including
those derived
from pricing mo
dels.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
23
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
d.
Fair value
(continued)
Model Review
VC
,
in
conjunction with
the
Mo
del Ris
k
Man
agement
Department
(“MRM”)
,
which
reports
to
th
e
Ch
ief
Risk
Officer
of
the
Morgan
Stanley
Group
(“CRO”),
independently
reviews
valu
ation
models’
theoretical
soundness,
the
appropriateness
of
the
valuation
methodology
and
calib
ration
techn
iques
develop
ed
by
the
business u
nits usin
g
observable
inputs.
Where
inpu
ts are
not obser
vable,
VC
r
eviews th
e appropriaten
ess
of
the
pr
oposed
valuation
methodolog
y
to
determ
ine
that
it
is
consistent
with
how
a
mar
ket
participant
woul
d
arrive
at
the
unobservab
le
in
put.
The
valu
ation
meth
odologies
utilised
in
the
ab
sence
of
ob
servable
inputs
may
include
extrapolation
techniques
and
the
use
of
co
mparable
observable
inputs.
As
part
of
the
review,
VC
develops a methodology
to
independently verify the
f
air
value generated
by
the business
unit’s
valuation
models.
The
Comp
any
generally
subjects
valuations
and
models
to
a
review
process
initially
and
on
a
periodic
basis thereafter.
Independen
t Price Verification
The
business
units
are
respon
sible
for
deter
mining
the
fair
value
of
financial
in
struments
u
sing
ap
proved
valuation
models
an
d
v
aluation
meth
odologies.
Generally
on
a
month
ly
basis,
VC
indepen
dently
validates
the
fair
values
of
financial
instruments
determ
ined
using
valuation
models
by
determining
the
appropriaten
ess
of
the
inputs
u
sed
by
the
business
u
nits
and
by
testing
complian
ce
with
th
e
documented
v
aluation
methodologies
approved
in
the model
review process d
escribed above.
The results
of
this independent
p
rice verification
and any
adjustments made
by
VC
to
the
fair
v
alue ge
nerated
by
the
business
units
are
presented
to
managemen
t
of
the
Morgan
Stanley
Group’s
three
business seg
ments
(i.e. Institution
al Securities,
Wealth Manag
ement and
Investment Man
agement), th
e CFO and th
e
CRO
on
a
regular basis.
VC
u
ses r
ecently
ex
ecuted
transactions,
o
ther
observable
mark
et
data
such
as
exch
ange data,
b
roker/
dealer
quotes, third-party
pricing vendors
and aggregation
services
for validating the
fair values
of
financial
instruments
generated
using
valuation
models.
VC
assesses
th
e
ex
ternal
sources
and
th
eir
valu
ation
methodologies
to
determine
if
th
e
external
providers
m
eet
the
minimum
stand
ards
expected
of
a
third-par
ty
pricing sour
ce. Pricing data provid
ed
by
approved external sources are evalu
ated using
a number
of
approaches;
for
example,
by
corr
oborating
the
ex
ternal
sources’
prices
to
executed
trad
es,
by
an
alysing
the
methodology
and
assump
tions
used
by
the
external
source
to
gener
ate
a
price
and
/
or
by
evaluating
how
active
th
e
third
-party
pr
icing
source
(or
originating
sources
u
sed
by
the
third-party
pr
icing
sour
ce)
is
in
the
market. Based
on
this analysis,
VC
g
enerates a ranking
of
the observable market data designed
to
ensure that
the
highest-rank
ed
market data
sour
ce
is
used
to
validate
the
business
unit’s
fair
value
of
financial
instruments.
VC
reviews
the models and valuation
methodolo
gy used
to
price new
material Level 2
and Level 3
transactions an
d both FCG an
d MRM must
approve th
e fair value
of
the trade
that
is
initially reco
gnised.
Level 3 Transactio
ns
VC
reviews
the
business
unit’s
valuatio
n
techniques
to
assess
wheth
er
these
are
consistent
with
market
participant
assumptions.
Gains
and
losses
on
inception
In
the
normal
cou
rse
of
business,
the
fair
v
alue
of
a
financial
instrument
on
initial
recognition
is
the
transaction
price
(i.e.
the
fair
value
of
the
consideration
given
or
received).
In
certain
circumstances,
howev
er,
the fair
v
alue will
be
based
on
oth
er o
bservable
curren
t market
transactio
ns
in
the
same
in
strument,
withou
t
modificatio
n
or
repackaging,
or
on
a valuation
technique whose variables inclu
de only data fro
m observable
markets. When
such ev
idence exists, the Comp
any recog
nises a gain
or
loss
on
inception
of
the transaction.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
24
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
d.
Fair value
(continued)
Gains
and
losses
on
inception
(continued)
When the
use
of
uno
bservable market data has
a significant impact
on
d
etermining fair value
at
the inception
of
the transaction, the entire initial
gain
or
loss indicated
by
the valuation technique
as
at
the transaction date
is
not
recognised
immediately in
th
e statement
of
comprehensive income
but
is
deferred and recognised over
the
life
of
t
he instrument
or
at
t
he
ear
lier
of
wh
en
the unobservable
market data
becomes o
bservable, maturity
or
disposal
of
the instrum
ent.
e.
Modification a
nd derecognition
of
financial a
ssets and liabilities
The
Company
derecog
nises
a
financial
asset
when
the
contractual
rights
to
the
cash
flows
fr
om
the
asset
expire,
or
when
it
transfers
the
financial
asset
an
d
substantially
all
the
risk
an
d
rewards
of
ownership
of
th
e
asset.
If
the
asset
has
been
transferred,
and
the
Company
neither
tran
sfers
nor
retain
s
sub
stantially
all
of
the
risk
s
and rewar
ds
of
the asset, then
the Company
determines wh
ether
it
has retain
ed control
of
the asset.
If
the Co
mpany has
retained
control
of
th
e asset,
it
continues
to
recogni
se
the
financial
asset
to
the ex
tent
of
its
continuing
involvement
in
th
e
financial
asset.
If
the
Co
m
pany
has
not
retained
control
of
the
asset,
it
derecognises the
asset and sep
arately reco
gnises any rig
hts
or
o
bligation created
or
retained
in
th
e transfer.
The renegotiation
or
modification
of
the
co
ntractual cash
f
lows
of
a financial
instru
ment
can
lead
to
derecognition
wher
e
the
modification
is
“substantial”,
determin
ed
by
qualitative
assessment
of
wh
ether
the
revised
contractual
ter
ms
of
a
financial
asset,
such
as
a
loan,
ar
e
sign
ificantly
different
from
th
ose
of
the
original f
inancial
instrument.
In
the even
t that
the qualitative
assessment
is
un
clear,
a quantitative
10%
cash
flow test
is
perf
ormed.
Where
modificatio
ns
do
not
result
in
derec
ognitio
n
of
the
asset,
the
gro
ss
carrying
amount
of
the
fin
ancial
instrument
is
recalcu
lated
an
d
a
m
odification
gain
/
(loss)
is
rec
ognised
in
the
statement
of
comprehen
sive
income.
Upon derecognition
of
a financial ass
et, the difference between the previous carrying amount and the sum
of
any con
sideration
received, togeth
er with the
transfer
of
any cumulativ
e gain
/ loss previo
usly reco
gnised
in
equity, are
recognised
in
the
statement
of
comprehensive
income
within
‘
Net
gains
/
(losses)
on
derecognition
of
financial assets measured
at
amortised
cost.
The Company derecognises financial liabilities when the
Company’s
obligations are disch
ar
ged
or
cancelled
or
when they expir
e.
f.
Impairment
of
financial instruments
The Company
recognises loss allo
wances for
ECL
on
financial assets measured
at
amor
tised cost.
Measurement
of
ECL
For finan
cial assets, ECL are
the present
value
of
cash shortfalls (i.e.
the differ
ence between co
ntractual and
expected
cash flows) ov
er the expected life
of
the
financial instrument,
discounted
at
the
asset’s
EIR.
Where
a
financial
asset
is
credit-
impaired
at
the
reporting
date,
the
ECL
is
measured
as
the
differen
ce
between
the
asset’s
gross car
rying
amount and the p
resent value
of
future ca
sh flows, d
iscounted
at
the orig
inal EIR.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
25
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
f.
Impairment
of
financial instruments
(continued)
Measurement
of
ECL (co
ntinued)
The
Comp
any
applies
a
three
stage
ap
proach
to
measu
ring
ECL
based
on
the
change
in
credit
risk
since
initia
l
recognition
:
•
Stage
1:
if
the credit
risk
of
the financial instrument
at
the
rep
orting
date has
not
increased
significantly
since
initial
recogn
ition,
then
the
loss
allowance
is
calculated
as
the
lifetime
cash
shortfalls
that
will
result
if
a
defau
lt
occurs
in
the
next
12
month
s,
weighted
by
the
probability
of
that defau
lt occurring.
•
Stage
2:
if
there
has been
a significan
t in
crease
in
credit
ri
sk
(“SICR”)
since
initial
recognition,
th
e
loss
allo
wance
is
calculated
as
the
ECL
o
ver
the
r
emaining
lif
e
of
th
e
finan
cial
in
strument.
If
it
is
subsequently
determined
that there
has
no
longer been
a SICR
since initial
recog
nition,
then the
loss
allowance r
everts
to
reflecting
12
month expected
losses.
•
Stage
3:
if
ther
e
has
been
a
SICR
since
initial
recogn
ition
an
d
th
e
fin
ancial
instrumen
t
is
deem
ed
credit-impair
ed (see below for defin
ition
of
credit-impaired), the loss allowan
ce
is
calculated
as
the
ECL
over
the
remainin
g
life
of
the
finan
cial
instrumen
t.
If
it
is
subsequently
determ
ined
that
there
has
no
lo
nger been
a SICR
since
initial rec
ognition,
then the loss
allowance
reverts
to
reflecting
12
month
expected losses.
Notwithstanding
th
e
above,
for
tr
ad
e
receivables,
a
lifetime
ECL
is
always
calculated,
wit
hout
consider
ing
whether a SICR has o
ccurred.
Assessment of S
ICR
When
asse
ssing
SIC
R,
the
Comp
any
co
nsiders
b
oth
quantitative
and
q
ualitati
v
e
inf
ormation
and
analysis
based
on
the
Company’s
historical
ex
perience
and
ex
pert
credit
risk
assessmen
t,
including
forward
-
looking
information.
The
probab
ility
of
def
ault
(“PD”)
is
derived
from
internal cr
ed
it
rating g
r
ades
(based
on
available
infor
ma
tion
about the
borrower) and
multiple forward-loo
king
m
acroeconomic scenarios
which are
probability weighted.
Credit risk is consider
ed to have increased
significantly if the PD has significan
tly increased at the reporting
date
relative
to
th
e
PD
of
the
f
acility,
at
the
date
o
f
initial
recog
nition.
The
assessment
of
wh
ether
a
change
in
PD
is
“significant”
is
b
ased
b
oth
on
a
co
nsideration
of
the
relative
change
in
PD
and
on
qualitative
indicators
of
the
credit
risk
of
the
facility,
which
indicate
whether
a
loan
is
performin
g
or
in
difficulty.
In
addition,
as
a
backstop,
the
Company
considers
that
SICR
has
occurred
in
all
cases
when
an
asset
is
more
than
30
days
past
due.
The
Company
does
not
use
the
‘
low’
cr
edit
risk
practical
ex
pedient,
so
monitors
all
financial instru
ments subject to impair
ment for SICR, with the
exception of
trade receivables, as noted.
In
general, ECL ar
e measured
so
that they
reflect:
•
A probability
-weighted
range of possible ou
tcomes;
•
The time valu
e of money
; and
•
Relevant infor
mation relatin
g to past, current an
d future economic conditio
ns.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
26
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
f.
Impairment
of
financial instruments
(continued)
Calculation o
f ECL
ECL are calcu
lated using three main co
mponents:
•
PD
:
for
acco
unting
pur
poses,
the
12
m
onth
and
lifetim
e
PD
represen
t
the
expec
ted
point
-
in
-time
probability
of
a
default
over
the
nex
t
12
months
and
over
the
remaining
life
time
of
the
financial
instrument
respectively, based on
conditions existing at the balance shee
t date and future econo
mic
conditions.
•
L
oss
given
default
(“LGD”):
the
LGD
represents
expected
loss
condition
al
on
defau
lt,
taking
into
account
the
mitigating
eff
ect
of
collateral,
including
th
e
expected
value
of
th
e
collateral
when
realised and th
e time value of money
.
•
Exposure
at
d
efault
(“EAD”):
this
represents
the
ex
pected
EAD,
taking
into
acco
unt
the
exp
ected
repaymen
t of principal and interest from
the balance sheet date to the
date of def
ault event together
with any expected
drawdowns of the facility o
ver that period.
These
parameters are
generally derived
from internally
developed statistical
models, incorporating
historical,
current and f
orward-
looking macro
-economic d
ata and country risk
expert judgem
ent. The macro
-ec
onomic
scenarios are rev
iewed quarterly.
The 1
2
month
ECL is
equal
to
th
e
sum
over
the ne
xt
12 months
of
qu
arterly
PD multiplied
by LGD
and
EAD,
with
such
expected
losses
being
discounted
at
the
EIR.
Lifetime
ECL
is
calculated
using
the
discounted
present valu
e of total quarterly PDs multiplied by LGD an
d EAD, over the full rem
aining life of the facility.
When
measuring
ECL,
the
Company
considers
multiple
scenario
s,
except
where
practical
expedients
are
used
to
deter
mine
ECL.
Practical
exped
ients
are
used
wher
e
they
are
consistent
with
t
he
p
rinciples
described
above. ECL
on
certain trade receivables are calculated using a
‘matrix’
approach
which reflects the previous
history
of
credit
losses
on
these
f
inancial
assets,
app
lying
differen
t
pro
vision
lev
els
based
on
the
ag
e
of
the
receivable.
Alternatively where there
is
a history
of
no
cr
edit losses
and where this
is
expected
to
persist into
the future f
or structural
or
other r
easons, such
as
collateral
or
o
ther credit enhan
cement,
it
is
deter
mined
that
the
ECL
fo
r a
financial
instrument
is
de
minimis (highly
immaterial)
an
d
it
may
not
be
necessary
to
recognise
the ECL.
The Company measures ECL
on
an
individual asset
basis and
has
no
purchased
or
or
iginated credit-impaired
financial assets.
If
a
financial
asset
has
been
the
sub
ject
o
f
m
odification
wh
ich
does
not
lead
to
its
derecognition
(refer
accounting policy 3
(e)), SICR is assessed by comparing the risk of default of the financial instrument, based
on
the
m
odified
terms
at
the
rep
orting
date,
with
the
risk
of
def
ault
of
the
fin
ancial
instrument
at
incep
tion,
based on th
e financial instrument’s origin
al, unmodified, terms.
Where
the
mo
dification
of
contractu
al
cash
flows
of
a
financial
asset
lead
s
to
its
der
ecognition
and
the
recognition
o
f
a
new
asset
(refer
to
note
3(e)),
the
date
of
mod
ification
is
treated
as
the
date
of
in
itial
recognition
for
the
n
ew
financial
asset
when
d
etermining
whether
a
SICR
has
occurred
fo
r
that
modified
financial
asset.
In
rare
circu
mstances,
af
ter
modification,
the
new
asset
is
co
nsidered
to
be
cred
it
impaired,
in which case it is trea
ted as an asset which
was credit
-imp
aired at origination.
More inform
ation
on
measurement
of
E
CL
is
provided
in
note
20,
Financial risk m
anagement.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
27
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
f.
Impairment
of
financial instruments
(continued)
Presentation
of
ECL
ECL
is
recognised
in
th
e
statement
of
comprehensive
income
within
‘
Net
impairment
loss
on
finan
cial
instruments
’.
ECL
on
financial
assets
m
easured
at
amortised
cost
are
presen
ted
as
an
ECL
allo
wance.
Th
e
allowance red
uces the
net carrying amou
nt
of
the asset
on
the face
of
the statement
of
financial position
.
Credit-impaired fina
ncial in
struments
In
assessing
the
impairment
of
fi
n
ancial
instruments
under
the
ECL
model,
the
Company
defines
credit-
impaired
financial
in
struments
in
ac
cordance
with
the
Credit
Risk
Managem
ent
Department’s
p
olicies
an
d
procedures.
A
finan
cial
instrument
is
credit-impair
ed
when,
b
ased
on
current
information
and
even
ts,
it
is
probable that the
Com
pany will
be
unable
to
collect
all scheduled
payments
of
principal
or
i
nter
est when
due
according
to
the contractu
al terms
of
the agreem
ent.
Definition
of
Defau
lt
In
assessing
the
impairm
ent
of
fin
ancial
instrum
ents
under
the
ECL
m
odel,
th
e
Company
d
efines
defau
lt
in
accordance
with
th
e Credit
Risk
Management
Department’s
policies and
p
rocedures.
This
con
siders whether
the borrower
is
unlik
ely
to
pay
its
cred
it obligations
to
the Company
in
full
and takes into ac
co
unt qualitative
indicators,
su
ch
as
b
reaches
of
covenants.
The
d
efinition
of
d
efau
lt
also
includes
a
presumption
that
a
financial asset wh
ich
is
more
than
90
days p
ast due has def
aulted.
Write-offs
Loans
ar
e written
off
(either partially
or
in
full)
when th
ey are d
eemed unco
llectible
which g
enerally
occurs
when all
commercially reasonable means
of
rec
o
vering the loa
n
balance
have been
exhau
sted.
Such
determination
is
based
on
an
indication
that
the
borrower
can
no
lo
n
ger
pay
the
obligation,
or
that
the
proceeds
from
collateral
will
not
be
sufficient
to
pay
the
loan.
Partial write-o
ffs ar
e m
ade
when
a
portion
of
the
loan
is
uncollectable.
However
, fin
ancial assets
that are written off
co
uld still
be
subject
to
enfo
rcement activities
for recoveries
of
amounts
due.
If
the
amount
to
be
written off
is
grea
ter than
the accumulated
loss allowance,
the difference
is
reflected directly
in
the statement
of
comprehensive income
within
‘Net
impairment loss
on
financial
instru
ments’
an
d
is
not
rec
ognised
in
the
loss
allowance
account.
Any
subseq
uent
recover
ies
are
credited
to
‘Net
r
eversal
of
impairment
loss
es
on
fin
an
cial
instruments’
within
the
statement
of
compreh
ensive income.
g.
Cash and cash eq
uivalents
For
the
purposes
of
the
statemen
t
of
cash
flows,
Cash
and
cash
equivalents
comprise
cash
an
d
d
emand
deposits
with
ban
ks,
net
of
outstanding
b
ank
overdrafts,
along
with
highly
liquid
investments,
with
orig
inal
maturities
of
three
months
or
less,
that
are
readily
con
vertible
to
known
amounts
of
cash
and
subject
to
insignificant
risk
of
change
in
valu
e.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
28
3.
SUMMARY OF SIGNIFI
CANT ACCO
UNTING P
OLICIES (CONTI
NUED)
h.
Income ta
x
The tax expen
se represents th
e sum
of
the
tax currently payable.
The
tax
cu
rrently
payable
is
calcu
lated
based
on
taxab
le
profit
for
the
y
ear.
Taxable
profit
may
dif
fer
from
profit
before
income
tax
as
rep
orted
in
the
statement
of
comprehen
sive in
come b
ecause
it
exclu
des
items
of
income
or
expense
that
are
taxable
or
ded
uctible
in
other
years
and
it
further
excludes
items
that
are
never
taxable
or
deductib
le.
Taxable
profit
is
also
ad
justed
if
it
is con
sidered
that
it
is
no
t probable
that
a
tax
ation
authority
will
accept
an
uncertain
tax
treatment.
Th
e
Company’s
liability
f
or
current
tax
is
calcu
lated
using
tax
r
ates
that
have
been
enacted
or
substantively
enacted
by
the
reporting
date.
Current
tax
is
ch
arged
or
credited
in
the
statement
of
comprehensive
inco
me,
except
when
it
relates
to
items
charged
or
credited
directly
to
other comprehen
sive incom
e,
in
which ca
se the current
tax
is
also recorded
within other
compreh
ensive income.
Current
tax
assets ar
e
offset
against
cu
rrent
tax
liabilities
when
there
is
a
legally
enforceable
righ
t
to
set
off
current
tax
assets
ag
ainst
curren
t
tax
liabilities
and
the
Comp
any
intends
to
settle
its
curren
t
tax
assets
and
current
tax liabilities
on
a net basis
or
to
r
ealise the asset and
settle the liability
simultaneou
sly.
i.
Offsetting
of
financial assets and financia
l liabilities
Where
there
is
a
curren
tly
le
g
ally
enforceable
right
to
set
off
the
recognised
amounts
and
an
in
tention
to
either settle
on
a net
basis
or
to
realise
the asset
and the
liabili
ty s
im
ultaneously,
financial
assets
and financial
liabilities are
offset
and
the
net
amount
is
presented
on
the
st
atement
of
financial
p
osition.
In
th
e ab
sence
of
such cond
itions, financial
assets and fin
ancial liabilities are
presented
on
a
gross basis.
4.
NET INCOME ON
OTHER
FINANCIAL I
NSTRUMENTS HE
LD AT FAIR VA
LUE
2021
€'000
2020
€'000
Net income / (
expense)
on:
Non-trad
ing financial assets at FVPL:
Trade and other r
eceivables:
Prepaid equ
ity securities contracts
9,124
(11,539)
Financial assets designated
at FVPL:
Loans and
advances:
Loans
(16,965)
68
,842
Financial liabilities design
ated at FVPL:
Debt and other
borrowings:
Issued structu
red notes
87,362
145
79,521
57,448
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
29
5.
OTHER REVENUE
20
21
2020
€'000
€'000
Managemen
t
re
charges to other Morg
an Stanley Group
undertak
ings
2,
825
5,
109
Net foreign
exchange gains
1,023
-
3,
848
5,109
Managemen
t
recharges
to
other
Morgan
Stanley
Group
under
takings
repr
esents
€
2
,8
25
,000
(2020:
€
4,031,000
)
as
amo
unt
of
fee
received
in
relatio
n
to
intermediary
services
.
In
the
prior
year,
also
included
was
€
1,
078,000
as
amount
of
fee
received
on
rec
overy
of
residual
financing
income.
These
ar
e
in
line
with
the transfer pricin
g principles of the
Morgan
Stanley Group.
The
Comp
any
actively
manages
its
foreig
n
currency
exposure
risk
arising
on
its
assets
an
d
liabilities
in
cu
rrencies
other
than
Euro.
Net
fo
reign
exchange
gain
s
include
translation
differences
that
hav
e
arisen
due
to
foreign
exchange
exposur
e
created
as
a
result
of
hedging
assets
and
liabilities
recognised
for
Morg
an
Stanley Grou
p reporting purposes.
6.
INTEREST INCO
ME AND INTER
EST EXPENSE
All
inter
est
in
come
and
expense
relates
to
financial
assets
and
financial
liab
ilities
at
amortised
cost
and
is
calculated using
the EIR method
(refer to note 3(c)
).
No other gains or losses have been recognised in respect of financial assets
measured at amortised cost other
than as
disclo
sed as
‘Inter
est i
nco
me’, foreign
ex
change differences
included within
‘Other
rev
enue’ (note
5)
(2020:
‘Other
ex
pense’
(note
7))
an
d
reversal
/
(char
ge)
of
impair
ment
losses
reco
gnised
in
‘
Net
reversal
/
(loss) of im
pairment on finan
cial instruments
’
(note
8)
.
No
oth
er
gains
or
losses
have
b
een
recogn
ised
in
respect
of
financial
liabilities
at
amortised
co
st
other
th
an
as disclosed as ‘Interest expense’ and foreig
n exchange di
fferences included with
in
‘Other
revenue
’ (note
5
)
(2020:
‘Oth
er expense’ (note
7)).
‘Interest exp
ense’ includes the yie
ld pay
able on CPECs (see n
ote 11
).
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
30
7.
OTHER EXPENSE
20
21
2020
€'000
€'000
Auditors’ rem
uneration:
Fees payable to
the Company’s audito
r and its associates for th
e
audit of th
e Company’s financial statements
94
98
Bank charg
es
40
65
Net foreign
exchange losses
-
1,994
Managemen
t charges from
other Morgan Stanley
Group undertaking
s
2,390
-
Other
-
45
2,52
4
2,20
2
The Company
employed
no
staff during th
e year (20
20
: none).
The
Comp
any
actively
man
ages
its
foreig
n
cu
rrency
exposure
risk
arising
on
its
assets
and
liabilities
in
currencies
o
ther
than
Euro.
Net
foreig
n
exchange
losses
include
tran
slation
differen
ces
that
have
ar
isen
due
to
foreign
exch
ange
exposure
created
as
a
result
of
hedging
assets
and
liabilities
reco
gnised
for
Mor
gan
Stanley Grou
p reporting
purposes.
Managemen
t
charges
from
other
Morgan
Stan
ley
Group
undertaking
s
represents
reimbursement
o
f
residual
financing
income in line with the transfer
pricing principles of the
Morgan Stanley Group.
8. NET REVER
SAL / (L
OSS) OF IMPAIRMEN
T ON FINANC
IAL INSTRUME
NTS
The following tab
le shows the
net ECL rev
ersal / (charge
) for the year.
202
1
2020
€’000
€’000
Trade and oth
er receivables
62
1
(
620
)
62
1
(620)
There wer
e no write-offs d
uring the current or prior
year.
All
of the
ab
ove impairment
losses were
calculated on
an individual
b
asis.
No collective
impairment
assessments were mad
e during th
e year or prior year.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
31
9.
INCOME TAX
20
21
2020
€'000
€'000
Current tax ex
pense
Current year
706
1,008
Adjustment in r
espect of prior years
(10)
-
Income tax
696
1,008
Reconciliation
of
effective tax
rate
The
current year
income
tax
expense
is
lower
than
(20
20
:
equal
to
) that
resulting
from
applying
the average
standard
r
ate
of
corporation
tax
in
T
he
Netherland
s
fo
r
the
year
of
25%
(20
20
:
25%).
Th
e main
differences
are explain
ed below:
20
21
2020
€'000
€'000
Profit befo
re income tax
2,
825
4,031
Income tax usin
g the average standard r
ate of corporation tax
in The Netherland
s of 25% (20
20: 25%)
706
1,008
Impact on tax
of:
Tax (over) prov
ided in prior years
(10)
-
Total income
tax expense in the stat
ement of comprehens
ive
income
696
1,008
The
Company
is
included
in
a
fiscal
u
nity
with
Archim
edes
In
vestments
Coöperatieve
U.
A.
and
is
not
a
stand-alone taxpayer for
Dutch corporate
income tax
p
urposes. If,
an
d to
th
e extent
that, the
Company
wo
uld
benefit from
losses
of
other m
em
bers
of
the
f
is
cal
un
ity, thes
e may
be
settled
via inter-company mechanisms.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
32
10
.
FINANCIAL ASSETS AND FINANC
IAL LIABILITIES BY MEASUREM
ENT CATEGORY
The f
ollo
wing
tab
le
analyses fi
nancial assets
and financial
liabilities
as presented
in the
statement
of
financial
position by
IFRS 9 measurement
classifications.
31 December
20
21
FVPL
(mandatorily)
FVPL
(designated)
Amortised
cost
Total
€’000
€’000
€’000
€’000
Cash and short-term deposits
-
-
3,0
12
3,0
12
Trading financial assets:
Derivatives
3
73
,722
-
-
373
,722
Loans and advances:
Loans
-
8,117,998
-
8,117,998
Trade and other receivables:
Trade receivables
-
-
57
,985
57
,985
Other receivables
-
-
1,217,763
1,
2
17
,763
Prepaid equity securities contracts
23
,384
-
-
23
,384
Total financial assets
397
,106
8,117,998
1,
278,760
9,793,864
Bank overdraft
952
952
Trading financial liabilities:
Derivatives
650
,317
-
-
650
,317
Convertible preferred equity certificates
-
-
1,125,281
1,125,281
Trade and other payables:
Trade payables
-
-
142
,566
142
,566
Other payables
-
-
7,131
7,131
Debt and other borrowings:
Issued structured notes
-
7,835,669
-
7,835,669
Total financial liabilities
650
,317
7,835,669
1,
2
75
,930
9,761,916
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
33
10
.
FINANCIAL ASSETS AND FINANC
IAL LIABILITIES BY MEASUREM
ENT CATEGORY
(CONTINUED)
31 December 20
20
FVPL
(mandatorily)
FVPL
(designated)
Amortised
cost
Total
€’000
€’000
€’000
€’000
Cash and short-term deposits
-
-
7,050
7,050
Trading financial assets:
Derivatives
350,624
-
-
350,624
Loans and advances:
Loans
-
6,763,892
-
6,763,892
Trade and other receivables:
Trade receivables
-
-
33,452
33,452
Other receivables
-
-
1,257,308
1,257,308
Prepaid equity securities contracts
15,836
-
-
15,836
Total financial assets
366,460
6,763,892
1,297,810
8,428,162
Trading financial liabilities:
Derivatives
317,233
-
-
317,233
Convertible preferred equity certificates
-
-
1,125,281
1,125,281
Trade and other payables:
Trade payables
-
-
116,440
116,440
Other payables
-
-
6,576
6,576
Debt and other borrowings:
Issued structured notes
-
6,832,657
-
6,832,657
Total financial liabilities
317,233
6,832,657
1,248,297
8,398,187
Financial assets and financia
l liabilities de
signated at FVPL
The financial assets and
financial liab
ilities shown in the
tables above which ar
e designated at FVPL consist
primarily of the
following financial assets and finan
cial liabilities:
Structured
no
tes:
These
relate
to
fin
ancial
liabilities
which
arise
fro
m
selling
structured
prod
ucts
generally
in
the
form
of
notes,
certificates
and
warrants.
These
instruments
contain
an
emb
edded
derivative
which
significantly
modifies the cash flows
of
the issuance. The return
on
the instrument
is
link
ed
to
an
underlying
that
is
not
clearly and
closely related
to
the
debt
host including,
but
not
limited
to
, equity-linked notes. These
structured
no
tes
ar
e
designated
at
FVPL
as
the
risks
to
wh
ich
the
Comp
any
is
a
contractual
party
are
risk
managed
on
a
fair
value
basis
as
part
of
th
e
Company’s
trading
portfolio
and
the
r
isk
is
reported
to
key
managemen
t personnel
on
this basis.
Loans:
These
are
loans
to
other
Morgan
Stanley
Group
undertak
ings
that,
along
with
the
prepaid
equity
securities
con
tracts
an
d
th
e
derivative
contr
acts
classified
as
mand
atorily
at
FVPL,
are
part
of
th
e
hedging
strategy fo
r the obligations
arising pursuan
t
to
the issuance
of
the
structured no
tes.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
34
10
.
FINANCIAL ASSETS AND FINANC
IAL LIABILITIES BY MEASUREM
ENT CATEGORY
(CONTINUED)
Financial assets and financia
l liabilities de
signated at FVPL
(continued)
The
Compan
y
determines
the am
ount
of
changes
in
fair
value
attrib
utable
to
changes
in
coun
terparty
cred
it
risk
or
own
credit
risk,
as
relating
to
loans
and
issued
structured
notes,
by
first
determ
ining
the
fair
value
including
the
impact
of
counterparty
cr
edit r
isk
or
o
wn
credit
risk,
and
then
deducting
those chan
ges
in
fair
value
representing
managed
market
risk.
In
d
etermining
fair
value,
the
Compan
y
c
onsiders
the
impact
of
changes
in
own credit spreads based upon observatio
ns
of
the secondary bond market spreads when
measuring
the
fair value
fo
r
issued s
tructured notes.
The
Company considers that
this
ap
proach most
faithfully represents
the amo
unt
of
change
in
fair value
due
to
both counterparty credit risk and the
Company’s
own credit
risk.
T
he
carrying
amount
of
financial
liabilities
d
esignated
at
FVPL
was
€
1,387,000
lo
wer
than
the
contrac
tual
amount due at
maturity (31 December 20
20
: €
3,
706,000 lower).
At
initial
r
ecognition
of
a
specific
structu
red
no
te
issuance
pro
gram,
th
e
Company’s
issuance
p
rocess,
and
any
planned
hedgin
g
structure
relating
to
the
issuance
of
those
structured
notes,
has
been
consider
ed,
to
determine
whether
the
p
resentation
of
fair
value
changes
attributab
le
to
credit
r
isk
of
those
structured
notes
through
other
compreh
ensive
income
would
create
or
enlarge
an
accounting
mismatch
in
the
statement
of
compreh
ensive
income.
If
financial
instru
ments,
such
as
prepaid
equity
securities
co
ntracts,
derivatives
and
loans held
at
FVPL,
for
wh
ich
changes
in
fair
value incorporating
coun
terparty
cr
edit
risk are
reflected within
the
statemen
t
of
comp
rehensive
income,
ar
e
traded
to
economically
hedge
the
structured
no
te
issuances
in
full, the
f
air value
incorporating any counterparty credit
risk arising
on
the hedging instruments
may
materially offset any
ch
anges
in
th
e credit
risk
of
t
hese liabilities
(“DVA”)
applied
to
structured
n
otes, where
the counterpar
ties
of
th
e hedging instruments are
part
of
the Morgan Stanley Group
.
In
such cases, the
DVA
of
those
structured no
tes
is
not reflected
within oth
er comprehensive
in
come, and
instead
is
presented
in
the
statement
of
com
prehensive incom
e.
The followin
g table pr
esents the chang
e in fair v
alue an
d the cu
mulative ch
ange recogn
ised in the statement
of
co
mprehensive
income
attributab
le
to
own
credit
risk
for
issued
structured
n
otes
and
counterp
arty
credit
risk for loans.
Gain or (loss) re
cognised in
the statement
of
comprehensive incom
e
Cumulative g
ain or (loss)
recognised in the statem
ent
of comprehensive incom
e
20
21
2020
20
21
2020
€'000
€'000
€'000
€'000
Issued structur
ed notes
50,757
(
22
,026)
(
63
,062)
(113,819)
Loans
(50,757)
22
,026
63
,0
62
113,819
-
-
-
-
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
35
10
.
FINANCIAL ASSETS AND FINANC
IAL LIABILITIES BY MEASUREM
ENT CATEGORY
(CONTINUED)
Financial assets and financia
l liabilities de
signated at FVPL (co
ntinued)
The
following
tables
present
th
e
carrying
v
alue
of
the
Compan
y’s
financial
liabilities
designated
at
FVPL,
classified
accor
ding
to
underlying
security
type,
including,
single
name
eq
uities,
equity
indices
and
equity
portfolio.
20
21
Single
name
equities
Equity
indices
Equity
portfolio
Other
(1)
Total
€'000
€'000
€'000
€'000
€'000
Certificates and warrants
15
4,634
2,
107
28
,417
4,853
190,
01
1
Notes
2,
646
,
297
2,
521
,
839
1,
707
,
638
769,
88
4
7,
645
,
65
8
Total debt and other borrow
ings
2,
800
,
931
2,
523
,
946
1,
736
,
05
5
774,
73
7
7,
835
,
669
2020
Single
name
equities
Equity
indices
Equity
portfolio
Other
(1)
Total
€'000
€'000
€'000
€'000
€'000
Certificates and warrants
156,903
5,861
61,544
-
224,308
Notes
1,898,605
2,237,929
1,582,724
889,091
6,608,349
Total debt and other borrow
ings
2,055,508
2,243,790
1,644,268
889,091
6,832,657
(1) Other includes struct
ured notes that have cou
p
on or repayment terms l
inked to the performance of fun
d
s, debt securities, currencies
or commodities
.
The
majority
o
f
the
Company’s
financial
liabilities
designated
at
FVPL
pro
vide
expo
sure
to
an
underly
ing
single
name equity,
an
equity
ind
ex
or
p
ortfolio
of
equ
ities.
The
prep
aid
equity
securities
contracts,
d
erivative
contracts
and
loans
held
at
FVPL
that
the
Company
enters
into
in
o
rder
to
hedge
the
structured
no
tes
are
valued as d
etailed in no
te 3(d) and note
22(a) and h
ave similar valuation
inputs to the liabilities they hed
ge.
11.
CONVERTIBLE PREF
ERRED EQU
ITY CERTIF
ICATES
On
30
March 2012, t
h
e Company is
su
ed 11,252,813
of
C
PECs
of
€100
each,
classified
as
f
inan
cial liabilities
at
am
ortised
cost.
The
CPECs
were
issued
to
one
of
the
Company's
shareholder
s,
Ar
chimedes
Investmen
ts
Coöperatieve
U.A.
(a
Morgan
Stanley
Group
u
ndertaking),
in
exchange
for
cash
consideration
of
€1,125,281,000
.
The CPECs carry
no
voting rights. The Company
and the holder have the right
to
convert each issued CPEC
into
one
ordinary sh
are with a nominal
value
of
€100.
On 27
February 2018,
the maturity date
of the
CPECs was
a
mended
fr
om 150
years to
49 years from
t
he date
of
issuance.
The
CPE
Cs
m
ay
be
redeemed
earlier
at
the
option
of
the
Company
or
on
liquidation
of
the
Company.
The CPECs rank
ahead
of
the ordinary shares
in
the event
of
liq
uidation.
The
ho
lder
of
the
CPECs
is
entitled
to
rec
eive
an
annual
yi
eld
on
a
date
agreed
by
the
Compa
ny
and
t
he
holder.
The
yield
for
each
CPEC
is
calculated
as
income
d
eriving
from
th
e
Comp
any's
activities
less
th
e
necessary
amoun
ts
to
cov
er the co
sts
of
th
e Com
pany
divid
ed
by
the
number
of
CPECs th
en
in
issue. Other
income
relating
to
manag
ement
re
charges received
from
o
ther
Morg
an
Stanley
Group
undertakings and
gains
or
losses
from
financial
instrum
ents
designated
or
mandatorily
at
fair
value
thr
ough
profit
or
loss
are
excluded
from th
e calculation.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
36
11.
CONVERTIBLE PREF
ERRED EQU
ITY CERTIF
ICATES
(CONTINUED)
On 2
9 Ma
rch
2021,
the
Company
paid
the
accrued
yield
of
€
1
0,2
37
,000
(2020:
€
11,494,000)
to
the
holders
of
th
e
CPECs.
An
accrued
yield
f
or
the
y
ear
ended
31
December
20
21
of
€
11
,
007
,000
has
been
r
ecognised
in
the
statem
ent
of
co
mprehensive
income
in
‘Interest
expense’
(20
20
:
€8,930,000
).
The
liability
to
the
holders
of
t
he CPECs
at
31
December
20
21, recognised within
‘Trade
a
nd
other
payables’
,
is
€
7,
100
,000
(31
December 2
0
20
:
€6,330
,000
).
12.
TRADE AND OTH
ER RECEIVA
BLES
20
21
2020
€'000
€'000
Trade and other rece
ivables (amo
rtised cost
)
Trade receiv
ables:
Amounts du
e from other Morgan
Stanley Group und
ertakings
57
,985
33,452
Other receivab
les:
Amounts du
e from other Morgan Stanley
Group undertakings
1,217
,766
1,257,932
Less: ECL allowance
(3)
(624)
1,2
17
,763
1,257,308
Total trade and o
ther receiv
ables (amortised co
st)
1,2
75
,748
1,290,760
Trade and other rece
ivables (non
-trading at
FVPL)
Prepaid equ
ity securities contracts
23
,384
15,836
Total
1,299
,132
1,306,596
13.
TRADE AND OTH
ER PAYABLES
202
1
€’000
2020
€’000
Trade and other pay
ables (amo
rtised cost)
Trade payables:
Amounts du
e to other Morgan Stanley Gro
up undertakings
1
42
,566
116
,440
Other payab
les:
Amounts du
e to other Morgan Stanley Gro
up undertakings
7,
131
6
,5
76
149
,697
123
,016
14.
DEBT AND OTHER
BORRO
WINGS
20
21
€’000
2020
€’000
Debt and other borr
owings (designated a
t FVPL)
Issued structur
ed notes
7,
835
,669
6,832,657
Refer
to
no
te
10
for
details
of
issued
structured
notes
included
within
debt
and
other
bo
rrowings
designated
at
FVPL.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
37
15.
#
15
.
EQUITY
Ordinary share ca
pital
Ordinary
shares of
€100 each
€'000
Issued and fully paid
At 1 January
20
20
,
31 December 20
20
and 31 December 20
21
15,018
On
9
Decem
ber
2013
the
Articles
of
Associatio
n
of
the
Company
wer
e
amended
whereby
the
concept
of
authorised
share capital
was
abolished. Each share confers the right
to
cast
one
vo
te, provided that subject
to
mandatory
law,
all
resolu
tions
of
the
General
Me
eting
shall
be
adopted
by
unanimous
vote
in
a
meeting
in
which the
entire share cap
ital
is
pr
esent
or
represented.
The hold
ers
of
ordinary shares are en
titled
to
r
eceive dividends
as
declared
from tim
e
to
time.
Reserves
The
Compan
y
uses
the
contracts
that
it
purchases
from
o
ther
Morgan
Stanley
Gr
oup
undertakin
gs
to
h
edge
the
market
price,
in
terest
rate,
foreign
currency
an
d
o
ther
market
risks
associated
with
the
issuance
of
the
structured
notes,
consistent
with
the
Company
’s
r
isk
man
agement
strategy.
Both
the
contr
acts
and
the
structured
note
issuances
are
valued
at
fair v
alue
through
profit
or
loss and
no
net
cumulative
gain
or
loss
is
expected
to
be
realised
over
the
life
of
the
financial
instrumen
t
contracts.
Therefore,
a
legal
rev
aluation
reserve under
Part
9,
Book 2
of
the Dutch
Civil Code (
BW2, Article 39
0(1))
is
not
necessary.
Appropriation
of
the
net result fo
r the yea
r
The
statemen
t
of
financial
position
is
p
resented
after
the
propo
sed
appropriation
of
net
result
fo
r
the
year
ended
31
Dec
ember
2021.
The
Directo
rs
propose
to
ad
d
the
profit
to
retain
ed
earning
s
as
p
art
of
the
equity
shareholder
s’
funds.
16
.
DIVIDENDS
The following am
ounts represen
t the divid
ends paid in the current and
prior year:
202
1
2020
Per share
€
Total
€’000
Per share
€
Total
€’000
Dividends on
ordinary
shares
-
-
100
15,000
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
38
17.
ADDITIONAL CASH F
LOW
INFORMATION
17
.1
.
Cash and cash equiva
lents
For the pu
rposes of the statem
ent of
cash flows, cash an
d cash eq
uivalents com
prise the following
balances,
which hav
e less than three months matu
rity from the date o
f acquisition:
20
21
2020
€'000
€'000
Cash and short
-term depo
sits
3,0
12
7,050
Bank overdraf
t
(952)
-
2,060
7,050
17.2.
Reconciliation o
f cash flows f
rom operating
activities
20
21
2020
€'000
€'000
Profit for
the year
2,
129
3,023
Adjustments for:
Interest incom
e
(1
1,240)
(10,519)
Interest expen
se
10
,360
8,775
Income tax ex
pense
696
1,008
(Reversal) /
loss
o
f
im
pairment on
financial instruments
(
62
1)
620
Operating ca
sh flows before chang
es in operating assets
and liabilities
1,
32
4
2,907
Changes in op
erating assets
(Increase) / d
ecrease in trad
ing financial assets
(23,
098)
96,840
(Increase) / d
ecrease in lo
ans and advances
(1,354,
106)
301,422
Decrease in trad
e and oth
er receivables
9,
09
4
228,536
(1,368,
11
0)
626,798
Changes in op
erating liabilities
Increase in
trading financial liabilities
333
,
084
123,858
Increase
/
(decrease)
in trade and other pay
ables
26
,
555
(200,164)
Increase / (
decrease) in deb
t and other borrowings
1,003,
012
(538,211)
1,362,
651
(614,517)
Interest received
2
29
Interest paid
(5
)
(3
)
Income tax
es (paid) / received
(852)
2,293
Net cash flows
used in / from o
perating act
ivities
(4
,990)
17,507
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
39
17.
ADDITIONAL CASH F
LOW
INFORMATION (
CONTINUED)
17.3.
Reconciliation o
f liabilities arising fro
m financing a
ctivities
31 Decem
ber 2021
Balance at 1
January 2021
Cash flows
Non-cash
changes
Balance at 31
December
2021
€’000
€’000
Accrued yei
ld
€'000
€’000
Convertible preferred equity c
ertificates
1,125,281
1,125,281
Trade and oth
er payables
(1)
CPEC yield
6,330
(10,237)
11,007
7,100
Total
liabilities
fr
om
financing
activities
1,131,611
(10,237)
11,007
1,132,381
Balance at 1
January
2021
Cash flows
Non-cash
changes
Balance at 31
December
2021
€’000
€’000
Accrued
financing
€'000
€’000
Trade and oth
er receivables
(2)
Amounts
d
ue
(from)
/
to
other
Morgan
Stanley Goup
undertakings
(3)
2,580
(935)
(1,734)
(
89
)
Total assets from f
inancing activities
2,580
(935)
(1,734)
(
89
)
(1)
€142,597,000 of trade and othe
r payables do not arise from financing activities as at 31 Dece
mber 2021
.
(2)
€1,299,043,000 of trade and other receivables do not arise from
fin
ancing activities as at 31 December 2021
.
(3)
The balances represent the financing required to cover the net ca
sh flows between liabilities arising from financing activiti
es
and assets arising from investing activities.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
40
17.
ADDITIONAL CASH F
LOW INFORM
ATION (CONT
INUED)
17.3.
Reconciliation o
f liabilities arising fro
m financing a
ctivities
(continued)
31 Decem
ber 2020
Balance at 1
January 202
0
Cash flows
Non-cash
changes
Balance at 31
December
202
0
€’000
€’000
Accrued yei
ld
€'000
€’000
Convertible p
referred equity certificates
1,125,281
1,125,281
Trade and oth
er payables
(1)
CPEC yield
8,894
(11,494
)
8,930
6,330
Total liabilities
fro
m financing
activities
1,134,175
(11,494
)
8,930
1,131,611
Balance at 1
January 202
0
Cash flows
Non-cash
changes
Balance at 31
December
202
0
€’000
€’000
Accrued
financing
€'000
€’000
Trade and oth
er receivab
les
(2)
Amounts
d
ue
(from)
/
to
o
ther
Morgan
Stanley Goup
undertakings
(3)
(969)
1,112
2,438
2,580
Total assets from fin
ancing activities
(969)
1,112
2,438
2,580
(1)
€
116,686,000 of trade and other payables do not arise from fi
n
ancing activities as at 31 December 202
0.
(2)
€
1,309,176,000 of trade and other receivables do not arise from financing activities as a
t
31 December 202
0.
(3)
The balances represent the financing required to cover the net cash flows between liabilities arising from financing activities
and assets arising from investing activities.
In addition to
the above cash flows, there was a
dividend of
€15,000,00
0 declared and paid in
the year. Th
ere was n
o
liability in relation
to this at 31 Decem
ber 2020.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
41
18.
EXPECTED MATUR
ITY OF ASSETS AN
D LIABIL
ITIES
The
table
b
elow sh
ows
an
analysis
of
assets
and
liabilities
an
alysed
acco
rding
to
when
they
are
expected
to
be
recovered, realised
or
settled.
At 31 Dec
ember 2021
At 31 Dec
ember 20
20
Less than
or equal
to twelve
months
€’000
More than
twelve
months
€’000
Total
€’000
Less than
or equal
to twelve
months
€’000
More than
twelve
months
€’000
Total
€’000
ASSETS
Cash and short
-
term depo
sits
3,
012
-
3,
012
7,
050
-
7,
050
Trading finan
cial
assets
91
,839
281
,883
373
,722
118
,532
2
32
,092
350
,624
Loans and
advances
3,
210
,195
4,
9
07
,803
8,
117
,998
2,253,7
83
4,510,109
6,
763
,892
Trade and oth
er
receivables
1
50
,467
1,1
48
,665
1,299
,132
165
,479
1,1
41
,117
1,306
,596
3,
455
,513
6,
338
,351
9,
793
,864
2,544
,844
5,
883
,318
8,428,162
LIABILITIES
Bank overdraf
t
952
-
952
-
-
-
Trading finan
cial
liabilities
405
,676
244
,641
650
,317
124
,341
192
,892
317
,233
Convertible
preferred equity
certificates
-
1,125,281
1,125,281
-
1,125,281
1,125,281
Trade and oth
er
payables
149
,697
-
149
,697
123
,016
-
123
,016
Debt and o
ther
borrowings
2,867,240
4,968
,429
7,
835
,669
2.267,512
4,565,145
6,832,657
Current tax
liability
356
-
356
512
-
512
3,
423
,921
6,
338
,351
9,
762
,272
2,
515,381
5,883,318
8,
398
,699
19.
SEGMENT REPOR
TING
Segment
information
is
presented
in
respec
t
of
the
Company’s
business
and
geographical
segm
ents.
The
business and geographical segm
ents are based on the Company’s management and internal
r
eporting
structure.
Business segment
s
Morgan
Stanley
stru
ctures
its
b
usiness
segmen
ts
primarily
based
u
pon
the
nature
of
the
financial
pro
ducts
and
serv
ices
pro
vided
to
customers
an
d
Mo
rgan
Stanley’
s
internal
management
structure.
The
Company’
s
own business segm
ents are consistent with th
ose of Mo
rgan Stanley.
The
Comp
any
has
one
reportable
business
segment,
Institution
al
Securities,
which
provides
financial
services
to
financial
institutions.
Its
business
includes
the
issuan
ce
of
financial
in
struments
and
the
hedgin
g
of
the
obligations ar
ising pursuant to such
issuances.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
42
19.
SEGMENT REPOR
TING (
CONTINUED)
Geographical seg
ments
The Company o
perates in three geog
raphic regions
as listed b
elow:
•
EMEA
•
Americas
•
Asia
The following
table presents
selected statement
of
co
mprehensive income
an
d s
tatem
ent of
financial position
information of
th
e
Co
mpany’s
operations by
geograp
hic
area. The e
x
ternal revenues
(n
et
o
f
interest expense)
and
total
assets
disclosed
in
the fo
llow
in
g tab
le ref
lect
the r
egional
view
of th
e
Company’s
operations,
on
a
managed
basis.
The
basis
for
attributi
ng
ex
ternal
revenues
(
net
of
interest
exp
ense)
and
to
tal
assets
is
determined
by trading desk location.
EMEA
Americas
Asia
Total
20
21
20
20
20
21
20
20
20
21
20
20
20
21
20
20
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
External
revenues net
of interest
2,824
4,638
1,
142
1,579
762
636
4,728
6,853
Profit before
income tax
921
1,816
1,
142
1,579
762
636
2,825
4
,0
31
Total assets
3,8
52
,585
3,883,590
3,
888,905
3,254,311
2,052,374
1,290,261
9,793,864
8,428,162
All
o
f
the
Company’
s
external
revenue
(20
20
:
100%)
arises
from
transaction
s
with
other
Morgan
Stanley
Group undertakings.
Further details of
such transactions ar
e disclosed in the related party dis
clo
sures in note
25.
20
.
FINANCIAL RISK M
ANAGEM
ENT
Risk mana
gement pro
cedures
Risk
is
an
inh
erent p
art
of
the
Company’s
business activity
. The Com
pany
seeks
to
iden
tify, assess, monitor
and
manag
e
each
of
the
various
types
of
risk
in
volved
in
its
bu
siness
ac
tivities
in
acco
rdance
with
de
fined
policies an
d pro
cedures.
The Compan
y has
developed
its
o
wn r
isk man
agement p
olicy framewo
rk,
which
is
consistent with
and leverages
th
e
r
isk
m
anagement policies
and
p
rocedures
of
the
Mo
rgan S
tanley
Gr
oup and
which
include
escalation
to
the
Company’s
Board
of
Directors
and
to
a
pp
ropriate
senior management
personnel.
Significant r
isks faced
by
the Compan
y resulting
from
its
tradin
g activities ar
e set
out
below.
Credit risk
Credit
r
isk
r
efers
to
the risk
of
loss arising
when a
borr
ower,
cou
nterparty
or
issuer d
oes
not
m
eet
its
finan
ci
al
obligations
to
th
e
Company.
The
Company
pr
imarily
in
curs
credit
risk
to
institutions
and
so
phisticated
investors thr
ough
its
In
stitutional Securities bu
siness segment.
Credit risk exposure
is
managed
on
a global basis and
in
consideration
of
each
significant legal entity within
the Morgan Stanley
Group. The credit risk management
policies and procedures establish the framewo
rk for
identifying
, measuring, monitoring and
controlling
credit
risk
whilst
ensurin
g transparency
of
material credit
risks,
compliance
with
established
limits
and
escalating
risk
co
ncentration
s
to
appropriate
senior
managemen
t.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
43
20
.
FINANCIAL RISK
MANA
GEMENT (CON
TINUED)
Credit risk (co
ntinued)
The
Com
pany
enters
into
the
majo
rity
of
its
financial
asset
tr
ansactions
with
oth
er
Mo
rgan
Stanley
Gro
up
undertak
ings
,
and
both
the
Company
and
the
other
Morgan
Stanley
Gro
up
undertakin
gs
are
wholly-
owned
subsidiaries
of
the
sam
e
u
ltimate parent
entity, Morgan Stanl
ey
.
As
a result
of
the
implicit support that
would
be
provided
by
Morg
an
Stanley,
the
Comp
any
is
considered
expos
ed
to
th
e
credit
risk
of
Morgan
Stanley,
except where
the C
ompany transacts
with other
Morgan
Stanley Group
under
takings that
have
a
higher
credit
rating
to
that
of
Morgan Stan
ley.
Exposure
to
credit risk
The
maximum
exposure
to
credit
r
isk
(“gross
credit
ex
posure”)
of
th
e
Company
as
at
31
Dec
ember
20
21
is
disclosed
belo
w,
based
on
the
carryin
g
amoun
t
of
the
f
inancial
assets.
T
he
table
below
includ
es
financial
instruments
subject
to
ECL
and
not
subject
to
E
CL
.
Those
financial
instrumen
ts th
at bea
r credit
risk
but
are
no
t
subject
to
ECL
ar
e
sub
sequen
tly
m
easured
at
fair
valu
e.
This
table
d
oes
not
include
receiv
ables
ar
ising
from
pending
secur
ities
transactions
with
mark
et
counterparties
as
credit
risk
is
considered
insignifican
t.
Where
th
e
Comp
any
enters
into
cr
edit
enhancem
ents,
including
rec
eiving
cash
as
collateral
and
m
aster
netting
ag
reements,
to
man
age
the
cred
it
exposure
on
these
finan
cial
instrumen
ts,
the
f
inancial
effect
of
the
credit
enhan
cements
is
also
disclosed
below.
The
net
cred
it
exposure
represen
ts
the
credit
exposure
remaining
after the ef
fect
of
the credit enhan
cements.
The
Compan
y
does
not
have
any
significant
exposure
arising
from
items
not
recognised
on
its
sta
tement
of
financial p
osition.
Collateral
and
other
credit enhance
ments
The
Comp
any
has
en
tered
into
co
llateral
arrangem
ents
with
other
Morgan
Stanley
Group
u
ndertakings
to
mitigate
credit
risk
.
Collateral
held
is
m
anaged
in
accord
ance
with
th
e
Morgan
Stanley
Group’s
guidelines
and the
relevant underlying
agreements.
Exposure
to
credit risk
by
class
Class
31 December
20
21
31 December 20
20
Gross
Net
Gross
Net
credit
credit
credit
credit
exposure
Credit
Exposure
exposure
Credit
exposure
(1)
enhancements
(2)
(1)
enhancements
(2)
€'000
Subject to ECL:
Cash and short-term deposits
3,012
-
3,012
7,050
-
7,050
Trade and other receivables
(3)
1,2
75
,748
-
1,
275,748
1,
290,760
-
1,290,760
Not subject to ECL
:
Trading financial assets
(3)
373
,722
(336,649)
37
,073
350
,624
(281,714)
68
,910
Loans and advances
8,117,998
-
8,117,998
6,763,892
-
6,763,892
Trade
and
other rece
iv
ables
(3)
:
Prepaid equity securities
contracts
23
,384
(
23
,384)
-
15
,836
(15,836)
-
9,793,864
(360,033)
9,4
33
,831
8,428,162
(297,550)
8,130,612
(1) The
carrying am
ount recognise
d in
the
statement of
financial
position best r
epresents the
Com
pany's
maximum
exposure
to
credit ris
k
.
(2) Of
t
he resid
u
al net cr
edit exp
osure, inter
co
mpany
cross pr
oduct netting arr
a
ngements are
in place wh
i
ch would
allow for an
additional
€
169
,000
(2020: €nil) to b
e
offset in the ev
ent of defau
l
t by certain
M
organ Stanl
ey counterpart
i
es.
(3
)
At
31
December 2021,
n
et
cash
collateral
pledged
o
f
€
41
,
956
,000
was
recognised
in
trade
and
other
receiva
bles
in
the
statement
of
financial
position
against
derivatives
classified
as tr
ading fina
n
cial
assets/liabilities
and prep
aid
equity se
c
urities
contract. At
31
December
20
20
,
t
rade
and
other
receiva
b
les
included
net
cash
collateral
pledged
of
€
6,217,000.
Cash
collateral
is
determined
and
settled
on
a
net
basis.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
44
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Credit risk (co
ntinued)
Exposure to cred
it risk by internal ratin
g grades
Internal
credit
rating
s
ar
e
derived
using
methodolog
ies
generally
consistent
with
those
used
by
external
agencies.
Investment g
rade: AAA -
BBB
Non-inv
estment grade: BB -
CCC
Default: D
The
tables
below
sho
ws
gross
carrying
am
ount
and,
in
the
case
of
unrecognised
financial
in
struments,
nominal
am
ounts
by
internal rating
grade. All ex
posures subject
to
E
CL are Stage
1.
At 31 December
20
21
AA
A
BBB
Total
Loss
Allowance
Net of ECL
€’000
Subject to ECL:
Cash and shor
t term deposi
ts
338
2,
67
4
-
3,0
12
-
3,0
12
Trade and other re
ceivables
(1)
-
1,
237,4
49
38
,
302
1,
2
75
,751
(3)
1,2
75
,748
Total subject t
o
ECL
338
1,
240,123
38
,
302
1,
2
78
,763
(3)
1,
2
78
,760
Not subject t
o ECL:
Trading
financial
ass
e
ts
–
derivatives
-
336,
16
5
37
,
557
373,722
-
373,722
Loans and advan
c
es
-
8,117,998
-
8,117,998
-
8,117,998
Trade and other re
ceivables:
Prepaid
equity
securities
contracts
-
23
,
384
-
23,384
-
23,384
Total not subje
c
t to ECL
-
8,477,
54
7
37
,
557
8,
51
5,104
-
8,
51
5,104
At 31 Decemb
er 20
20
€’000
Subject to ECL:
Cash and shor
t term deposi
ts
151
6,899
-
7,050
-
7,050
Trade and other re
ceivables
(1
)
-
1,159,893
131,491
1,291,384
(624)
1,290,760
Total subject t
o
ECL
151
1,166,792
131,491
1,298,434
(624)
1,297,810
Not subject t
o ECL:
Trading
financial
ass
e
ts
–
derivatives
-
265,388
85,236
350,624
-
350,624
Loans and advan
c
es
-
-
6,763,892
6,763,892
-
6,763,892
Trade and other re
ceivables:
Prepaid
equity
securities
contracts
-
15,836
-
15,836
-
15,836
Total not subje
c
t to ECL
-
281,224
6,849,128
7,130,352
-
7,130,352
(1)
The Company h
as no financia
l
assets at s
t
age 3. At 31 December
20
21 ther
e
were no fin
a
ncial assets
past due but n
o
t impaired or
individually imp
aired (31 De
c
ember 20
20
: nil).
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
45
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Reconciliations of g
ross carrying amount a
nd ECL
Gross
carrying /
nominal
amount
Allowance
for ECL
€’000
€’000
Other receivables
As at 1 January 2021
1,
257,932
624
Derecognised due to
repayment
(
40
,166)
-
Changes in credit risk
-
(
621)
As at 31 December 2021
1,217,766
3
As at 1 January 20
20
1,485,414
4
Derecognised due to
repayment
(227,482)
-
Changes in credit risk
-
620
As at 31 December 20
20
1,257,932
624
The above gross
carrying
amounts
are
Stage
1 and excludes financial
assets
at
am
ortised cost
of
€
60
,
997
,000
(20
20
:
€
40,502,000
)
as
the correspond
ing ECL
is
imm
aterial.
There have been
no
changes made
to
estimation techniques
or
significant assumptions for estimating
impairment
during the
year.
There were
no
modifications
to
financial
ass
ets during t
he year
or
since
origination and therefore
mo
difications have
not
impacted EC
L staging.
As
at
31
December 2021, there
is
no
collateral
held
ag
ainst
credit-impaired
assets
(20
20
:
n
il).
Ther
e
are
no
finan
cial
assets
which
have
been
written off
during the y
ear ended
31
December
2021 (20
20
: nil).
Liquidity risk
Liquidity
risk
re
fers
to
the
risk
that
the
Company
will
be
unable
to
finance
its
operations
due
to
a
loss
of
access
to
the capital markets
or
difficulty
in
liqu
idating
its
assets. Liquidity risk
enco
mpasses
the risk
that the
Company’s
ability
(
or
per
ceived
ability)
to
m
eet
its
financial
obligation
s
withou
t
experiencing
significan
t
business
disruption
or
reputational
damage
that
may
threaten
the
Company’s
viability
as
a
going
concern
.
Liquidity
risk
also
en
compasses
the
associated
fun
ding
r
isks
trigger
ed
by
the
market
or
idiosyncratic
stress
events
that
may
cause
unex
pected
changes
in
funding
needs
or
an
inability
to
raise
new
fundin
g.
Generally,
the Company incurs
liquidity risk
as
a result
of
its
tr
ading, lending,
investing
and client faci
litatio
n activities.
The
Mo
rgan
Stan
ley
Group’s
Liq
uidity
Risk
Managemen
t
Framework
is
critical
to
helping
ensure
that
the
Company
maintains
sufficient
liq
uidity
reser
ves
and
d
urable
funding
sources
to
meet
its
daily
obligations
and
to
withstand
un
anticipated
stress
events.
Th
e
L
iquidity
Risk
Department
is
a
distinct
area
in
Risk
Managemen
t,
which
o
versees
and
monito
rs
liquidity
risk.
The
Liqu
idity
Risk
De
partment
ensures
transparency
of
material liquidity
risks,
complian
ce with
estab
lished risk
limits and
escalation
of
risk
co
ncentration
s
to
ap
p
ropriate
senior
management.
To
execute
these responsibilities,
the Liquidity
Risk
Department:
•
Establishes limits in lin
e with the Mo
rgan Stanley Group
’s risk appetite;
•
Identifies and
analyses emerging liqu
idity risks to ensure such risk
s are appropriately m
itigated;
•
Monitors and
reports risk exposures again
st metrics and
limits, and;
•
Reviews
the
methodo
logies
an
d
assumptions
underpin
ning
the
Mo
rgan
Stanley
Group’s
Liquid
ity
Stress Tests to ensure
sufficient liqu
idity and funding u
nder a range of adverse scen
arios.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
46
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Liquidity risk (
continued)
The
liqu
idity
risks
identified
by
these
processes
are
summarised
in
reports
produced
by
the
Liquidity
Risk
Department
that
are
circulated
to
and
discussed
with
the
EMEA
Assets
/
Liability
Managem
ent
Com
mittee
(“ALCO”), EMEA Risk Com
mittee an
d the MSI Risk
Com
mittee as appro
priate
.
The
Treasury
Departm
ent
and
applicab
le
business
units
have
primary
respon
sibility
f
or
evaluating,
monitoring
an
d
controlling
the
liquid
ity
risks
arising
from
the
Morgan
Stanley
Group’s
business
activities,
and
for
maintaining
processes
and
controls
to
manage
the
key
risks
inherent
in
their
respective
areas.
The
Liquidity Risk Department
coordinates with the
Treasury Department and
these
business units
to
help ensure
a consistent an
d compreh
ensive framewo
rk for man
aging liquidity r
isk across the
Morgan Stanley
Group.
The
Company’
s
liquidity
risk
manag
ement
policies
an
d p
rocedures
are
consistent
with
those
of
the
Morgan
Stanley Grou
p.
The primary goal of
the Company’s liquidity risk management framework is
to ensure that the C
o
mpany has
access
to
adequate
fu
nding
across
a
wide
ran
ge
of
mark
e
t
conditions
and
time
horizons.
T
he
framework
is
designed
to
en
able
the
Co
mpany
to
fulfil
its
f
inancial
obligations
and
support
the
execution
of
its
business
strategies.
The following p
rinciples guide the
Compan
y
’s liquidity risk man
agement framework
:
•
Sufficient
liquid
assets
sho
uld
be
maintained
to
cover
maturing
liabilities
and
other
planned
and
contingen
t outflows;
•
Maturity
profile
of
assets
and
liab
ilities
should
be
alig
ned,
with
limited
relian
ce
on
short
-term
funding;
•
Source, counter
party, currency, reg
ion, and term of funding shoul
d
be diversified; and
•
Liquidity Stress
Tests s
hould account
for stress
ed
liquidity re
quiremen
ts
and
the amount
of
liq
uidity
held should be
greater than those stressed requ
irements
.
The
Company
hedges
all
of
its
fin
ancial
liabilities
with
f
inancial
assets
entered
in
to
with
other
Morg
an
Stanley
Grou
p
undertakings,
wh
ere
bo
th
the
Company
and
other
Morg
an
Stanley
Gr
oup
undertakings
are
wholly-o
wned subsidiaries
of
th
e same p
arent, Morgan Stanley. Fu
rther, the maturity prof
ile
of
the financial
assets matches the matu
rity p
rofile
of
the financial
liabilities.
The
core
components
of
the
Morgan
Stanley
Group’s
liquidity
management
framework,
that
support
our
target liquid
ity profile,
which includes
consideration
of
the liquidity r
isk for
each individual legal en
tity, are
the Required
Liquidity
Framework, Liquid
ity Stress Tests a
nd the
Liquidity Resour
ces.
Required Liq
uidity Framewo
rk
The Required Liquidity Framework establishes the
amo
unt
of
liquidity the
Mor
gan Stanley
Gr
oup must hold
in
both
normal
and
stressed
en
vironments
to
ensure
that
its
fin
ancial
condition
and
over
all sou
ndness
is
not
adversely affected
by
an
i
n
ability (or
perce
ived i
n
ability)
to
meet
its
financial obligations in
a timely
manner.
The
Required
Liquidity
Framewo
rk
considers
th
e
most
constrain
ing
liqu
idity
requirement
to
satisfy
all
regulatory
and internal
limits
at
a Morgan
Stanley Gro
up and legal en
tity level.
Liquidity Stress Tests
The
Morgan
Stanley
Group
uses
Liq
uidity
Stress
Tests
to
model
ex
ternal
and
intercompany
flows
across
multiple
scenarios
and
a
range
of
time
horizo
ns.
These
scenarios
contain
various
comb
inations
of
idiosyncratic an
d market
stress events of differen
t severity and duration. The m
eth
odology, implemen
tation,
production
and
analysis of
the Com
pany’s
Liquidity
Stress Tests ar
e imp
ortant
components o
f the
Required
Liquidity Fram
ework
.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
47
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Liquidity risk (
continued)
Liquidity Stress Tests
(continued
)
The
Liquidity
Stress
Tests
are
pr
oduced
for
Morgan
Stanley
and
its m
ajor
operating
subsidiaries,
as
well
as
at major cu
rrency levels
, to captur
e specific
cash requ
irements and cash av
ailability at
various legal
entities.
The
Liquidity
Stress
Tests ass
ume
that
a
legal en
tity
will
use
its
own
liq
uidity
first
to
fund
th
eir o
bligations
before drawing
liquidity from its ultimate paren
t undertaking, Morgan Stanley
. Morgan Stanley will suppor
t
its subs
idiaries and will
no
t have
access to s
u
bsidiaries’ liquidity resources that are
subject to
any regulatory,
legal
or
tax
constr
aints.
In
addition
to
the
assumptions
und
erpinning
the
Liquidity
Stress
Tests,
Morgan
Stanley
Group
takes
into
consideration
the
settlement
risk
related
to
intra-day
settlement
and
clearing
of
securities and
financial ac
tivities.
Since
the
Company
hedges
the
liq
uidity
risk
of
its
fin
ancial
liab
ilities
with
financial
asset
s
that
match
the
maturity
profile
of
the
financial
liabilities,
the
Company
is
not
considered
a
major
op
erating
subsidiary
fo
r
t
he
pu
rposes
of
liquidity
risk.
However,
th
e
Company
wo
uld
have
access
to
the
cash
or
liquidity
reserves
held
by
Morgan
Stanley
in
the
unlik
ely
event
that
it
was
unable
to
access
ad
equate
financing
to
service
its
financial liab
ilities when they
become p
ayable.
The
Requ
ired
Liquidity Frame
work a
nd
Liquidity
Stress
Tests
are
evalu
ated
on
an
ongoing
basis
and
r
eported
to
the
Firm
Risk
Committee,
Asset/
Liability
Man
agement
Committee,
a
nd
other
appropriate
risk
com
mittees.
Liquidity Resou
rces
The
Mo
rgan
Stanley
Group
maintains
suff
icient
liquidity
resour
ces,
wh
ich
consist
of
unencumb
ered
highly
liquid
securities
and
cash
deposits
with
banks
(including
central
b
anks)
(“Liquidity
Resources
”)
to
cov
er
daily
fund
ing
needs
and
to
meet
strateg
ic
liquidity
targets
sized
by
the
Required
Liquidity
Framewo
rk
and
Liquidity
Stress
Tests.
The
Company
actively
manages
the
amo
unt
o
f
its
Liquidity
Resources
considering
the
following
component
s:
unsecured
debt
maturity
profile;
balance
sheet
size
and
composition;
funding
needs
in
a
stressed
en
vironment
inclusive
of
con
tingent
cash
outf
lows;
and
co
llateral
requirements.
The
amount
o
f
liquidity
r
esources
the
Morgan
Stanley
Gr
oup
is
based
on
the
Morgan
Stanley
Group
’s
risk
tolerance
and
is
subject
to
change
depending
on
market
and
firm
-specific
even
ts.
Unencumbered
highly
liquid
securities consist netted
trading assets, inv
estment securities
and secur
ities received as co
llateral
.
The Morgan Stanley
Group’s
Liquidity Resources,
to
which the C
o
mpany
has access,
is
held
within Morgan
Stanley
and
its
major
oper
ating
subsidiaries
and
is
composed
of
diver
sified
ca
sh
and
ca
sh
equ
ivalents
and
unencumber
ed highly liqu
id securities.
Eligible
unencumbered
highly liq
uid secur
ities includ
e
US
govern
ment secur
ities,
US
agency secu
rities,
US
agency
mortgage-backed
securities,
non
-
US
governm
ent securities and
other
highly liquid investmen
t grade
securities.
Liquidity
Resource
s
may
fluctuate
from
period
to
p
eriod
based
on
the
over
all
size
and
composition
of
the
balance
sheet,
the
maturity
prof
ile
of
our
unsecured
debt
and
estimates
of
fu
nding
needs
in
a
stressed
environment,
among
other factors.
The ability
to
mo
netise assets
d
uring
a
liquidity crisis
is
critical. The
Mo
rgan Stanley Group
believes that the
assets held
in
its
Liqu
idity
Re
sources
can
be
monetised
within
five
business
days
in
a
stressed
environ
ment
given th
e highly liquid
and diversified n
ature
of
the resources.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
48
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Liquidity risk (
continued)
Funding ma
nagement
The
Morg
an
Stanley
Group
man
ages
its
funding
in
a
manner
th
at
reduces
the
risk
of
disruption
to
th
e
Company’s
o
perations
.
The
Morgan
Stanley
Group
pursues
a
strategy
of
diversification
of
secured
and
unsecured
fu
nding
sources
(
by
product,
investor
and
region)
an
d
attempts
to
ensu
re
that
the
tenor
of
its
liabilities equals or ex
ceeds the expec
ted holding period of the assets being
financed
.
The Morgan Stanley Group funds
its
balan
ce sheet
on
a global basis through diverse
sources, which includes
consideration
of
the
funding
risk
of
each
leg
al
entity.
These
source
s
include
the
Mo
rgan
Stanley
Gro
up’s
equity
capital,
long-
term
borrowing,
securities
sold
und
er
agreements
to
repurchase
(“rep
urchase
agreements”),
securities lendi
ng, deposits,
letters
of
credit
an
d lines
of
cred
it.
T
h
e
Morgan
Stan
ley
Group
has
active financing programmes for both
standard and structured products targeting
global investors and
currencies.
Balance
sheet managemen
t
In
managin
g both
the Mo
rgan Stanley
Group’s
and th
e
Company’s
f
unding
risk th
e composition
and
size
of
the
entire
balance
sheet,
not
just
f
inancial
liab
ilitie
s,
is
mon
itored
an
d
evalu
ated.
The
liquid
nature
of
the
marketable
securities
and
short-term
rec
eivables
arising
p
rincipally
f
rom
sales
and
trading
ac
tivities
in
the
Institution
al
Securities
business
p
rovides
the
Morgan
Stanley
Group
and
the
Comp
any
with
flexib
ility
in
managing th
e composition
and size
of
its
balan
ce sheet.
Maturity analysis
In
the
following
m
aturity
analy
sis
of
financial
assets
and
financial
liabilities,
der
ivative
con
tracts
and
other
financial
instruments
held
at
FVPL
are
disclosed
according
to
their
ea
rliest
con
tractual
maturity;
all
such
amounts
are
p
resented
at
their
f
air
valu
e,
co
nsistent
with
how
these
fin
a
ncial
instrumen
ts
ar
e
man
aged.
All
other
am
ounts
repr
esent
un
discounted
cash
flows
receivable
and
payab
le
by
the
Comp
any
arising
f
rom
its
financial
assets
and
financial
liabilities
to
earliest
con
tractual
maturities
as
at
31
December
20
21
and
31
December 2
0
20
.
Receip
ts
o
f
finan
cial
assets
and
repayments
of
financial
liabilities
that are
subject to
immediate
n
otice
are
treated
as
if
notice
were
given
imm
ediately
an
d
are
classified
as
on
d
emand.
This
presentation
is
co
nsidered
b
y
the
Company
to
appropriately
ref
lect
the
liquidity
risk
aris
in
g
from
th
ese
financial
assets
and
financial
liabilities,
presented
in
a
way
that
is
co
nsistent
with
ho
w
the
liqu
idity
r
isk
on
these financial assets an
d financial liabilities is manag
ed by the Com
pany.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
49
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Liquidity risk (co
ntinued)
Maturity analysis (co
ntinued)
Greater
On
Less than
1 year -
2
2 years -
5
than 5
demand
1 year
years
years
years
Total
31 December
20
21
€'000
€'000
€'000
€'000
€'000
€'000
Financial assets
Cash and shor
t-term deposits
3,012
-
-
-
-
3,012
Trading financi
al assets:
Derivatives
29
,
597
90
,
678
58
,
767
1
72
,505
22
,
175
373,722
Loans and advan
c
es:
Loans
209,
40
7
3,013,
33
5
1,181,746
2,424,879
1,
288,631
8,117,998
Trade and other re
ceivables:
Trade re
c
eivables
57
,
985
-
-
-
-
57
,
985
Other rec
e
ivables
1,
217,763
-
-
-
-
1,217,763
Prepai
d
equity securiti
es contracts
23
,
384
-
-
-
-
23
,
384
Total financi
a
l assets
1,
5
41
,
14
8
3,104,
01
3
1,240,513
2,
597,384
1,
310,806
9,793,864
Financial liab
i
lities
Bank overdraft
952
-
-
-
-
952
Trading financi
al liabilities:
Derivatives
62
,
062
379,265
74
,
445
122,509
12
,
036
650,317
Convertible pref
e
rred equity
certificates
1,125,281
-
-
-
-
1,125,281
Trade and other
p
ayables:
Trade payables
142,566
-
-
-
-
142,566
Other payables
7,131
-
-
-
-
7,131
Debt and other
b
orrowings:
Issued structured
notes
171,208
2,724,748
1,166,068
2,
474,875
1,
298,770
7,835,669
Total financi
a
l liabilities
1,50
9
,2
00
3,104,013
1,240,513
2,
597,384
1,
310,806
9,
76
1,916
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
50
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Liquidity risk (co
ntinued)
Maturity analysis (co
ntinued)
Greater
On
Less than
1 year - 2
2 years - 5
than 5
demand
1 year
years
years
years
Total
31 December 2
0
20
€'000
€'000
€'000
€'000
€'000
€'000
Financial assets
Cash and shor
t-term deposits
7,050
-
-
-
-
7,050
Trading financi
al assets:
Derivatives
17
,
701
109,313
27
,
584
127,361
68
,
665
350,624
Loans and advan
c
es:
Loans
171,826
2,139,203
861,619
2,017,239
1,574,005
6,763,892
Trade and other re
ceivables:
Trade re
c
eivables
33
,
452
-
-
-
-
33
,
452
Other rec
e
ivables
1,
257,308
-
-
-
-
1,257,308
Prepai
d
equity securiti
es contracts
15
,
836
-
-
-
-
15
,
836
Total financi
a
l assets
1,
503,173
2,248,516
889,203
2,
144,600
1,
642,6
70
8,428,162
Financial liab
i
lities
Trading financial
l
iabilities:
Derivatives
22,794
116,655
54
,
763
75
,
746
47
,
275
317,233
Convertible pref
e
rred equity
certificates
1,125,281
-
-
-
-
1,125,281
Trade and other
p
ayables:
Trade payables
116,440
-
-
-
-
116,440
Other payables
6,576
-
-
-
-
6,576
Debt and other
b
orrowings:
Issued structured
notes
202,107
2,131,861
834,440
2,0
68
,854
1,
595,395
6,832,657
Total financi
a
l liabilities
1,
473,1
98
2,248,516
889,203
2,144,600
1,
642,6
70
8,398,187
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
51
20
.
FINANCIAL RISK M
ANAGEM
ENT (CONTINUED)
Market risk
Market risk
is
d
efined
by
IFR
S
7
‘
Financial Instruments
–
Di
sclo
sures
’
as
the
risk that
the
fair value
or
futu
re
cash flows
of
a f
inancial instrumen
t will fluctu
ate because
of
chang
es
in
market prices.
Sound market
risk management
is
an
integral
part
of
the
Compan
y’s
culture.
Th
e C
o
mpany
is
r
esponsible for
ensuring
that
ma
rket
risk
expo
sures
are
well-man
aged
and
monitor
ed.
The
Company
also
ensures
transparency
of
material market risks,
monitors compliance with
established
limits,
and escalates
risk
concentratio
ns
to
appropr
iate senior man
agement.
To
execu
te
these
responsibilities,
the
Co
mpany
mon
itors
the
market
risk
of
the
firm
against
limits
on
aggregate
risk
ex
posures,
performs
a
v
ariety
of
risk
analyses,
in
cluding
m
onitoring
Valu
e-
at
-risk
(“VaR”)
and
stress
testing
analyses,
routinely
r
eports
risk
sum
maries
and
m
aintains
the
VaR
and
sc
enario
analysis
methodologies.
The Company
is
managed
within
the
Mo
rgan
Stanley
Group
’s
glo
bal
framework.
The market
risk
manag
ement
policies
and
p
rocedures
of
the
Company
include
performin
g
risk
analyses
an
d
reporting
material risks iden
tified
to
appropriate sen
ior management
of
the Company.
The Company
is
exposed
to
the following
types
of
market risk un
der this defin
ition: equity price
risk.
Equity price
sensitivity analysis
The sensitivity analysis below
is
determined based
on
the ex
p
osure
to
equity price risk
at
31
December
20
21
and
31
December
20
20
respectively.
The
m
arket
risk
related
to
such
eq
uity
price
risk
is
m
easured
by
estimating
the
potential
reduction
in
total
compreh
ensive
inco
me
associated
with
a
10%
decline
in
the
unde
rlying
equity
price
as
shown
in
the
table
below.
Impact on Total Comprehensive Income
Gains/(Losses)
20
21
2020
€'000
€'000
Trading financial instruments
(781,229)
(681,682)
Trade and other receivables
–
at FVPL
(2,338)
(1,584)
Debt and other borrowings
783
,567
683,266
-
-
The
Company’
s
equity
price risk
is
on
equity
securities spread acr
oss EMEA, Americas a
nd Asia.
The
Com
pany
enters
into
the
majo
rity
of
its
financial
asset
tr
ansactions
with
oth
er
Mo
rgan
Stanley
Gro
up
undertak
ings, where
both the
Comp
any and
the
oth
er Morga
n Stanley Gr
o
up undertakings
are
wholly-owned
subsidiaries
of
the
same group par
ent entity, Mo
rgan Stanley.
The
issued
structur
ed
notes
expose
the
Com
pany
to
the
risk
of
ch
anges
in
market
pr
ices
of
th
e
under
lying
securities,
interest
rate
risk
and,
where
d
enominated
in
currencies
other
than
Euros,
the
risk
of
changes
in
rates
of
exchan
ge b
etween
th
e Eu
ro
and
the
other
relev
ant
currencies.
The
Com
pany
uses
the
co
ntracts
that
it
purchases
from
other
Mo
rgan
Stanley
Group
undertakings
to
hedge
the
market
price,
interest
rate
an
d
foreign
currency
risks
associated
with
th
e
issuance
of
the
structured
notes,
consistent
with
the
Com
pany’s
risk
management
strategy.
As
such,
the
Company
is
not
exposed
to
any
net
m
arket
risk
on
these
f
inancial
instruments.
The
net
foreign
ex
change
gains
recognised
in
‘
Other
revenue
’
(2020:
net
foreign
exchange
losses
included
in
‘Oth
er
ex
penses’)
have
arisen
as
a
result
of
exposure
to
h
edging
on
assets
and
liabilities
recogn
ised
fo
r
Morgan
Stanley Group p
urposes, under
the Morgan Stan
ley
Group’s
local reporting
requirements.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
52
21.
FINANCIAL ASS
ETS AND FINANCI
AL LIABI
LITIES SUBJ
ECT TO OFFSETT
ING
In
order
to
manage
credit
exposure
arising
from
its
business
activities,
the
Compan
y
applies
variou
s
credit
risk
managemen
t
po
licies
and
procedures,
see
note
20
for
further
details.
Primar
ily
in
connection
with
derivative con
tracts, prepaid equity securiti
es
contracts and issued structured
notes, the Company
enters into
master
netting
arrangem
ents
and
collateral
arrangem
ents
wi
th
its
counterparties.
These
agreemen
ts
p
rovide
the Com
pany
with th
e right,
in
th
e ordinary
course
of
business
and/
or
in
the even
t
of
a coun
terparty
default
(such
as
bankruptcy
or
a
counterparty’s
failure
to
pay
or
perform),
to
net
a
counterparty’s
rights
and
obligations
under
such
agreement
and,
in
the
event
of
coun
terparty
default,
set
off
collateral
held
by
the
Company
against the net
am
ount owed
by
the counterparty.
However,
in
certain
circumstances,
the
Comp
any
may
not
have
such
an
agreement
in
place;
the
relevant
insolvency
regime
(which
is
based
on
typ
e
of
counterpar
ty
entity
and
the
jur
isdiction
of
organisatio
n
of
the
counterp
arty)
may
not
su
pport
the
enfo
rceability
of
the
agreement;
or
the
Company
may
not
have
sought
legal advice
to
supp
ort the
en
forceab
ility
of
the
agreement.
In
cases wher
e the Com
pany has
not
deter
mined
an
agreement
to
be
enforceable, the
related amoun
ts are
not
offset
in
the tabular
disclosures.
In
the
statement
of
f
inancial
position,
financial
assets
and
fin
ancial
liabilities
are
only
o
ffset
and
presented
on
a
net
basis
wh
ere
there
is
a
current
legally
enforceable
right
to
set
off
the
recog
nised
amounts
a
nd
a
n
intention
to
either
settle
on
a
net
basis
or
to
realise
the
asset an
d
the
liability
simultan
eously.
In
the
absence
of such cond
itions, financial assets and finan
cial liabilities are
presented on a gro
ss basis.
The
fo
llowing
tables
present
inform
ation
about
the
offsetting
of
finan
cial
instruments
and
related
collateral
amounts. The effect of master netting arrangements, collateral agreemen
ts and other credit
enhancem
ents on
the Company’s ex
posure to credit risk i
s disclosed
in no
te
20
.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
53
21
.
FINANCIAL
ASSETS
AN
D
FINANCIA
L
LIABILI
TIES
SUBJE
CT
TO
O
FFSETTING
(CONTINUED)
Gross and net
a
mounts
presented in the
statement of f
inancial
position
(1)
Amounts not offset
in
the statement
of
financial posit
i
on
(2) (4)
Cash
collateral
(3)
Net
exposure
€’000
€’000
€’000
31 December 20
21
Assets
Trading financial assets:
Derivatives
373,722
(336,648)
37,074
Trade and other receivables:
Prepaid equity securities contr
acts
23,384
(23,384)
-
TOTAL
397,106
(360,032)
37
,074
Liabilities
Trading financial liabilities:
Derivatives
650,317
(339,332)
310,985
Debt and other borrowings:
Issued structured notes
7,835,669
-
7,835,669
TOTAL
8,485,986
(339,332)
8,146,654
31 December 20
20
Assets
Trading financial assets:
Derivatives
350
,624
(281,714)
68,910
Trade and other receivables:
Prepaid equity securities contr
acts
15
,836
(
15
,836)
-
TOTAL
366
,460
(297,550)
68,910
Liabilities
Trading financial liabilities:
Derivatives
317
,233
(241,139)
76,094
Debt and other borrowings:
Issued structured notes
6,832,657
-
6,832,657
TOTAL
7,149,890
(241,139)
6,908,751
(1)
Amounts i
nclude
€
37
,073,000 (31 D
ecember 20
20
: €
68
,910,000) of
trading financial
assets
–
derivat
i
ves
, €ni
l (
31
December 20
20
:
€nil)
o
f tr
ade and
other re
ceivables –
prepaid equity
securities
contracts, €
310
,985
,0
0
0 (
31 December
2020:
€75,797,000)
o
f
tradi
ng
financial liabilities
–
derivatives
and €7,675,252,000
(
31
December 20
20
: €
6,
720
,483,000) of
d
ebt
and other
borrowings
–
issued
structured
notes which
are e
i
ther
not subject
to mas
t
er
netting agreeme
nt
s
o
r
collateral
agreements
or are
subject
to such
agreements
but the Compan
y
has not det
ermined t
he agreements
t
o be legally e
nforceable.
(2)
Amounts
relate
to
master
netting
arrangements
and
collateral
arrangements
which
have
been
determined
by
the
Company
t
o
be
legally enforcea
ble but do not meet all cri
teria requir
e
d for net prese
ntation within the stateme
nt of financial position.
(3)
Cash collateral used to
mitigate credit risk
on exposures arising under derivatives contracts and prepaid equity
securities contracts
is
determined
and
settled
o
n
a
net
basis
and
has
been
recognised
in
the
stateme
n
t
of
financial
position
within
‘Trade
and
other
receivables’ and ‘Tr
ade and other payables’ in 2
021
.
(4)
In addition to
the balances
disclosed in the
table above,
certain ‘Trade
and other receivables’ of €15,
316,000
(31 December
20
20
:
€
27,285,000
of ‘
Trade and other
receivables
’) not presented net within the
statement of financi
al po
sition have legally enforc
eable
master netting a
g
reements i
n place and can
be offset in
t
he ordinary c
o
urse of bus
i
ness and/or
in the event of
d
efault.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
54
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE
a.
Financial assets a
nd liabiliti
es recognised
at
fa
ir value
on
a recurring
basis
The
follo
wing
tables
pr
esent
the
carry
ing
value
of
th
e
Company’s
financial
assets
an
d
finan
cial
liabilities
recognised
at
fair value
on
a recurring b
asis, classified acco
rding
to
the fair value
hierarchy.
31 Decem
ber
20
2
1
Quoted prices
in active
market
(Level 1)
Valuation
techniques
using
observable
inputs
(Level 2)
Valuation
techniques
with
significant
unobservable
inputs
(Level 3)
Total
€’000
€’000
€’000
€’000
Trading finan
cial assets:
Derivatives
Interest rate contrac
ts
Equity contracts
Commodity contr
acts
-
25
,758
8,
881
34,639
-
327
,448
11
,
57
2
33
9,020
-
63
-
63
-
353,269
20
,453
37
3,722
Trade and oth
er receivables:
Prepaid equ
ity securities contracts
-
23
,384
-
23,384
Loans and
advances:
Loans
-
8,
117
,998
-
8,
117
,998
Total financial a
ssets measured at f
air value
-
8,
494
,651
20
,453
8,
515
,104
Trading finan
cial liabilities:
Derivatives
Interest rate contrac
ts
Equity contracts
Foreign exchange
contracts
Commodity contr
acts
-
5,
645
7,
531
13,176
-
592
,318
44
,715
637
,033
-
95
-
95
-
-
13
13
-
598
,058
52
,259
650
,317
Debt and o
ther borrowings:
Certificates and warr
ants
-
190
,
01
1
-
190
,
01
1
Notes
-
7,
524
,
75
7
120
,901
7,
645
,
65
8
Total debt and o
ther borrowings
-
7,
714
,
76
8
120
,901
7,
835
,669
Total financial liabilities m
easured at f
air value
-
8,
312
,826
173
,160
8,
485
,986
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
55
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
a.
Financial assets a
nd liabiliti
es recognised
at
fa
ir value
on
a recurring
basis (continue
d)
31 Decem
ber
20
20
Quoted prices
in active
market
(Level 1)
Valuation
techniques
using
observable
inputs
(Level 2)
Valuation
techniques
with
significant
unobservable
inputs
(Level 3)
Total
€’000
€’000
€’000
€’000
Trading finan
cial assets:
Derivatives
Interest rate contrac
ts
Equity contracts
Foreign exchange
contracts
Commodity contr
acts
-
16,282
16,512
32,794
-
277,381
39,998
317,379
-
319
-
319
-
132
-
132
-
294,114
56,510
350,624
Trade and oth
er receivables:
Prepaid equ
ity securities contracts
-
15,836
-
15,836
Loans and
advances:
Loans
-
6,763,892
-
6,763,892
Total financial a
ssets measured at f
air value
-
7,073,842
56,510
7,130,352
Trading finan
cial liabilities:
Derivatives
Interest rate contrac
ts
Equity contracts
Foreign exchange
contracts
Commodity contr
acts
-
7,302
21,052
28,354
-
212,075
76,792
288,867
-
10
-
10
-
2
-
2
-
219,389
97,844
317,233
Debt and o
ther borrowings:
Certificates and warr
ants
-
215,580
8,728
224,308
Notes
-
6,203,699
404,650
6,608,349
Total debt and o
ther borrowings
-
6,419,279
413,378
6,832,657
Total financial liabilities m
easured at f
air value
-
6,638,668
511,222
7,149,890
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
56
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
a.
Financial assets a
nd liabiliti
es recognised
at
fa
ir value
on
a recurring
basis (continue
d)
The
Compan
y’s v
aluation
approach
and
f
air
value
hierarchy
categor
isation
for
certain
significant
classes
of
financial instru
ments recognised at fair v
alue on a recurring basis is as follows:
Derivatives
Asset and L
iability / Valuati
o
n Techni
que
Valuation Hi
erarchy Classif
ication
Derivatives
OTC Deriva
t
ive Contr
acts
•
OTC
derivative
contracts
include
forwa
rd
,
swap
and
option
contrac
ts
related
to
interest
rates,
foreign
currencies,
credit
standing
of refe
rence e
ntities,
equity
prices
or commo
dity prices.
•
Depending on the product and the terms of
the transaction, the fair value of OTC
derivative
products ca
n be mode
l
ed u
sing a ser
i
es of
techniques,
including c
l
osed-
form
analytic
formulas,
such
as
the
Bl
ack-Scholes
option-prici
ng
model,
simulation
models
o
r
a
combinati
on
thereof.
Many
pricing
models
do
not
entail
material
subjectivity
as the
methodologies
employed
do not
necessitate
significant
judgment, since
model
inputs
may be
observed
from
actively quoted
markets,
as
is
the
case
for
gen
eric
interest
rate
swaps,
many
equity,
commodi
ty
and
foreign
currency
option
contracts,
and
certain
CDSs.
In
the
case
of
more
establishe
d
derivative
products, the p
ri
cing
models
used by the
Company are
widely accepted
by the finan
cial servic
es industry.
•
More comp
l
ex OTC
derivati
ve products
are typically less li
q
uid and re
quire more
judgment
in
the
impleme
ntation
of
the
valuation
technique
since
direct
trading
activity
or
quotes
are
unobservable.
This
inc
l
udes
certain
types
of
interest
rate
derivatives
with
both
volatility
and
correla
tion
e
xposure,
equity,
commo
dity
or
foreign
currency
derivative
s
that
are
either
longer-dated
or
include
exp
o
sure
to
multiple
underlyings, a
nd credit
derivatives,
includi
ng CD
Ss on c
ertain mor
t
gage-
or a
sset-backed
s
ecurities
and
basket
CDSs. Whe
re required
these
inputs
are
unobservabl
e,
relationsh
ips
to
observabl
e
d
ata points,
based
on
historic
al
and/
or
implied
observations,
may
b
e
employed
as
a
techniqu
e t
o
estimate t
h
e m
odel inpu
t
values.
•
Generally
Level
2
-
O
TC
derivat
ive
products
valued
using
observable
inputs, or where
the unobservable input
is not deeme
d significant.
•
Level
3
-
OTC
derivativ
e
products
for
which t
h
e un
observable inp
u
t is
deemed
significant
Prepaid equity securities cont
racts and issued
structured notes
Prepaid
equity
securities
contracts
and
issued
s
tructured
notes
designated
a
t
fair va
l
ue
through pr
o
fit or loss
•
The
Company
issues
structure
d
notes
and
trades
prepaid
equity
securities
contracts
which
are
primaril
y
com
p
osed
of
in
s
truments
whose
payments
and
re
d
empti
on
values
are
linked
to
the
performance
of
a
specific
index,
a
b
asket
of
stocks,
a
specific
s
ecurity,
a
commodity,
a
credit
exposure
or
basket
of
credit
exposure
s,
and
instruments
wit
h
various
interes
t
-rate-related
fea
t
ures
includi
n
g
step-ups,
step-
downs, a
nd zero coup
o
ns.
•
Fair
v
alue
of
structured
notes
and
traded
prepaid
equity
secur
ities
contracts
is
determined
using
valuat
ion
models
f
o
r
the
derivative
a
nd
debt
portio
ns
of
the
structured
notes a
nd trade
d p
repaid e
quity
s
ecurities
c
ontracts.
These
models
incorporate observable inputs referencing i
dentical
or comparable
securitie
s,
including
p
rices
to
which
the
notes
are
l
inked,
interest
rate
y
ield
curves,
option
volatility a
n
d currency
rates, and commodi
ty or equity prices.
•
Independent,
externa
l
and trade
d
prices f
or th
e notes are
considered as we
l
l as the
impact of t
h
e Compa
ny’s own credit spr
eads
which are ba
s
ed on obse
rved
secondary
b
ond marke
t
spread
s.
•
Generally Leve
l 2
•
Level
3
-
in
instance
s
where
the
unobservabl
e
inputs
are
de
emed
significant
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
57
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
a.
Financial assets a
nd liabiliti
es recognised
at
fa
ir value
on
a recurring
basis (continue
d)
b.
Tra
nsfers
between
Level
1
and
Level
2
of
the
fair
value
hierarchy
for
financial
assets
and
liabilities
recognised
at
fair
value
on
a recurring basis
There wer
e
no
tran
sfers between L
evel 1 and
Level 2
of
the fair valu
e hierarchy d
uring the current
and prior
year.
Prepaid equity securities cont
racts and issued
structured notes (continued)
Notes
•
Notes give
a
risk
exposure tailored to
market v
iews and
risk
appetite
and mainly
provide
exposur
e
to
the
underlying
single name
equit
y,
equity
index
or
portfolio
of
equit
i
es.
Typically,
the
redem
ption
p
ayment o
f
the
note
is
significant
l
y
dependent o
n
t
he
v
alue
o
f
embedde
d
equit
y
derivatives
.
In
general,
call
and
put
options, di
g
ital option
s, straddles an
d
callabi
l
ity feature
s are comb
ined to crea
te a
bespoke
coupon
rate
or re
d
emption
payoff
for ea
ch note
issuance,
with ris
k
exposure to
one
o
r
more equity
underlyings
or
indices.
The
Company values
the
embedded
derivatives
using mar
ket standard mo
d
els, wh
i
ch are a
ssessed f
or
appropriatene
ss
at
least
annually.
Mod
el
inputs,
such
as
equity
forward
rates,
equity
implied
volatility
and
equity c
orrelations
are
marked s
u
ch
that t
h
e
fair
v
alue
of the d
erivative
s
match prices observable in
the inter-dealer markets. In
arriving
at
fair
value,
the
Company
uses
discount
rates
appropr
i
ate
to
the
funding
rates
specific to the
instrument.
In general, this results in
overnight
rates being used to
discount
the
Company
assets
and
liabilities.
I
n
additio
n
,
since
the
notes
bear
Morgan Stanley’
s
credit risk, the Company
considers this when assessi
n
g the fair
value
of
the
n
otes,
by
adjusting
the
discount
rates
to
reflect
the
prevail
ing
credit
spread at t
he reporti
n
g date.
•
The Compan
y
has a small n
umber of notes w
h
ere the cash flo
ws
due on the no
t
es
is de
p
endent
on embedde
d
deri
v
atives
linked to
the intere
s
t rate,
foreign excha
nge
or
commodity
markets. The
Company
values
these
notes
in
the
same w
ay
as
for
equity-linke
d
notes,
by
using
market
standard
models
and
marking
the
inputs
to
match pr
i
ces o
b
served
in the
inter-dealer O
TC mar
k
ets. Sim
i
larly t
o
eq
uity-linked
notes,
these
issuances
bear
Morgan
Stanley’
s
credit
risk,
and
the
valua
tion
is
assessed acc
o
rdingl
y
.
•
Generally Leve
l 2
•
Level
3
-
Notes
with
signific
ant
unobservabl
e inputs
Certificates
and war
rants
•
Certificates and warrants p
rovide exposure to
the underlying single n
ame equity,
equity index
or
portfoli
o
of
equities.
They
therefore provide
risk
exposure to
t
he
value of
the un
d
erlying
position
and to
t
he d
ividends paid
o
r rec
eived. The
Company
values
the
underlying
position
using
observa
ble
d
ata
where
availabl
e
(for
instance,
exchange
closing
prices),
or
alternatively
using
information
from
third
parties
(for
example
net
asset
values
obtained
from
fund
administrat
ors)
or
using
Morgan
S
t
anley’s
own
val
u
ation
assumptions
if
require
d
.
The
Company
estimates
fut
u
re
dividend
payments
using
a
varie
ty
of
available
data,
including
market
prices for
forward
s
and
futures,
analytical
review and
estima
t
es
of
future
tax
rates,
incor
porating
the
Com
p
any’s
o
wn
assumptions
where
required.
The
certificates
and
warrant
s
can
typically
be
red
eemed
at
short
notice
and
so
the
certificates
and
warrants
provide
minimal
exposure
to
the
credit
risk
of
Morgan
Stanley.
•
Level 2
•
Level
3
-
in
instance
s
where
the
unobservabl
e
inputs
are
de
emed
significant
Loans
•
The
fair value of
loans to
other Morgan Stanley
Group undertakin
g
s is
estimated
based on
the presen
t value o
f expecte
d future c
ash flows usin
g its best
estimate
of
interest rate
y
ield c
urves.
•
Level 2
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
58
22.
ASSETS AND LIAB
ILITIES ME
ASURED AT FAIR V
ALUE (CO
NTINUED)
c.
Changes
in
Level 3
financial
assets and liabilitie
s recog
nised
at
fair va
lue
on
a recurring basis
The
following
tables
present
the
changes
in
the
fair
value
of
the
Company’s
Level
3
financial
assets
and
financial liab
ilities for the
years end
ed
31
December
20
21 and
31
Decem
ber
2020
. Level 3 instru
ments may
be
h
edged
with
instruments
classified
in
L
evel
2.
As
a
result,
t
he
r
ealised
and
unrealised
gains
/
(losses)
for
assets
and
liabilities
within
the
Level
3
category
presented
in
the
f
ollowing
tables
do
not
reflect
the
relate
d
realised
and
unrealised
gains
/
(losses)
on
hedging
in
struments
that
hav
e
been
classified
by
th
e
Compan
y
within the Lev
el 2 category
.
Unrealised
gains
/
(losses)
during
the
peri
od
for
assets
and
liabilities
within
the
Level
3
category
p
resented
in
the
followin
g
tables
her
ein
may
includ
e
changes
in
fair
value
during
the
period
that
were
attributable
to
both observ
able and uno
bservable inp
uts.
31 December 2
021
Unrealised
gains or
Purchases
Issuances
Settlements
(losses) for
Total gains or
Level 3 assets
(losses)
Net
/ (liabilities)
recognised in
transfers
outstanding
Balance
at
statement of
in and/ or
Balance at
as at
1
Januar
y
comprehensive
out of
31
Decem
b
er
31
December
20
21
income
(1)
Level 3
(2)
20
21
20
21
(3)
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
Trading financi
al
liabilities:
Net derivative
contracts
(4)
(41,334)
18,532
3
82
(8,930)
(20,505)
20,049
(31,806)
(8,276)
Debt and other
borrowings:
Issued structured
notes
(413,378)
(14,848)
-
(
54
,019)
119,
92
4
2
41
,
42
0
(120,
90
1)
(10,182)
Total financi
a
l liabilities
measured at f
air value
(454,712)
3,684
38
2
(
62
,949)
99
,
41
9
261,4
69
(152,
70
7)
(18,458)
(1) Th
e total
gains or
(losses) are
recognised
in the
statement of
comprehens
i
ve i
n
come
as detailed
in th
e fi
n
ancial
in
strume
nts a
c
counting
policy (note 3 (c))
.
(2)
For
financial
assets
and
f
inancial
liab
ilities
that
were
transferr
ed
into
and
out
of
Level
3
during
the
peri
od,
gains
or
(losses)
are
presented
as if the assets
o
r liabilities
had been transferr
ed into or out of Level
3
as at the be
g
inning of the
p
eriod.
(3) Am
o
unts re
p
resent
unrealised ga
ins or
(losses) for
the
period ended
31 Decem
b
er re
lated to
assets and l
i
abilities st
ill o
utstanding a
t 31
December.
The
unrealised
gains
o
r
(losses)
are
recognised
in
the
statement
of
comprehe
n
sive
income
as
detailed
in the
financial
instruments acc
ounting policy
(note 3 (c))
.
(4)
Net
derivative
contracts
represent
trading
financial
assets
–
derivative
contracts
net
of
trading
financial
liabilities
–
d
erivative
contracts.
During the
year,
the
Company
reclassified
ap
proximately
€
nil net
deriv
ative
contracts
(20
20
:
nil) and
€
4,
39
2,000
of
issued
structured
n
otes
(20
20
:
€
179,321,000)
fro
m
Level
2
to
Level
3.
Th
e
reclassifications
were
due
to
a
reduction
in
the vo
lume
of r
ecently
executed
transactions
or
a
lack
of
available
broker
quotes
for these instru
ments, such that certain sign
ificant inputs became u
nobservable.
During
the
year,
the
Company
reclassified
appro
ximately
€
20
,049,000
of
net
derivative
contracts
(20
20
:
€3,953,000
) and
€
245
,812,000 of
issued structured notes (20
20
:
€
151,798,000
) from Le
v
el 3 to
Level 2. The
reclassifications were due to the availability of market
d
ata for these or
co
mparable instruments, or available
broker quotes, or
consensus data such that
certain significant
inputs becam
e observable.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
59
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
c.
Changes
in
Level
3
financia
l
assets
and
liabilities
re
cognised
at
fair
value
on
a
recurring
basis
(continued)
31 December 2
0
20
Unrealised
gains or
Purchases
Issuances
Settlements
(losses) for
Total gains or
Level 3 assets
(losses)
Net
/(liabilities)
recognised in
Transfers
outstanding
Balance at
statement of
in and/ or
Balance at
as at
1 January
comprehensive
out of
31 December
31 December
20
20
income
(1)
Level 3
(2)
20
20
20
20
(3)
€'000
€'000
€'000
€'000
€'000
€'000
€'000
€'000
Trading financi
al
liabilities:
Net derivative
contracts
(4)
(6,408)
(30,845)
13,397
(3
,574)
(1
7,857)
3,953
(
41
,334)
(23,302)
Debt and other
borrowings:
Issued structured
notes
(404,109)
31
,
060
-
(74,526)
61
,
720
(27,523)
(4
13
,378)
30
,
787
Total financi
a
l liabilities
measured at f
air value
(410,517)
215
13,397
(
78
,100)
43
,
863
(23,570)
(4
54
,712)
7,485
(1) Th
e total
gains or
(losses) are
recognised in
the stat
e
ment
of comprehe
n
sive
income as
detailed i
n
the financial
instruments a
ccounting
policy (note 3 (c))
.
(2)
For
financial
assets
and
financial
liabilities
that
were
transferred
into
and
o
ut
of L
evel
3
during
the
p
eriod,
gains
or (losses)
are
p
resented
as if the assets
o
r liabilities
had been transferr
ed into or out of Level
3
as at the be
g
inning of the
p
eriod.
(3) Am
o
unts re
p
resent
unrealised ga
ins or
(losses) for
the
period ended
31 Decem
b
er re
lated to
assets and l
i
abilities st
i
ll outsta
n
ding a
t 31
December.
The
unrealised
gains
o
r
(losses)
are
recognised
in
the
statement
of
comprehe
n
sive
income
as
detailed
in
the
financi
al
instruments acc
ounting policy
(note 3 (c))
.
(4)
Net
derivative
contracts
represent
trading finan
c
ial
assets
–
d
erivative
contracts
net
o
f
trading
financial
l
iabilities
–
d
erivative
contracts.
d.
Va
luation
of
Level
3 financial assets a
nd liabilities reco
gnised
at
fair
value
on
a recurring basis
The
following
disclosures
provide
informatio
n
on
the
sensitivity
of
fair
value
m
easurements
to
key
inputs
and assump
tions.
1.
Quantitative inf
ormation about and qualitativ
e sensitivity of significan
t unobservab
le inputs
.
The following table
provides information on the
valuatio
n techniques, s
ignificant unobservable inputs
and their
ranges and a
v
erages for
each material
cate
gory of
assets
and liabilities
mea
sured at
fair value
on a recurring b
asis.
The lev
el of
aggreg
ation
and br
eadth
of products
cause
the r
ange
of inpu
ts to
be wid
e and n
ot ev
enly
distributed
acro
ss th
e
inventory.
Further,
th
e ran
ge o
f
unobservable
inputs
may
differ
across
firms
in
the
financial
services
in
dustry
because
of
diver
sity
in
the
types
of
product
s
incl
uded
in
each
firm’s
inventory.
The following
disclosures also inclu
de qualitative info
rmation on th
e sensitivity of th
e fair
value
measurements
to
changes
in
the
significan
t
un
observable
inputs.
T
h
ere
are
no
predictable
relationships b
etween mu
ltiple significan
t unob
servable inputs attributab
le to a
g
iven valuation
technique. A
single
amount is
disclosed when t
h
ere is
no significant dif
ference between
the minimum,
maximum and
average (weighted aver
age or similar average / med
ian)
.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
60
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
d.
Va
luation
of
Level
3
f
inancial
a
ssets
a
nd
liabilitie
s
recognised
at
f
air
value
on
a
recu
rring
basis
(continued)
31 December
20
21
Fair value
€’000
Predominant v
a
luation techn
iques/
Significant unobs
ervable inputs
Range
(2)
(Averages)
(3)
LIABILITIES
- Net derivative c
ont
racts:
(1)
-
Interest rate
1,337
Option model
Interest
rate
–
Foreig
n
exchange
correlation
Interest
rate
–
Interest rate curve
correlation
53% to 56%
(mean 55%,
median 54
%)
62
% to 98
%
(mean
84
%,
median
83
%)
Net asset value (“N
AV”)
NAV
164%-
164
%
(164%)
-
Equity
(33,143)
Option model
At the m
oney volatility
6% to
73
% (29
%)
Volatil
i
ty skew
-3% to 0% (-1
%)
Equit
y
–
Equity corr
elation
35% to 96
%
(7
6
%)
Equit
y
–
Foreign excha
nge
correlation
-
72
% to 4
0%
(-
26
%)
Debt and other
borrowings:
- Issued struct
u
red notes
(120,901)
Option model
At the money v
o
latility
16% to
73
% (27
%)
Volatility skew
-1% to 0% (-1%)
Equity
–
Equity
correlation
40
% to
87
% (
83
%)
Equity
–
Foreign
exchange
correlation
-
55
% to
25
% (-
23
%)
Issued structured
notes
–
Interest
rate curve corr
elation
62% to 98% (mean
84%, median 83%)
(1)
Net
d
erivative
contracts
re
present
trading
financial
liabilities
–
derivative
contracts
net
of
trading
financial
assets
–
derivative
contracts.
(2)
The ranges of significan
t unobserv
able inputs are r
epresented i
n percentages.
(3)
Amounts
represent
weighted
averages
except
where
simple
averages
and
the
median
o
f
the
inputs
are
pr
ovided
w
h
en
more
relevant.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
61
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
d.
Va
luation
of
Level
3
f
inancial
a
ssets
a
nd
liabilitie
s
recognised
at
f
air
value
on
a
recu
rring
basis
(continued)
31 December
2020
Fair value
€’000
Predominant v
a
luation techniques
/
Significant unobs
ervable inputs
Range
(2)
(Averages)
(3)
LIABILITIES
- Net derivative c
ont
racts:
(1)
-
Interest rate
(4
,540)
Option model
Interest
rate
-
Foreign
exchange
correlation
Interest
rate
-
I
nterest
ra
te
curve
correlation
55
% to
59
%
(mean 56%,
median 56%)
46
% to
97
%
(mean 75%,
median 75% )
Net asset value (“N
AV”)
NAV
N/A
-
Equity
(36,794)
Option model
At the m
oney volatility
9% to
67
% (26
%)
Volatil
i
ty skew
-2% to 0% (-1
%)
Equit
y
–
Equity corr
elation
37
% to 95
%
(71%)
Equit
y
–
Foreign excha
nge
correlation
-72% to 10% (-
29
%)
Debt and other
borrowings:
- Issued struct
u
red notes
(4
13
,378)
Option model
At the money v
o
latility
14
% to
67
% (25
%)
Volatility skew
-2% to 0% (-1
%)
Equity
–
Equity
correlation
37
% to 93%
(
64
%)
Equity
–
Foreign
exchange
correlation
-72% to 10% (-
32
%)
(1)
Net
derivative
contracts
re
present
t
rading
financial
liabilities
–
derivative
contracts
net
of
trading
financial
assets
–
derivative
contracts.
(2)
The ranges of signific
ant unobservable inputs are
rep
resent
ed in percent
a
ges.
(3)
Amounts
represent
weighted
averages
except
where
simple
averages
and
the
me
d
ian
of
the
in
p
uts
are
provided
when
more
relevant.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
62
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
d.
Valuation
of
Level 3
financial assets and liabilitie
s recognised
at
f
air va
lue
on
a recurring basis
(continued)
An
incr
ease
(decrease)
to
the fo
llowing
inputs
would
generally
result
in
an
impact
to
the fair
valu
e,
but
the
magnitude and direction
of the impact would depend
on whether the
Company is long or short the exposure:
•
Correlation:
A
pricing
in
put
wher
e
the
payoff
is
driven
by
more
than
one
u
nderlying
risk.
Correlation
is a
measure of the
relationship between the
m
ovements of
two variables (i.e.
how the change in
one
variable inf
luences a change in the oth
er variable).
•
Volatility: The measure of the variability in possible returns for an instrument given how much that
instrument
changes
in
v
alue
over
time.
Volatility
is
a
pricing
input
for
options,
an
d,
generally,
the
lower
the
volatility,
the
less
risky
the
option.
The
level
of
volatility
used
in
the
valuation
of
a
particular
option
depends
on
a
numb
er
of
factors,
including
the
nature
of
the
risk
underlying
that
option, the teno
r and the strike price
of the option
.
•
Volatility
skew:
The
measure
o
f
the
d
ifference
in
implied
v
olatility
fo
r
options
with
iden
tical
underliers and ex
piry dates but with differ
ent strikes.
•
NAV:
A pricing
input that
is the
valu
e
o
f
an
company
’s
asse
ts
minu
s
the value
o
f
its liabilities, often
in relation to
open
-end or
m
utual funds, s
in
ce shares
o
f such
fund
s registered
with the
US
Securities
and Exchang
e Commission are redeemed at th
eir net asset value. Shares and inter
ests in such funds
are
not
traded
between
investors,
but
are
issued
by
the
fund
to
each
new
investor
and
redeemed
by
the
fu
nd
wh
en
an
investor
withdraws.
A
fun
d
will
issue
and
red
eem
shar
es
and
interests
a
t
a
price
calculated
by
reference
to
the NAV
o
f
the fund,
with
the
intenti
on
that
new in
vestors r
eceive a
fair
proportion of the fund a
nd redeeming investors receive a
f
air proportion of the
fund’s value in
cash.
2.
Sensitivity
of
fair
values
to
changing significant
assumptions
to
rea
sonably
possible alternatives.
As
detailed
in
note
2,
the
valuation
of
Level
3
fin
ancial
instruments
requires
the
application
of
critical accounting judgement, involving estimations
an
d assumptions and
it
is
recognised t
h
at there
could
be
a range
of
reasonably possible altern
ative values.
The Compan
y has
re
viewed
the unobservable
parameters
to
identify
those which
would change
the
fair value
measurement
significantly
if
replaced
by
a reasonably
possible alter
native assumption
.
In
estimating
the
poten
tial
variability
,
th
e
un
observable
parameters
were
varied
individually
using
statistical
tech
niques
an
d
historic data.
The potential
variability esti
mated
is
likely
to
be
greater
than
the
actual
uncertainty
relating
to
the
financial
instrum
ents
as
any
diversification
effect
has
been
excluded.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
63
22.
ASSETS AND LIAB
ILITIES MEASUR
ED AT FAIR V
ALUE (CONTINUED)
d.
Valuation
of
Level 3
financial assets and liabilitie
s recognised
at
f
air va
lue
on
a recurring basis
(continued)
The
fo
llowing
table
pr
esents
the
poten
tial
impact
of
bo
th
favourable
and
un
favourable cha
nges,
both
of
whic
h
would
be
reflected
in
the statemen
t
of
comprehensive
income:
20
21
2020
(2)
Favourable
changes
Unfavourable
changes
Favourable
changes
Unfavourable
changes
€'000
€'000
€'000
€'000
Trading finan
cial liabilities:
Net derivatives contrac
ts
(1)
10,118
(
11
,695)
941
(3,523)
Debt and o
ther borrowings:
Issued structur
ed notes
8,661
(
14
,467)
4,052
(2,182)
18,779
(
26
,162)
4,993
(5,705)
(1)
Net
derivative
contracts
represent
t
rading
financial
assets
–
derivative
c
ont
racts
net
of
trading
financial
liabilities
–
derivative
contracts.
The
reasonab
ly
possible
alternative
assumptions
are
applied
to
derivative
assets
and
derivative
liabilities
separa
tely
when
assessing poten
tial variabili
ty of the fair
value measureme
nt.
(2)
The differe
n
ce
between t
h
e
total favoura
ble
and
total unfa
vourable
changes i
s primaril
y
a r
esult of
n
et
derivative c
ont
racts
classified
as
Level
3
in
the
fair
value
hierarchy
hedging
issued
structured
notes
which
can
be
classified
as
either
Level
2
or
Level
3
in
the
fair
value hierarc
hy.
e.
Assets and liabilities m
easured
at
fair value
on
a
non-recurring basis
Non-recurrin
g
fair
valu
e
measurements
of
assets
and
liabilities
are
tho
se
which
are
required
or
permitted
in
the
statement
of
financial
position
in
particular
circumstan
ces.
There
were
no
assets
or
liabilities
measured
at
fair value
on
a
non
-recurring basis during the
current
or
prior year.
23.
ASSETS AND LIAB
ILITIES NOT M
EASURED AT FA
IR VALUE
For all financial instruments
not
measured
at
fair value, t
he carrying amount
is
considered
to
be
a
reasonable
approximation
of
f
air value
due
to
the
short term nature
of
these assets and liabilities.
Regarding
the
CPECs,
their
carrying
value
in
cluding
the
accrued
yield
in
‘Trade
and
o
ther
payables’,
as
detailed
in
note 11,
is
considered
in
aggreg
ate
as
an
approximation
of
their fair valu
e.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
64
24.
CAPITAL MANAG
EMENT
The Morgan Stanley Group manages
its
capital
on
a global basis
with con
sideration
for
its
legal entities. The
capital
managed
by
the
Morgan
Stanley
Group
br
oadly
includes
ordinar
y
share
cap
ital,
preference
share
capital, subo
rdinated lo
ans and reserves.
The
Morgan
Stanley
Group’s
required
capital
(“Required
Capital”)
estimatio
n
is
based
on
the
Req
uired
Capital Framework
,
an
in
ternal cap
ital adequac
y measur
e. This fr
amework
is
a risk-
based
and lever
age u
se-
of
-capital measure, which
is
compared
with
th
e Morgan Sta
nley
Group’s
regulatory capital
to
ensure that the
Morgan
Stanley
Group
maintains
an
amount
of
go
ing
concern
capital
after
absorbin
g
p
otential
losses
from
stress events where applicable,
at
a point
in
time. The Morgan Stanley Group
defines the difference between
its
total
aver
age
co
mmon
equity
an
d
the
sum
of
the
average
comm
on
equity amounts
allocated
to
o
u
r
business
segments
as
Parent
common
equity.
The
Mo
rgan
Stanley
Group
generally
holds
Parent
common
equity
for
prospective
regulatory requ
irements, organic
growth, po
tential future
acquisitions and
other capital needs.
The Required
Capital Framework
is
expected
to
evolve ov
er time
in
response
to
chang
es
in
the business and
regulatory
environment, for examp
le,
to
incorporate stress testing
or
enhancements
in
modelling
techniques.
The
Morgan
Stanley
Gr
oup
will
continu
e
to
evalu
ate
the
framewor
k
with
r
espect
to
the
imp
act
of
future
regulatory
requirements,
as
appropriate.
The
Morgan
Stanley
Group
actively
manages
its
consolidated
capital
position
based
upon,
among
other
things,
b
usiness
opp
ortunities,
risks,
capital
availability
an
d
rates
of
return
together
with
internal
capital
policies, regulatory
re
quirements and rating agency guidelines.
In
the
fu
ture, the Morgan S
tanley
Group may
expand
or
contract
its
capital base
to
address the
changing needs
of
its
bu
sinesses.
The
Morgan Stanley
Gr
oup also
aims
to
adequately
capitalise
at
a
legal en
tity level
whilst safegu
arding
that
entity’s
ability
to
co
ntinue
as
a
going
concern
and
ensuring
that
it
meets
all
regulator
y
capital requ
irements,
so
that
it
can
continue
to
provide retu
rns for the Mo
rgan Stanley
Group.
In
order
to
maintain
or
ad
just the
capital
structure
as
described
abo
ve,
the
Company
may
adjust
the
amount
of
dividends paid,
return capital
to
sh
areholders,
issue new shares
or
sell assets
to
reduce
debt.
The Company m
anages the following item
s as capital
:
20
21
2020
€'000
€'000
Share capital
15,018
15,018
Reserves
16,574
14
,4
45
31
,592
29
,463
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
65
25.
RELATED PAR
TY DISCLOSURES
Parent
and
ultimate co
ntrolling entity
The
Com
pany’s
immediate
parent
under
taking
is
Archimedes
Investments
Coöper
atieve
U.A.
which
is
registered
in
The Netherlan
ds.
The
ultimate
parent
undertaking
and
controlling
entity
and
the
largest
g
roup
of
which
th
e
Company
is
a
member
and
fo
r
which
group
financial
statements
ar
e
prepar
ed
is
Morgan
Stanley.
Mo
rgan
Stanley
is
incorporated
in
th
e
State
of
Delawar
e,
the
United
States
of
America.
Copies
of
its
financial
statements
can
be
obtained from
www.morganstanley.com
/investorrelations.
Key manag
ement
co
m
pensation
Key
management
personnel
are
defined
as
tho
se
p
ersons
having
authority
and
resp
onsibility
f
or
planning,
directing and controlling the activities of the Compan
y. Key managemen
t personnel includes only the Board
of
Directors
of
th
e
Company
wh
ich
is
in
line
with
Article
383
of
Book
2
of
the
Dutch
Civil
Code.
Key
managemen
t
personnel
compensation,
in
resp
ect
of
their
services
render
ed
to
the
Company,
comprised
the
following
:
20
21
2020
€'000
€'000
Short-term
employee benefits
12
20
Post-employm
ent benefits
1
1
Share-based
payments
1
2
Other long
-term employee b
enefits
-
1
14
48
14
24
The
shar
e-based
payment
co
sts
disclosed
above
r
eflect
the
amortisation
of
eq
uity
-based
awards
gr
anted
to
key managem
ent personnel.
Key manag
ement personnel compen
sation
noted in the above table
is born
e by other Morgan Stanley Gr
oup
undertak
ings
in
both
the
current
and
prio
r
year
s.
None
of
the
Directors
received
remuneration
fr
om
the
Company dur
ing the year (2020: €nil).
In
addition
to
the abov
e, TMF
Manag
ement
B.V.
,
not
in
the
Morgan
Stanley
Gr
oup
, p
rovided
key
managemen
t services to the
Company
. For these services
and
for other administrative services TMF
Netherlands
B.V.
charged
a
total
f
ee of €1,028,
000 for the year
(2020: €9
05,000)
.
Th
is service f
ee includes
the
provision of
two
em
ployees
of TMF
Nether
lands
B.V.
in
their
roles
as s
tatutory
d
irectors
of
th
e
Company.
The
fees
f
or
d
irectorship
is
not
separately
agree
d
up
on
between
the
Comp
any
and
TMF
Manag
ement
B.V.
Therefore this
is not
included
i
n the key
man
agement personnel
co
mpensation in the table
abov
e. There
were
no amounts accr
ued at the current and
prior year end.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
66
25.
RELATED PAR
TY DISCLOSURES (CON
TINUED)
Transactions with rela
ted pa
rties
The
Morgan
Stanley
Group
cond
ucts b
usiness fo
r
clients glo
bally
through
a
combination
of
b
oth
functional
and legal
en
tity
org
anisational
structu
res. Accordingly,
the C
o
mpany
is
closely integrated
with
th
e
oper
ations
of
the Morgan Stanley Group and enters into t
r
ansactions with other Morgan Stanley Group und
ertakings
on
an
arm’s
length basis for
th
e purposes
of
utilising
financing, trading and risk
man
agement, and infrastructure
services.
The
nature
of
these
relationships
along
with
information
about
th
e
transactions
an
d
outstanding
balances
is
given
below.
All
the
amounts
o
utstanding
as
disclosed
b
elow
are
u
nsecured
and
will
be
settled
via inter-co
mpany mechan
isms.
In
addition,
the
managem
ent
and
execution
of
business
strategies
on
a
glob
al
basis
r
esults
in
m
any
Morgan
Stanley transactions
impacting a
nu
mber
of
M
organ Stanley
Grou
p
under
takings. The
Mo
rgan Stanley
Group
operates
a
number
of
intra-grou
p
policies
to
ensur
e
that,
where
p
ossible,
revenues
and
related
costs
ar
e
matched.
For
the
year
ended
31
December
202
1,
a
net g
ain
of
€
435,000
(20
20
:
net
loss
of
€
2,
037,000)
was
recognised
in
the statement
of
comprehensive
income arising fro
m such po
licies.
Funding
The
Co
mpany
receives
funding
from
and
pro
vides
fundin
g
to
o
ther
Morgan
Stanley
Group
under
takings
in
the followin
g forms:
General fund
ing
General
funding
is
undated,
u
nsecured,
floating
r
ate
lending.
Funding
may
be
received
or
pro
vided
fo
r
specific
transaction
related
funding
r
equirements,
or
for
general
operational
p
urposes.
The
interest
r
ates
are
established
by
th
e Morgan Stanley
Gr
oup Treasury function
for
all
entities within the
Morgan Stanley Group
and appro
ximate the market
rate
of
interest that th
e Morgan Stanley
Group
incurs
in
fund
ing
its
business.
Other funding
Other fun
ding includ
es CPECs issued
to
the
Company
’s
direct paren
t und
ertaking, Ar
chimedes Investments
Coöperatieve
U.A.. The
specific terms
of
the r
elated yield are detailed
in
note
11.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
67
25.
RELATED PAR
TY DISCLOSURES (
CONTINUED)
Transactions with rela
ted pa
rties (continued)
Details
of
the outstanding balances
on
these funding
ar
rangements and the
related interest
income
or
expense
recognised
in
the statement
of
comprehensive
income dur
ing the year are sho
wn
in
the tab
le below:
20
21
2020
Interest
Balance
Interest
Balance
€'000
€'000
€'000
€'000
Amounts du
e from the Company’s
indirect par
ent undertaking
11,
196
1,132,290
11,418
1,133,583
Amounts du
e from other Morgan Stanley
Group undertakin
gs
108
85
,473
146
123
,725
11,
304
1,21
7,
763
11,564
1,257,308
Amounts du
e to the Company’s direct
parent undertaking
11
,007
1,132,381
8,
930
1,131,611
Amounts du
e to other Morgan Stanley
Group undertakin
gs
-
31
1
16
246
11,007
1,132,412
9,
046
1,131
,8
57
Trading a
nd risk managemen
t
The
Co
mpany
issues
structur
ed
notes
an
d
hedges
the
obligations
arising
from
the
issuan
ce
by
en
tering
into
prepaid
equity
securities
contracts,
der
ivative
con
tracts
and
loans
desig
nated
at
fair
value
through
p
rofit
or
loss
with other
Morg
an
Stan
l
ey
Group
un
dertakings. All
such
transactions are
entered into
on
an
arm’s
length
basis.
The
total
am
ounts
receivable
and
pay
able
on
the
above
financial
instruments
as
well
as
th
e
collateral
on
derivativ
e
and
prepaid equity
securities contracts, re
p
orted
wi
thin
‘
tra
de recei
vables
’
and
‘
trade payables
’,
were
as
follows:
20
21
2020
Interest
Balance
Interest
Balance
€'000
€'000
€'000
€'000
Amounts du
e from other Morgan Stanley
Group undertakin
gs
(
64
)
8,573,089
(1,074)
7,163,805
Amounts du
e to other Morgan Stanley
Group undertakin
gs
(653)
953
,299
(284)
545
,846
The
Company
has
received
net
cash
collateral
of
€
52
,449,000
from
other
Morgan
Stanley
Group
undertakings
(20
20
:
n
et
r
eceived
€
95,475,000
)
in
order
to
mitigate
credit
r
isk
on
exp
osures
arising
under
derivatives
contracts
and
prepaid
equity
securities
contracts
between
the
Co
mpany
and
other
Mo
rgan
Stanley
Gr
oup
undertak
ings.
Infrastructure service
s
The
Compan
y
uses
in
frastructure
serv
ices
including
the
p
rovision
of
office
facilities,
operated
by
other
Morgan
Stanley Group u
ndertakings
at
no
charge.
MORGAN STANLEY B.V.
NOTES
TO
THE FINANCIAL STATEMENTS
Year ended 31 December 2021
68
26.
REPLACEMENT O
F LIBOR AND R
EPLACEMENT OR
REFORM OF O
THER INTEREST
RATE BENCHMARK
S
Central
banks around the
world, including the
Federal Reserve,
hav
e
commissioned
committees
and working
groups
of
mark
et
par
ticipants
and
of
ficial
sector
represen
tatives
to
replace
LI
BOR
an
d
replace
or
reform
other
in
terest
rate
b
enchmarks
(collectively,
the
“IBORs”).
A
transition
away
from
use
of
the
I
BORs
to
alternative
rates
and
other
potential
inter
est
rate
ben
chmark ref
orms
is
underway
and
will
continue
ov
er
the
course
of
the
next
few
y
ears.
These
reforms
have
caused
and
may
in
the
fu
ture
ca
u
se
such
r
ates
to
p
erform
differently
than
in
th
e
past,
or
to
cease
entirely,
or
have
other
consequen
ces
that
are
contrary
to
market
expectations.
In
accordance
with
announcements
by
the
Finan
cial
Conduct
Auth
ority
(“FCA”)
and
the
ICE
Benchmark
Administration
, which administers
LIBOR publication,
the p
u
blication
of
most n
on-U.S. dollar LIBOR rates
ceased
as
of
the
end
of
December
2
021.
While
publication
of
the
1,
3
an
d
6
month
Sterling
settings
will
continue
at
least for
one
year
on
the
basis
of
a
synthetic
methodo
logy
(known
as
“synthetic
LIBOR”),
these
rates
have
been
designated
un
representative
by
the
FC
A
and
are
solely
available
for
use
in
legacy
transactions.
Fu
rthermore,
while ce
rtain
U.S.
d
ollar
LIBOR
teno
rs
are
exp
ected
to
continue
to
be
p
ublished
un
til
30
June
2023, th
e U.S.
bankin
g agen
cies and
the
FCA
have
issued
guidance
instructing
b
anks
to
cease
entering
into new contracts r
eferencing
LIBOR
no
later than
31
Decemb
er 2021, with
certain excep
tions.
As
of
31
December
2
021,
the
Compan
y’s
exposu
re
to
LIBOR-referen
ced
contracts
comprised
one
externally-
issued GBP-link
ed
structured
no
te, wh
ich
matures d
uring
2022. Th
e nominal
amount
of
this
structured
no
te
was
€2
,108,000
.
T
his
note
referenced
a
Sterling
setting
for
wh
ich
a
synthetic
rate
will
be
published
for
at
least for
the
dur
ation
of
2022,
and
the
note
will ther
efore
reference
synthetic
LIBOR
until
its
maturity.
This
structured
note
is
not
significant
to
the Company.
Our IBOR
tran
sition plan
is
overseen
by
a
global steering
committee,
with senior
ma
n
agement oversight, a
nd
we
continue
to
execute
against
our
Firm-wide
IBOR
tran
sition
plan
to
complete
the
transition
to
alternative
reference
rates,
includin
g implementing re
gulatory guidance
to
cease entering
into
new contracts referencing
U.S. dollar
LIB
OR
after
31
December
2021, with certain
exceptions.
27.
EVENTS AFTER TH
E REPORTING P
ERIOD
Following
Russia’s
invasion
of
Ukrain
e
on
24
Februar
y
2022,
the
European
and
g
lobal
fin
ancial
mar
kets
have
been
and
are
expected
to
continue
to
be
significan
tly
impacted
in
2022.
However,
the
Company
has
limited
direct
exposure
to
Russia
and
Uk
raine.
The
Comp
any
will
continue
to
clo
sely
monitor
even
ts
and
their poten
tial impact.
MORGAN STANLEY B.V.
ADDITIONAL INFORMATION
Year ended 31 December 2021
69
Independent
a
uditor’s
report
The indep
endent
auditor’s
r
eport
is
recor
ded
on
the next page.
Statutory
rules concerning
appropriation
of
the net result
The Articles
of
Association
of
the Company provide that the
n
et result
fo
r the year
is
at
the
disposition
of
the
General Meetin
g
of
Shareholders.
Distribution
can
only
be
made
to
the
extent
that
the
Shar
eholder’s
equ
ity
exceeds
the
reserves
provided
for
by
the Articles
of
Association
. The
Board
of
Dir
ectors must gran
t
its
approval
which
it
can
only withh
old
in
the
event
that
it
knows
or
reason
ably
should
hav
e k
nown
that,
followin
g
the
distribution,
the
Company
will
not
be
able
to
continue with
the paymen
ts
of
its
deb
ts becoming
due
and payable
in
the
foreseeable future.
Deloitte Accountants B.V.
Gustav Mahlerlaan 2970
1081 LA Amsterdam
P.O.Box 58110
1040 HC Amsterdam
Netherlands
Tel: +31 (0)88 288 2888
Fax: +31 (0)88 288 9737
www.deloitte.nl
Independent auditor's report
To
t
he
shareholder
s of Morgan Stanley B.V.
REPORT ON THE A
UDIT OF THE FI
NANCIAL STATEME
NTS
2
021 INCL
UDED IN THE
ANNUAL ACCO
UNTS
Our opinion
We have audited the accom
pa
nying financial statements
2021
of Morgan
S
tanley B.V., based in Amsterdam.
In our opinion the accompa
nying financial statements gi
ve a true and fair view of th
e financial position of
Morgan Stanley B.V. as at D
ecember 31, 2021 and of its result and its cash flows for
2021
in accordance
with International Financial R
eporting Standards as adopte
d by the European Union (EU-IFRS) and with Part
9 of Book 2 of the Dutch
C
ivil Code.
The financial statements co
mprise:
1.
The statement of financial posi
tion
as at December 31, 2021
.
2.
The following statements for
2021
: the statements of compre
hensive income, changes in equity and
cash flows.
3.
The notes comprising a sum
mary of the significant accounting policies and othe
r ex
planatory
information.
Basis for our opinio
n
We conducted our audit in a
ccordance with Dutch law, including the Dutch Standard
s on Auditing. Our
responsibilities under those standards are
further described in the "Our responsibi
l
ities for the audit of the
financial statements" section of our re
port.
We are independe
nt of Morg
an Stanley B.V. in accordan
ce with the EU Regulation on specific requirements
regarding statutory audit of
public-interest entities, the Wet toezicht accountantsorganisatie
s (Wta, Audit
firms supervision act), the V
erordening inzake de onafhankelijkheid van account
ants bij assurance-
opdrachten (ViO, Code of Et
hics for Professional Accountants, a regulation with resp
ect to independe
nce)
and other relevant inde
pendence regulations in the Ne
therlands. Furthermore, we
have complie
d with the
Verordening ge
drags- en beroepsreg
els accountants (VGBA, Dutch Code of Ethics)
.
We believe the audit evi
den
ce we have obtained is sufficient and appr
opriate to provid
e a basis for our
opinion.
Materialit
y
Based on our professional judg
ement we determined the materiality for the fi
na
ncial statements as a whole
at € 97.500.000. The materi
a
lity is based on 1% of total assets. W
e h
ave also taken into account
misstatements and/or possib
le misstatements that in o
ur opinion are material for the users of the financial
statements for qualitative re
asons.
We agreed with the Audi
t Committee that misstatements i
n excess of € 1.950.000, w
hich are identified
during the audit, would be
r
eported to them, as well as smalle
r misstatements that in our
view must be
reported on quali
ta
tive grounds.
Our key audit ma
tters
Key audit matters are those
matters that, in our professional judgement, we
re of most significance in our
audit of the financial statements. We
ha
ve communicate
d the key audit matters to the Audit Committee. The
key audit matters are not
a
comprehensi
ve reflection of all matters discussed.
These matters were addre
ssed in the context of our audit of the financial statements
as a
whole and in
forming our opini
on thereon, a
nd we do not provide a se
parate opinion on these matters.
Valuation of Level
3 financial instruments
Relevant
references in the
financial
statements
•
Note 2
–
Basis of Preparation
–
Critical j
udgements and key sources of
estimation uncertainty
•
Note 3
–
Summary of signifi
cant accounting policie
s
- (d) Fair value
•
Note 22
–
Assets and liabil
ities measured at fair value
–
(a) (c) (d) (e
)
Key audit matt
er
description
Morgan Stanley B.V.’s (the
Company) trading and financing activitie
s will at times
result in the Company carryi
ng material financial asset and liability positions which
are valued at fair value usin
g unobservable inputs, thus having limited price
transparency. Under IFR
S
13
Fair Value Measure
ment
, these financial instrume
nts
are classified as Level 3 financial assets or
liabilities.
The valuation of financial instrume
nts classified as Level 3 are inherently
subjective and often invol
ve
the use of proprietary valuation mod
els whose
underlying algorithms and v
a
luation methodologie
s are more complex the
n other
financial instruments whose
va
lues or inputs are re
adily observable. This degre
e of
subjectivity may also give
ri
se to potential fraud through management
intentionally manipulating fair
vales or incorporating m
a
nagement bias in
determining fair
values. Auditing the Morgan Stanley’s v
aluation of Level 3
financial instruments therefor
e contains subjectivity and prese
nts certain
challenges in evaluating the app
ropriateness of the valua
tion judgements and
estimates.
Significant judgements made
include the use of key mod
el inputs which are not
observable in the marke
tplace and the underlying valuation methodol
ogies used by
the pricing model to de
termine an appropriate fair value.
Performing our audit
procedures to eval
uate the appropriateness of these
models and inputs involved a
high degree of audi
tor’s judgement, professionals with specialised skills and
knowledge, and an increase
d extent of testing.
How the scope of
our audit
responded to the
key audit matt
er
To address the complexi
ties associated with auditing the value of Level 3 fi
na
ncial
instruments, our team inclu
ded valuation specialists having significant quantitative
and modelling exp
ertise to assist in performi
ng our audit procedures. Our valuation
audit procedures i
ncluded the following procedur
es:
•
We obtained an understanding and tested
Morgan Stanley B.V.’
s valuation
controls including the
:
-
Model Risk Management con
trol,
which is designed to review a model’s
theoretical soundness and t
he appropriateness of its valuation
methodology and calibr
ation techniques devel
oped by the business units.
-
Price Verification control
, which is designed to review the appropriateness
of valuation methodologie
s to derive model inputs whi
ch are not
observable and dete
rmine whether such methodolog
ies are consistent
with how a market participa
nt would arrive at the unobs
ervable input.
•
We also performed the fol
lo
wing procedures on a sample
ba
sis in line with our
audit methodology:
-
Evaluated management’s si
gnificant valuation methodologies, including
the input assumptions, consid
ering the expected assumptions of other
market participants, and ext
ernal data, when available.
-
Performed a
retrosp
ective a
ssessment of management’s
valuation
estimate by comparing such
estimate against relevant subsequent
transactions.
-
Developed inde
p
endent valuation estimates, using exter
na
lly sourced
inputs and independent valuation mod
els, and used such estimates to
further evaluate manageme
nt’s fa
ir value estimate, by inve
stigating the
differences be
tween our estimate and that of Morgan St
anley, including;
comparing the fair value esti
ma
te with similar transactions; and,
evaluating management’s a
ssumptions i
nclusive of the inputs, as
applicable.
-
Tested the revenues ari
sing from the trade date valuatio
n estimate for
certain structured transactio
ns classified as Level 3 financial instruments.
For a selection of such transactions, we
developed independent valuation
estimates test the valuation
inputs and assumptions used by
management and evaluated
whether the methods were consistent wi
th
the relevant Morgan Stanle
y’s valuation policies.
-
Assessed the consistency by
which management has applied significant
and unobservable valuation
a
ssumptions.
-
Performed a retrosp
ective
a
ssessment of management’s
valuation
estimates for a sample of fin
ancial instrument selections by comparing
such estimates to relevant t
ransa
ctions.
-
Assessment of financial stat
ement disclosures related to fi
nancial
instruments measured at f
a
ir value, to include the aspects of thi
s which
provide informati
on on the sensitivity of fair value
measurements to key
inputs and assumptions.
Key observations
Based on our audit proce
dures performed, we concluded that the valuation of
Level 3 financial instruments was approp
riate based on the circumstances and in
line with the accounting pol
icies of the company.
REPORT ON THE OTH
ER INFORM
ATION INCLUDED
IN
THE
ANNUAL ACCO
UNTS
In addition to the financial s
tatements and our auditor
's report thereon, the annual accounts cont
a
in other
information that consists of:
•
Directors’ Rep
ort
•
Directors’ Resp
onsib
ilities Statement
•
Other Information as r
equired by Part 9 of Book 2 of th
e Dutch Civil Code.
Based on the following pr
ocedures perfor
med, we conclude that the other information:
•
Is consistent with the financ
ial statements and does not
contain material misstateme
nts.
•
Contains the information as
required by Part 9 of Book 2 of the Dutch Civil
Code.
We have read the other i
nformation. Based on our know
ledge and understanding obtained through our audi
t
of the financial statements or
otherwise, we have conside
red whether the other information contains
material misstatements.
By performing these
procedures, we comply wi
th the requireme
nts of Part 9 of Book 2 of the Dutch Civil
Code and the Dutch Stand
ard 720. The scope of the procedure
s performed is substantially less than the
scope of those perfor
med in our audit of the financial stateme
nts.
Management is responsible
for the preparation of the other infor
mation, including the Management Board's
Report in accordance wi
th Part 9 of Book 2 of the Dutch
Civil Code, and the other information as require
d by
Part 9 of Book 2 of the D
utch Civil Code.
REPORT
ON
OTHER
LEGAL AND
RE
GULATORY
REQU
IREMENTS
Engagement
We
were
engaged
by
Audit C
ommittee
as
auditor
of
Morgan Stanley B.V. as of the ye
ar 2001 and h
ave
operated
as
statutory
audito
r ever
since that
fina
nci
al y
ear
.
No prohibited non-audit s
ervices
We have not provided
prohibited non-audit servi
ces as referred to in Article 5(1) of the
EU Regulation on
specific requireme
nts regarding statutory audit of public-inte
rest entities.
European Single Electro
n
ic Format
(E
SEF)
Morgan Stanley B.V. h
as prepared its annual report in ESEF. The r
equirements for this are set out in the
Delegated Regul
ation (EU) 2019/815 with regard to r
egu
latory technical standards on the spe
cification of a
single electronic re
porting format (hereinafter: the RTS
on ESEF).
In our opinion, the annual rep
ort prepared in XHTML-format, incl
uding the financial statements of Morga
n
Stanley B.V., complie
s in all material respects with the RTS on ESEF.
Management is responsible
for preparing the annual report including the
financial statements in accordanc
e
with the RTS on ESEF.
Our responsibility is to obtain reasonable assura
nce for our opinion whether the
a
nnual report complie
s with
the RTS on ESEF.
Our procedures, taking i
nto a
ccount Alert 43 of NBA (th
e Netherlands Institute of C
ha
rtered Accountants),
included amongst others:
-
obtaining an understanding
of the entity's financial reporting process, incl
uding the preparation of
the annual financial repor
t in XHTML-format;
-
examining whether the ann
ual financial report in XHTML-format is in accordance wi
th RTS on ESEF.
DESCRIPTION
OF RESPONSIBIL
ITIES REG
ARDING THE F
INANCIAL ST
ATEMENTS
Responsibilities of ma
nagement and the Audit Commitee for the financia
l statem
ents
Management is responsible
for the preparation and fair presentation of the financial s
tatements in
accordance with EU-IFRS an
d Part 9 of Book 2 of the Dutch Civil
C
ode. Furthermore, management i
s
responsible for
such internal
control as management de
termines is necessary to e
na
ble the preparation of
the financial statements tha
t a
re free from mater
ial misstatement, whether due
to fraud or er
ror.
As part of the preparation of
the financial statements, management is responsi
ble for assessing the
company's ability to continu
e as a going concern. Based
on the financial reporting frameworks menti
oned,
management should p
repare the financial statements u
sing the going concern basis of accounting unless
management either intends to
liquidate the company or to cease op
erations, or has no realistic alternative
but to do so.
Management should di
sclose events and circumstances t
hat may cast significant doubt on the company's
ability to continue as a going concer
n in the financial statements.
The Audit Commiteee
is responsible for over
se
eing the company’s financial reporting pr
ocess
Consideration of fraud in
the audit of financial statements
Owing to the inherent li
mita
tions of an audit, there is an
unavoidable risk that some
material misstatements
of the financial statements may not be
detected. The risk of not detecting a materi
a
l misstatement resulting
from fraud is higher than for
one resulting from error, as fraud may involve coll
usion, forgery, intentional
omissions, misrepr
esentations, or the override of i
nternal control.
We performe
d the following procedures:
•
We
ma
de inquiries of manageme
nt a
nd those charged wi
th governance regarding the risk of
ma
terial misstatements in the financial stateme
nts due to fraud, their
process for identifying and
responding to the ri
sk of fraud, the internal communication regarding the
i
r views on business
practices and ethical behavior
and whether they have knowl
edge of any a
ctual, suspe
cted or alleged
fraud affecting the Company
.
•
We
obtained an understanding of how those charged with go
vernance exercise oversight of
management’s processes for
identifying and responding to the risks of fraud i
n the Company and
the internal control that manage
ment has established to mitigate these risks.
•
We
evaluated whether unusual or unexpected re
lationships have been identified in performing
analytical procedures that m
a
y indicate risks of material mi
ssta
tement due to fraud.
•
We
held discussions amongst team members to identify fr
a
ud risk factors and considere
d whether
other information obtained
from our risk assessment procedures indi
cated risks of material
misstatement due to fraud.
•
We
determined overall responses to address the assess
ed risks of material misstateme
nt due to
fraud at the financial stateme
nt level or at the assertion level by:
•
assigni
ng and supervising pe
rsonnel with the adequate knowl
edge, skills and ability;
•
evaluating w
hether the selection and application of accounting p
olicies, particularly those
related to subjecti
ve measur
ements and complex transacti
ons, ma
y be indicative of
fraudulent financial reporti
n
g;
•
testi
ng the appropriateness of journal entries r
ecorded in the general ledger
a
nd other
adjustments made in the pr
eparation of the financial statements;
•
evaluating w
hether the judgments and decisions made by manageme
nt in making th
e
accounting estimates included
in the financial statements i
ndicate a poss
ible bias that may
represent a risk of mater
ial
misstatement due to fraud;
•
for
significant transactions evaluating w
hether the business rationale
of the transactions
suggests that they may h
a
ve been e
ntered into to engage in fraudulent financi
al reporting
or to conceal misappropr
iati
on of assets.
Consideration of laws a
nd regulations in the audit of
financial stat
ements
We are responsib
le for obtaining reasonable assurance t
hat the financial statements, taken as a whole,
are
free from material mi
ssta
tement, whether due to fraud
or error taking into account the applicable l
egal and
regulatory framewor
k. However, we are not re
sponsible for preventing non-compliance and cannot be
expected to dete
ct non-compliance with all laws and re
gulations. In the context of laws and regul
ations, the
potential effects of inher
ent limitations on the auditor’s ab
ility to detect materi
a
l misstatements are greater
for such reasons as the foll
owing:
•
there are many laws and regul
a
tions, relating princip
a
lly to the operating aspects of an entity, that
typically do not affect the financial statements
and are not captured by the entity’s
information
systems relevant to financial
reporting.;
•
non-compliance may involve conduct de
signed to conceal
it, such a
s collusion, forgery, deli
berate
failure to record
transactions, management overri
de of
controls or intentional mi
srepresentations
being made to the auditor
;
•
whether an act constitutes non-comp
liance is ultimately a matter to be determined by a court or
other appropriate adj
udicati
ve body; and
Ordinarily, the further
removed non-compliance is from the
events and transactions reflected i
n the financial
statements, the less likel
y the auditor is to become aware of it or to r
ecognize the non-compliance.
We performe
d the following procedures:
•
As pa
rt of obtaining an unde
rstanding of the Company and its envi
ronment we obtained a general
understanding of (i) the
legal and regulatory framework appl
icable to the Company and the industry
in which it operates and (ii
)
how the Company is complying with that framewor
k.
•
We obtained sufficient appropriate audit e
vidence regarding pr
ovisions of those laws and regul
ations
generally recog
n
ized to have a direct effect on the de
termination of material amounts and
disclosures in the financial stateme
nts such
as (corporat
e) tax and pension laws and financial
reporting regulations and the r
equirements under Part 9 of Book 2 of the Dutch
C
ivil Code.
•
Apa
rt from these, the
C
ompany is subje
ct to other laws and re
gulations where the consequences of
non-compliance could have a materi
al effect on amount
s a
nd/or disclosure
s in the financial
statements, for instance, thr
ough imposing fines of litigation. Given the nature of Co
mpany’s
business and the complexi
ty of laws and regulation, ther
e is a risk of non-compliance with the
requirements of such laws of r
egulations.
•
Our procedures are more limited wi
th respect to these laws and regulations th
at do not have a
direct effect on the de
termina
tion of the amounts and d
isclosures in the financial statements.
Compliance with these laws and reg
ulations may be fundamental to the
operating aspe
cts of the
business, to the Company's
ability to continue its business, or to avoid material penalties (
e.g.,
compliance with the terms of o
perating licenses and permits or compliance with environmental
regulations) and therefor
e non-compliance with such laws and regulations may hav
e a ma
terial
effect on the financial stateme
nts. Our responsibility is limited to undertaking specified audit
procedures to hel
p i
dentify non-compliance with those laws and regul
ations that may have a
material effect on the financ
ial statements.
•
Our procedures are limited to (i) inquiry of manageme
nt a
nd others within the Company as to
whether the Company is in c
ompliance with such laws and regulations and (ii) inspe
c
ting
correspondence, if any, wi
th the relevant licensing o
r r
egulatory authorities to help identify non-
compliance with those laws and re
gulations that may have a materi
a
l effect on the fi
nancial
statements.
•
Naturally, we remained alert to the indications of (suspe
cted) non-compliance throughout the audit.
•
Finally, we obtained written representations that all known instances of (suspe
cted) fraud or non-
compliance with laws and regul
a
tions have been disclosed to us.
Our responsibilities
fo
r the audit of the fi
n
ancial stat
ements
Our objective is to p
lan a
nd perform the audit assignme
nt in a
manner that all
ows us to obtain sufficient and
appropriate audit evi
dence for our opinion.
Our audit has been performe
d with a high, but not absolute, level of assurance, which means we m
ay not
detect all material er
ro
rs and fraud during our audit.
Misstatements
can arise
from fraud
or
e
rror and
are
considered
material
if, individually
or
in
the
aggregate,
they
could
reasonably
be
expe
cted
to
influence
the
economic
decisions
of
users
ta
ken
on
the
basis
of
these
financial
statements. The
materiality
affects th
e n
ature,
timing
and extent
of
our
audit
proce
dures
and
the
evaluation
of
the
effect
of
id
entified
misstatements
on
our
opinio
n.
We have exercised
professional judgement and have m
aintained professional skepticism throughout the
audit, in accordance with Du
tch S
tandards on Audi
ting, ethical requir
ements and independence
requirements. Our audi
t included e.g.:
•
Identifying and assessing th
e risks of material misstatement of the financial state
ments, whether due to
fraud or error, de
signing and performing audit pr
ocedures responsive to those risks, and obtaining audit
evidence that is sufficie
nt and appropriate to provide
a basis for our opinion.
•
Obtaining an understanding
of internal control relevant to the audit in ord
er to design audit procedur
es
that are appropriate in the c
ircumstances, but not for the purp
ose of expressing an op
inion on the
effectiveness of the compan
y's internal control.
•
Evaluating the appropriaten
ess of accounting policies used and the reasonable
ness of accounting
estimates and related di
sclosures made by management.
•
Concluding on the appropr
iateness of management's use of the goi
ng concern basis of accounting, and
based on the audit evidence
obtained, whether a material uncertainty exists related
to events or
conditions that may cast sig
nificant doubt on the company's ability to continue as a going co
ncern. If we
conclude that a material unc
ertainty exists, we are required to draw attention in our auditor
's report to
the related disclosur
es
in the financial statements or, if
such disclosures are inadeq
ua
te, to modify our
opinion. Our conclusions are b
ased on the audit evidence
obtained up to the date of our
auditor's report.
However, future e
vents or conditions may cause the comp
a
ny to cease to continue
as a
going concern.
•
Evaluating the overall pr
esentation, structure and conte
nt of the financial statements, includi
ng the
disclosures.
•
Evaluating whether the fina
ncial statements represent the underlying tr
ansactions and events in a
manner that achieves fair pr
esentation.
We communicate with
A
udit
Commi
tee regarding, amo
ng other matters, the planned scope and timi
ng of the
audit and significant audit fi
ndings, including any signi
ficant findings in internal control that we id
entified
during our audit. In this resp
ect we also submit an addi
tional report to the audit committee in accordance
with Article 11 of the EU Re
gulation on specific re
quirements regarding statutory audit of publ
ic-
interest
entities. The information i
ncluded in this additional report is consiste
nt with our audit opinion in this
auditor's report.
We provide
Audit Co
mmittee wi
th a
statement that we h
ave complied with relevant ethi
cal requirements
regarding independe
nce, a
nd to communicate with them al
l relationships and other matte
rs that may
reasonably be thought to be
ar on our independence, and where
applicable, related safeguards.
From the matters communi
ca
ted with Audi
t Committ
ee, we determine the key audi
t matters: those matters
that were of most significan
ce in the audit of the financial statements. We descr
ibe these matters in our
auditor's report unle
ss law or regulation precludes public disclosure about the matter
or when, in extremely
rare circumstances, not com
municating the matter is in t
he public interest.
Amsterdam , April 28
, 2022
2019
-
02
-
15
15.02.2019
Deloitte Accountants B.V.
Initial for identification purposes:
Signed on the origi
nal: J.Penon
SIGNATURE2