Survey of Disclosures About Trading and Derivatives Activities of Banks and Securities Firms

SURVEY OF DISCLOSURES ABOUTTRADING AND DERIVATIVES ACTIVITIESOF BANKS AND SECURITIES FIRMSJoint report by theBasle Committee on Banking Supervisionand theTechnical Committee of the International Organisation of Securities Commissions("IOSCO")November 1996 Survey of disclosures about trading and derivatives activitiesof banks and securities firmsIn November 1995, the Basle Committee on Banking Supervision1 (BasleCommittee) and the Technical Committee of the International Organisation of SecuritiesCommissions2 (IOSCO Technical Committee) issued a report on the public disclosure oftrading (on-balance-sheet instruments and off-balance-sheet derivatives) and non-tradingderivatives activities3 of banks and securities firms. The report contained a survey ofdisclosures about trading and derivatives activities in 1994 annual reports for a sample oflarge, internationally active banks and securities firms, as compared with 1993. It alsocontained a series of recommendations, both quantitative and qualitative, to stimulate furtherimprovements in disclosure practices. These recommendations drew on the conceptsdeveloped in the Discussion Paper on Public Disclosure of Market and Credit Risks byFinancial Intermediaries ("the Fisher report"), released by the Euro-currency StandingCommittee of the G-10 central banks in September 1994 and on the Framework forSupervisory Information About the Derivatives Activities of Banks and Securities Firms ("theSupervisory Information Framework"), released jointly by the Basle Committee on BankingSupervision and the IOSCO Technical Committee in May 1995.This document provides a follow-up survey that includes the 1995 disclosuresabout trading and derivatives activities of the internationally active banks and securities firmscovered in the November 1995 report. It is intended to provide large banks and securitiesfirms with a picture of the advances in disclosure practices over the 1993-1995 period andencourage further enhancements at the international level. As was discussed extensively in theNovember 1995 report, the Basle Committee and the IOSCO Technical Committee havestressed that meaningful public disclosures play an important role in reinforcing the efforts ofsupervisors to foster financial market stability. Improved disclosures should also benefit banksand securities firms themselves, enhancing their ability to evaluate and manage their1The Basle Committee on Banking Supervision is a committee of banking supervisory authorities whichwas established by the central-bank Governors of the Group of Ten countries in 1975. It consists of seniorrepresentatives of bank supervisory authorities and central banks from Belgium, Canada, France,Germany, Italy, Japan, Luxembourg, Netherlands, Sweden, Switzerland, United Kingdom and the UnitedStates. It usually meets at the Bank for International Settlements in Basle, where its permanent Secretariatis located.2The Technical Committee of IOSCO is a committee of the supervisory authorities for securities firms inmajor industrialised countries. It consists of senior representatives of the securities regulators fromAustralia, Canada, France, Germany, Hong Kong, Italy, Japan, Mexico, Netherlands, Spain, Sweden,Switzerland, United Kingdom, and the United States.3From now on referred to as "trading and derivatives" activities. - 2 -exposures to other counterparties and reducing the likelihood that they become susceptible tomarket rumours and misunderstandings during periods of financial stress.Compared with 1994, the banks and securities firms included in the surveycontinued to enhance their trading and derivatives-related disclosures in 1995 annual reports.Management discussion of the risks associated with trading and derivatives activities and themethods used to manage these risks continued to be expanded. Institutions also provided moredetailed discussions of accounting and valuation techniques for their trading and derivativespositions. Particularly noteworthy was the increase in the number of institutions that providedquantitative disclosures drawn from their internal value-at-risk methodologies. More than halfof the banks included in the survey provided such quantitative information. The Committeesstrongly encourage these institutions to continue their efforts to develop more meaningfuldisclosures for their trading and derivatives activities.Despite these improvements at many leading financial intermediaries, thereremain significant disparities, both within and across countries, as regards the type andusefulness of the information disclosed. Moreover, a significant proportion of institutionscontinue to disclose li