When CFM Indosuez Wealth uses standard models and observable market parameters (such as yield curves or implied volatility bands), the original margin generated on instruments valued in this way is recognised in the income statement at inception. Level 3: fair values for which a significant portion of the inputs used for their determination do not meet the observability criteria For some complex market instruments that are not traded on an active market, fair value is determined on the basis of valuation techniques using assumptions that cannot be backed up by observable data on the market for the same instrument. These instruments are included in Level 3. These are essentially complex rate products, equity derivatives and structured credit products whose valuation requires, for example, correlation or volatility inputs that are not directly comparable to market data. The original transaction price is deemed to reflect the market value and recognition of initial margin is deferred. The margin relating to these structured financial instruments is generally recognised through profit or loss over the period in which parameters are deemed unobservable. When market data becomes “observable,” the margin remaining to be recognised is immediately taken to income. Valuation methodologies and models for financial instruments within Levels 2 and 3 incorporate all factors used by market participants in calculating a price. They must first be validated through an independent check. Determining the fair value of these instruments takes account notably of liquidity risk and counterparty risk. OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES In accordance with IAS 32, CFM Indosuez Wealth offsets a financial asset and a financial liability and presents a net balance if and only if it has a legally enforceable right to offset the amounts recognised and intends to settle the net amount or realise the asset and the liability simultaneously. The derivative instruments and repurchase operations handled with clearing houses whose operating principles meet both the criteria required by IAS 32 are offset on the balance sheet. NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS Net gains or losses on financial instruments at fair value through profit or loss For financial assets recognised at fair value through profit or loss, this item includes the following items of income: - dividends and other income from equities and other variable income securities classified as financial assets at fair value through profit or loss; - changes in the fair value of financial assets or financial liabilities measured at fair value through profit or loss; - capital gains and losses realised on financial assets at fair value through profit or loss; - changes in fair value and income from the sale or termination of derivative instruments that are not subject to a fair value hedging or cash flow hedging relationship. This heading also includes the ineffective element of hedging transactions. Net gains (losses) on financial instruments at fair value through other comprehensive income For financial assets recognised at fair value through other comprehensive income, this item includes the following items of income: - dividends from equity instruments classified as financial assets at fair value through other comprehensive income not recyclable to income: - capital gains and losses and income related to the termination of the hedging relationship on debt instruments classified as financial assets at fair value through recyclable equity; - income from the sale or termination of fair value hedges of financial assets at fair value through other comprehensive income when the hedged item is sold. FINANCING AND FINANCIAL GUARANTEE COMMITMENTS GIVEN Financing commitments that are not classified as assets measured at fair value through profit or loss or that are not considered to be derivative instruments within the meaning of IFRS 9 are not included in the balance sheet. However, they are subject to provisions for credit risk in accordance with IFRS 9. A financial guarantee contract is a contract requiring the issuer to make specific payments to reimburse the holder for a loss incurred due to a specific debtor's failure to make a payment when due, in accordance with the initial or modified terms and conditions of a debt instrument. CFM Indosuez Wealth Management 90
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