HFT and FVO and Unrealzied Gain

yz20190101

Hi Javid,

I think I read a line somewhere either in forum or Wiki pages, where it states that HFT could be viewed as FVO. I may remember wrong, but still want to verify if they are equivalent?

In 2017 Fall 14, both Realized Gain and Unrealized Gain of FVO contributes to Net Investment Income.
In 2016 Spring 26, only Realized Gain of HFT contributes to Net Income.

So HFT is not FVO right? Also HFT has no Unrealized Gain? otherwise, 2016 Sp #26 should also include unrealized gain of HFT to NI = Change of (MV - AV)?

Thanks

chrisboersma

Main point: All Fair Value options are designated as Held-for-trading (immediately book unrealized gains to net income), but not all Held-for-trading items are Fair Value Options.

Financial Assets and Financial Liabilities Held-for-Trading:

Item (i) above is the original intent of this category captured in the original International Accounting Standard IAS 39, Financial Instruments: Recognition and Measurement. IAS 39 was amended in December 2003 to introduce the option that permits entities to designate any financial asset or financial liability for measurement at fair value (with gains and losses recognized immediately in net income). This amendment has become known as “The Fair Value Option” and is reflected in item (ii) of the new standards. This first amendment effectively allowed all financial instruments to qualify for inclusion in this category.

So Held-For-Trading is either:

(i) The original intent of Held-for-trading: acquired ... principally for the purpose of selling ... in the near term; evidence of recent actual pattern of short-term profit taking; or a derivative;
(ii) Fair Value Option: it is designated by the entity upon initial recognition as held-for-trading (an extra category added to Held-For-Trading rules)

Both option (i) and (ii) would be considered as 'held-for-trading', but (ii) could ALSO be a "Fair Value Option". All Fair Value options are Held-for-trading. Not all Held-for-trading are Fair Value Options

And furthermore,

On June 22, 2006, OSFI issued three documents related to their Guideline D-10. Guideline D-10 specifically focused on the fair value option indicated under CICA 3855.19(f)(ii) and indicated that OSFI expects federally regulated financial institutions will use the fair value option only when doing so results in more relevant information, because either:
1. it eliminates or significantly reduces a measurement or recognition inconsistency
2. investment strategy (eg. offsetting fair value asset and liability strategy)

So they (OSFI) does not expect or generally permit the use of such a options.