GlossaryGuide

A derivative contract is a financial instrument or other contract with all three of the following characteristics:

1. It has: (a) one or more underlyings; (b) one or more notional amounts; and (c) payment provisions. These terms determine the amount of the settlement or settlements, and, in some cases, whether or not a settlement is required.
2. It requires no initial net investment, or an initial net investment that is much smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
3. Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement.

Derivative contracts are only reportable on the TIC D reports. Embedded derivatives that are not bifurcated under FAS 133 should not be separated from the host contract and should be reported on the TIC B reports. However, if an embedded derivative is bifurcated, the derivative should be excluded from the B reports.