The following table discloses the notional principal amount of over- the-counter derivatives and exchange-traded derivatives based on their contractual terms to maturity.


Derivatives by Term to Maturity (millions of Canadian dollars)


October 31 2016


Remaining term to maturity Over Notional Principal


Interest rate contracts Futures


Forward rate agreements Swaps


Options written Options purchased Total interest rate contracts


Foreign exchange contracts Futures


Forward contracts Swaps


Cross-currency interest rate swaps Options written


Options purchased


Total foreign exchange contracts Credit derivatives


Credit default swaps – protection purchased Credit default swaps – protection sold


Total credit derivative contracts


Other contracts Equity contracts


Commodity contracts Total other contracts Total


DERIVATIVE-RELATED RISKS Market Risk


Derivatives, in the absence of any compensating upfront cash payments, generally have no market value at inception. They obtain value, positive or negative, as relevant interest rates, foreign exchange rates, equity, commodity or credit prices or indices change, such that the previously contracted terms of the derivative transactions have become more or less favourable than what can be negotiated under current market conditions for contracts with the same terms and the same remaining period to expiry.


The potential for derivatives to increase or decrease in value as a result of the foregoing factors is generally referred to as market risk. This market risk is managed by senior officers responsible for the Bank’s trading business and is monitored independently by the Bank’s risk management group.


Credit Risk


Credit risk on derivatives, also known as counterparty credit risk, is the risk of a financial loss occurring as a result of the failure of a counterparty to meet its obligation to the Bank. The Capital Markets Risk Management area within Wholesale Banking is responsible for implementing and ensuring compliance with credit policies established by the Bank for the management of derivative credit exposures.


Within 1 year


$ 383,979 463,517


2,199,711 48,875 79,371


3,175,453 7


1,106,174 –


143,382 30,123 30,973


1,310,659


2,243 180


2,423


63,738 36,564


100,302 $ 4,588,837 $


1 year to 5 years


54,730 43,968


2,941,286 6,456 5,568


3,052,008 –


53,191 –


373,138 1,942 1,669


429,940


4,019 510


4,529


56,719 9,234


65,953 $ 3,552,430 $ Over 5 years


– –


922,469 2,393 2,848


927,710 –


1,288 –


129,263 32 41


130,624


3,171 168


3,339


427 489


916 $ 1,062,589 Total


$ 438,709 507,485


6,063,466 57,724 87,787


7,155,171 7


1,160,653 –


645,783 32,097 32,683


1,871,223


9,433 858


10,291


120,884 46,287


167,171 $ 9,203,856 Total


$ 261,425 372,891


4,636,437 29,235 34,445


5,334,433 37


713,690 –


548,953 23,973 23,286


1,309,939


8,333 904


9,237


112,335 25,834


138,169 $ 6,791,778


Derivative-related credit risks are subject to the same credit approval, limit and monitoring standards that are used for managing other transactions that create credit exposure. This includes evaluating the creditworthiness of counterparties, and managing the size, diversification and maturity structure of the portfolios. The Bank actively engages in risk mitigation strategies through the use of multi-product derivative master netting agreements, collateral and other risk mitigation techniques. Master netting agreements reduce risk to the Bank by allowing the Bank to close out and net transactions with counterparties subject to such agreements upon the occurrence of certain events. The effect of these master netting agreements is shown in the following table. Also shown in this table, is the current replacement cost, which is the positive fair value of all outstanding derivatives. The credit equivalent amount is the sum of the current replacement cost and the potential future exposure, which is calculated by applying factors supplied by OSFI to the notional principal amount of the derivatives. The risk-weighted amount is determined by applying standard measures of counterparty credit risk to the credit equivalent amount.


As at


October 31 2015


TD BANK GROUP ANNUAL REPORT 2016 FINANCIAL RESULTS 165


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