Derivative instruments

12 Months Ended

Dec. 31, 2021

Entity [Table]

Disclosure Of Derivative Financial Instruments Explanatory

Note 10 Derivative instruments

Overview

Over-the-counter (OTC) derivative contracts are usually traded

under a standardized International Swaps and Derivatives

Association (ISDA) master agreement between UBS and its

counterparties. Terms are negotiated directly with counterparties

and the contracts have industry-standard settlement mechanisms

prescribed by ISDA. Other OTC derivatives are cleared through

clearing houses, in particular interest rate swaps with LCH, where

a settled-to-market method has been generally adopted , under

which cash collateral exchanged on a daily basis is considered to

legally settle the market value of the derivatives. Regulators in

various jurisdictions have begun a phased introduction of rules

requiring the payment and collection of initial and

variation

margins on certain OTC derivative contracts, which may have a

bearing on price and other relevant terms. Due to challenges

brought on by COVID

-

19

,

the International Organization of

Securities Commissions (IOSCO) has extended the deadline for

completion of the final phase-in of margin requirements for non-

centrally cleared derivatives, to 1 September 2022.

Other derivative contracts are standardized in terms of their

amounts and settlement dates, and are bought and sold on

regulated exchanges. These are commonly referred to as

exchange-traded derivatives (ETD) contracts. Exchanges offer the

benefits of pricing transparency, standardized daily settlement of

changes in value and, consequently, reduced credit risk.

Most of the Group’s derivative transactions relate to sales and

market-making activity. Sales activities include the structuring and

marketing of derivative products to customers to enable them to

take, transfer, modify or reduce current or expected risks. Market-

making aims to directly support the facilitation and execution of

client activity, and involves quoting bid and offer prices to other

market participants with the aim of generating revenues based on

spread and volume.

The

Group

also uses various derivative

instruments for hedging purposes.

›

Refer to Notes 16 and 21 for more information about derivative

instruments

›

Refer to Note 26 for more information about derivatives

designated in hedge accounting relationships

Risks of derivative instruments

The derivative financial assets shown on the balance sheet can be

an important component of the Group’s credit exposure;

however, the positive replacement values related to a respective

counterparty are rarely an adequate reflection of the Group’s

credit exposure in its derivatives business with that counterparty.

This is generally the case because, on the one hand, replacement

values can increase over time (potential future exposure), while,

on the other hand, exposure may be mitigated by entering into

master netting agreements and bilateral collateral arrangements.

Both the exposure measures used internally by the Group to

control credit risk and the capital requirements imposed by

regulators reflect these additional factors.

›

Refer to Note 22 for more information about derivative financial

assets and liabilities after consideration of netting potential

allowed under enforceable netting arrangements

›

Refer to the “Risk management and control” section of this

report for more information about the risks arising from

derivative instruments

Derivative instruments

31.12.21

31.12.20

USD billion

Derivative

financial

assets

Notional

amounts

related to

derivative

financial

assets

2,3

Derivative

financial

liabilities

Notional

amounts

related to

derivative

financial

liabilities

2,3

Other

notional

amounts

2,4

Derivative

financial

assets

Notional

amounts

related to

derivative

financial

assets

2,3

Derivative

financial

liabilities

Notional

amounts

related to

derivative

financial

liabilities

2,3

Other

notional

amounts

2,4

Interest rate contracts

33.2

991.2

28.7

943.1

8,675.1

50.9

928.0

43.9

880.4

11,291.5

of which: forward contracts (OTC)

1

0.1

29.4

0.2

28.6

443.6

0.0

19.8

0.4

21.9

2,602.5

of which: swaps (OTC)

26.4

394.3

19.2

344.1

7,549.4

40.8

407.0

30.9

364.8

8,105.2

of which: options (OTC)

6.6

545.2

9.2

553.6

10.1

447.5

12.5

460.5

of which: futures (ETD)

525.0

480.6

of which: options (ETD)

0.0

22.4

0.0

16.8

157.1

0.0

53.6

0.0

33.1

103.3

Credit derivative contracts

1.4

44.7

1.8

46.3

2.4

57.6

2.9

64.8

of which: credit default swaps (OTC)

1.3

39.4

1.6

44.1

2.2

53.6

2.6

62.3

of which: total return swaps (OTC)

0.1

1.3

0.2

1.7

0.1

1.9

0.3

2.5

Foreign exchange contracts

53.3

3,030.8

54.1

2,938.8

1.2

68.7

2,951.1

70.5

2,820.4

1.4

of which: forward contracts (OTC)

23.8

1,008.9

23.8

1,043.2

27.3

779.1

29.0

853.3

of which: swaps (OTC)

24.3

1,606.3

24.9

1,480.3

34.3

1,727.3

34.4

1,567.3

of which: options (OTC)

5.2

412.6

5.3

408.6

7.1

440.9

7.1

394.7

Equity contracts

28.2

456.9

34.9

603.9

80.1

34.8

449.6

41.2

581.3

91.3

of which: swaps (OTC)

4.7

105.7

9.3

154.8

6.4

89.4

9.8

108.4

of which: options (OTC)

4.6

61.4

6.5

102.3

7.0

87.1

10.9

146.2

of which: futures (ETD)

71.2

67.9

of which: options (ETD)

10.2

289.6

9.8

346.3

8.8

10.7

273.1

11.3

326.8

23.5

of which: client-cleared transactions (ETD)

8.6

9.4

10.7

9.1

Commodity contracts

1.6

57.8

1.6

56.4

14.7

2.2

57.8

2.0

49.7

10.1

of which: swaps (OTC)

0.5

19.9

0.8

25.4

0.5

17.7

0.8

18.0

of which: options (OTC)

0.4

14.0

0.2

10.4

1.0

23.5

0.7

17.8

of which: futures (ETD)

13.9

9.3

of which: forward contracts (ETD)

 0.0

18.1

 0.0

15.2

 0.0

8.0

 0.0

6.3

of which: client-cleared transactions (ETD)

0.6

0.4

0.5

0.3

Loan commitments 

measured at FVTPL (OTC)

 0.0

0.8

0.0

8.2

0.0

10.2

Unsettled purchases of non-derivative

financial instruments

5

0.1

13.3

0.2

10.6

0.3

18.3

0.2

10.0

Unsettled sales of non-derivative financial

instruments

5

0.2

18.2

0.1

9.4

0.2

17.2

0.3

12.9

Total derivative instruments, 

based on IFRS netting

6

118.1

4,613.8

121.3

4,616.6

8,771.1

159.6

4,479.5

161.1

4,429.7

11,394.4

1 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value through profit or loss and are recognized within derivative instruments. 2 In cases where

derivative financial instruments are presented on a net basis on the balance sheet, the respective notional amounts of the netted derivative financial instruments are still presented on a gross basis. 3 Notional

amounts of client-cleared ETD and OTC transactions through central clearing counterparties are not disclosed, as they have significantly different risk profile. 4 Other notional amounts relate to derivatives that are

cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative

instruments and Cash collateral payables on derivative instruments and was not material for all periods presented. 5 Changes in the fair value of purchased and sold non-derivative financial instruments between

trade date and settlement date are recognized as derivative financial instruments. 6 Derivative financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally enforceable

right to offset the recognized amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of the entity and all of the counterparties, and intends either to settle on a net basis

or to realize the asset and settle the liability simultaneously. Refer to Note 22 for more information on netting arrangements.

On a notional amount basis, approximately

40

% of OTC interest

rate contracts held as of

contractual maturities of the cleared

underlying derivative contracts. Other notional amounts related

to interest rate contracts decreased by USD

2.6

 trillion compared

with 31 December 2020, mainly reflecting trade compressions,

which included activity as part of the ongoing transition to

alternative reference rates, and maturities.

UBS AG

Entity [Table]

Disclosure Of Derivative Financial Instruments Explanatory

Note 10 Derivative instruments

Overview

Over-the-counter (OTC) derivative contracts are usually traded

under

a standardized International Swaps and Derivatives

Association (ISDA) master agreement between UBS AG and its

counterparties. Terms are negotiated directly with counterparties

and the contracts have industry-standard settlement mechanisms

prescribed by ISDA. Other OTC derivatives are cleared through

clearing houses, in particular interest rate swaps with LCH, where

a settled-to-market method has been generally adopted, under

which cash collateral exchanged on a daily basis is considered to

legally settle the market value of the derivatives. Regulators in

various jurisdictions have begun a phased introduction of rules

requiring the payment and collection of initial and variation

margins on certain OTC derivative contracts, which may have a

bearing on price and other relevant terms. Due to challenges

brought on by COVID

-

19

,

the International Organization of

Securities Commissions (IOSCO) has extended the deadline for

completion of the final phase-in of margin requirements for non-

centrally cleared derivatives, to 1 September 2022.

Other derivative contracts are standardized in terms of their

amounts and settlement dates, and are bought and sold on

regulated exchanges. These are commonly referred to as

exchange-traded derivatives (ETD) contracts. Exchanges offer the

benefits of pricing transparency, standardized daily settlement of

changes in value and, consequently, reduced credit risk.

Most of UBS AG’s derivative transactions relate to sales and

market-making activity. Sales activities include the structuring and

marketing of derivative products to customers to enable them to

take, transfer, modify or reduce current or expected risks. Market-

making aims to directly support the facilitation and execution of

client activity, and involves quoting bid and offer prices to other

market participants with the aim of generating revenues based on

spread and volume.

UBS AG

also uses various derivative

instruments for hedging purposes.

›

Refer to Notes 16 and 21 for more information about derivative

instruments

›

Refer to Note 26 for more information about derivatives

designated in hedge accounting relationships

Risks of derivative instruments

The derivative financial assets shown on the balance sheet can be

an important component of UBS AG ’s credit exposure; however,

the positive replacement values related to a respective

counterparty are rarely an adequate reflection of UBS AG’s credit

exposure in its derivatives business with that counterparty. This is

generally the case because, on the one hand, replacement values

can increase over time (potential future exposure), while, on the

other hand, exposure may be mitigated by entering into master

netting agreements and bilateral collateral arrangements. Both

the exposure measures used internally by UBS AG to control credit

risk and the capital requirements imposed by regulators reflect

these additional factors.

›

Refer to Note 22 for more information about derivative financial

assets and liabilities after consideration of netting potential

allowed under enforceable netting arrangements

›

Refer to the “Risk management and control” section of this

report for more information about the risks arising from

derivative instruments

Derivative instruments

31.12.21

31.12.20

USD billion

Derivative

financial

assets

Notional

amounts

related to

derivative

financial

assets

2,3

Derivative

financial

liabilities

Notional

amounts

related to

derivative

financial

liabilities

2,3

Other

notional

amounts

2,4

Derivative

financial

assets

Notional

amounts

related to

derivative

financial

assets

2,3

Derivative

financial

liabilities

Notional

amounts

related to

derivative

financial

liabilities

2,3

Other

notional

amounts

2,4

Interest rate contracts

33.2

991.2

28.7

943.1

8,675.1

50.9

928.0

43.9

880.4

11,291.5

of which: forward contracts (OTC)

1

0.1

29.4

0.2

28.6

443.6

0.0

19.8

0.4

21.9

2,602.5

of which: swaps (OTC)

26.4

394.3

19.2

344.1

7,549.4

40.8

407.0

30.9

364.8

8,105.2

of which: options (OTC)

6.6

545.2

9.2

553.6

10.1

447.5

12.5

460.5

of which: futures (ETD)

525.0

480.6

of which: options (ETD)

0.0

22.4

0.0

16.8

157.1

0.0

53.6

0.0

33.1

103.3

Credit derivative contracts

1.4

44.7

1.8

46.3

2.4

57.6

2.9

64.8

of which: credit default swaps (OTC)

1.3

39.4

1.6

44.1

2.2

53.6

2.6

62.3

of which: total return swaps (OTC)

0.1

1.3

0.2

1.7

0.1

1.9

0.3

2.5

Foreign exchange contracts

53.3

3,031.0

54.1

2,938.8

1.2

68.7

2,951.2

70.5

2,820.4

1.4

of which: forward contracts (OTC)

23.8

1,009.1

23.8

1,043.2

27.3

779.2

29.0

853.3

of which: swaps (OTC)

24.3

1,606.4

24.9

1,480.3

34.3

1,727.3

34.4

1,567.3

of which: options (OTC)

5.2

412.6

5.3

408.6

7.1

440.9

7.1

394.7

Equity contracts

28.2

456.9

34.9

603.9

80.1

34.8

449.6

41.2

581.3

91.3

of which: swaps (OTC)

4.7

105.7

9.3

154.8

6.4

89.4

9.8

108.4

of which: options (OTC)

4.6

61.4

6.5

102.3

7.0

87.1

10.9

146.2

of which: futures (ETD)

71.2

67.9

of which: options (ETD)

10.2

289.6

9.8

346.3

8.8

10.7

273.1

11.3

326.8

23.5

of which: client-cleared transactions (ETD)

8.6

9.4

10.7

9.1

Commodity contracts

1.6

57.8

1.6

56.4

14.7

2.2

57.8

2.0

49.7

10.1

of which: swaps (OTC)

0.5

19.9

0.8

25.4

0.5

17.7

0.8

18.0

of which: options (OTC)

0.4

14.0

0.2

10.4

1.0

23.5

0.7

17.8

of which: futures (ETD)

13.9

9.3

of which: forward contracts (ETD)

0.0

18.1

0.0

15.2

0.0

8.0

0.0

6.3

of which: client-cleared transactions (ETD)

0.6

0.4

0.5

0.3

Loan commitments 

measured at FVTPL (OTC)

 0.0

0.8

0.0

8.2

0.0

10.2

Unsettled purchases of non-derivative

financial instruments

5

0.1

13.3

0.2

10.6

0.3

18.3

0.2

10.0

Unsettled sales of non-derivative financial

instruments

5

0.2

18.2

0.1

9.4

0.2

17.2

0.3

12.9

Total derivative instruments, 

based on IFRS netting

6

118.1

4,614.0

121.3

4,616.6

8,771.1

159.6

4,479.6

161.1

4,429.7

11,394.4

1 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value through profit or loss and are recognized within derivative instruments. 2 In cases where

derivative financial instruments are presented on a net basis on the bal ance sheet, the respective notional amounts of the netted derivative financial instruments are still presented on a gross basis. 3 Notional

amounts of client-cleared ETD and OTC transactions through central clearing counterparties are not disclosed, as they have significantly different risk profile. 4 Other notional amounts relate to derivatives that are

cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative

instruments and Cash collateral payables on derivative instruments and was not material for all periods presented. 5 Changes in the fair value of purchased and sold non-derivative financial instruments between

trade date and settlement date are recognized as derivative financial instruments. 6 Derivative financial assets and liabilities are presented net on the balance sheet if UBS AG has the unconditional and legally

enforceable right to offset the recognized amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of the entity and all of the counterparties, and intends either to settle on

a net basis or to realize the asset and settle the liability simultaneously. Refer to Note 22 for more information on netting arrangements.

On a notional amount basis, approximately

40

% of OTC interest

rate contracts held as of 31 December 2021 (31 December 2020:

50

%) mature within one year,

36

% (31 December 2020:

30

%)

within one to five years and

25

% (31 December 2020:

20

%) after

five years. 

Notional amounts of interest rate contracts cleared through

either a central counterparty or an exchange that are legally

settled on a daily basis are presented under

Other notional

amounts

 in the table

above and are categorized into maturity

buckets on the basis of contractual maturities of the cleared

underlying derivative contracts. Other notional amounts related

to interest rate contracts decreased by USD

2.6

 trillion compared

with 31 December 2020, mainly reflecting trade compressions,

which included activity as part of the ongoing transition to

alternative reference rates, and maturities.