We use derivative financial instruments to support our clients' needs and to manage our interest rate and currency risks. These financial instruments consist of FX contracts such as forwards, futures and options contracts; interest rate contracts such as interest rate swaps (cross currency and single currency) and futures; and other derivative contracts. Derivative instruments used for risk management purposes that are highly effective in offsetting the risk being hedged are generally designated as hedging instruments in hedge accounting relationships, while others are economic hedges and not designated in hedge accounting relationships. Derivatives in hedge accounting relationships are disclosed according to the type of hedge, such as, fair value, cash flow, or net investment. Derivatives designated as hedging instruments in hedge accounting relationships are carried at fair value with change in fair value recognized in the consolidated statement of income or OCI, as appropriate. Derivatives not designated in hedge accounting relationships include those derivatives entered into to support client needs and derivatives used to manage interest rate or foreign currency risk associated with certain assets and liabilities. Such derivatives are carried at fair value with changes in fair value recognized in the consolidated statement of income.

We provide foreign exchange forward contracts and options in support of our client needs, and also act as a dealer in the currency markets. As part of our trading activities, we assume positions in both the foreign exchange and interest rate markets by buying and selling cash instruments and using derivative financial instruments, including foreign exchange forward contracts, foreign exchange and interest rate options, interest rate forward contracts, and interest rate futures. The entire change in the fair value of our non-hedging derivatives utilized in our trading activities are recorded in foreign exchange trading services revenue, and the entire change in fair value of our non-hedging derivatives utilized in our asset-and-liability management activities are recorded in net interest income.

We grant deferred cash awards to certain of our employees as part of our employee incentive compensation plans. We account for these awards as derivative financial instruments, as the underlying referenced shares are not equity instruments of ours. The fair value of these derivatives is referenced to the value of units in State Street-sponsored investment funds or funds sponsored by other unrelated entities. We re-measure these derivatives to fair value quarterly, and record the change in value in compensation and employee benefits expenses in our consolidated statement of income.

In connection with our asset-and-liability management activities, we use derivative financial instruments to manage our interest rate risk and foreign currency risk for certain assets and liabilities. At both the inception of the hedge and on an ongoing basis, we formally assess and document the effectiveness of a derivative designated in a hedging relationship and the likelihood that the derivative will be an effective hedge in future periods. We discontinue hedge accounting prospectively when we determine that the derivative is no longer highly effective in offsetting changes in fair value or cash flows of the underlying risk being hedged, the derivative expires, terminates or is sold, or management discontinues the hedge designation.

The risk management objective of a highly effective hedging strategy that qualifies for hedge accounting must be formally documented. The hedge documentation includes the derivative hedging instrument, the asset or liability or forecasted transaction, type of risk being hedged and method for assessing hedge effectiveness of the derivative prospectively and retrospectively. We use quantitative methods including regression analysis and cumulative dollar offset method, comparing the change in the fair value of the derivative to the change in fair value or the cash flows of the hedged item. We may also utilize qualitative methods such as matching critical terms and evaluation of any changes in those critical terms. Effectiveness is assessed and documented quarterly and if determined that the derivative is not highly effective at hedging the designated risk hedge accounting is discontinued.

Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities, including long-term debt, AFS securities, and foreign currency investment securities. We use interest rate or FX contracts in this manner to manage our exposure to changes in the fair value of hedged items caused by changes in interest rates or FX rates.

Changes in the fair value of the derivative and changes in fair value of the hedged item due to changes in the hedged risk are recognized in earnings in the same line item. If a hedge is terminated, but the hedged item was not derecognized, all remaining adjustments to the carrying amount of the hedged item are amortized over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item.

Derivatives designated as cash flow hedges are utilized to offset the variability of cash flows of recognized assets or liabilities or forecasted transactions. We have entered into FX contracts to hedge the change in cash flows attributable to FX movements in foreign currency denominated investment securities. Additionally, we have entered into interest rate swap agreements to hedge the forecasted cash flows associated with LIBOR indexed floating-rate loans. The interest rate swaps synthetically convert the loan interest receipts from a variable-rate to a fixed-rate, thereby mitigating the risk attributable to changes in the LIBOR benchmark rate.

Changes in fair value of the derivatives designated as cash flow hedges are initially recorded in AOCI and then reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged item. If the hedge relationship is terminated, the change in fair value on the derivative recorded in AOCI is reclassified into earnings consistent with the timing of the hedged item. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge terms, any related derivative values recorded in AOCI are immediately recognized in earnings. As of December 31, 2019, the maximum maturity date of the underlying loans is approximately 4.7 years.

Derivatives categorized as net investment hedges are entered into to protect the net investment in our foreign operations against adverse changes in exchange rates. We use FX forward contracts to convert the foreign currency risk to U.S. dollars to mitigate our exposure to fluctuations in FX rates. The changes in fair value of the FX forward contracts are recorded, net of taxes, in the foreign currency translation component of OCI.



(In millions)	December 31, 2019		December 31, 2018
Derivatives not designated as hedging instruments:
Interest rate contracts:
Futures	$	4,368	$	2,348
Foreign exchange contracts:
Forward, swap and spot	2,378,808		2,238,819
Options purchased	1,581		578
Options written	1,110		576
Futures	1,040		49
Other:
Stable value contracts⁽¹⁾	26,895		26,634
Deferred value awards⁽²⁾	389		434
Derivatives designated as hedging instruments:
Interest rate contracts:
Swap agreements	15,196		10,596
Foreign exchange contracts:
Forward and swap	3,176		3,412



	Derivative Assets⁽¹⁾				Derivative Liabilities⁽²⁾
(In millions)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	15,140	$	16,369	$	15,054	$	16,434
Other derivative contracts	—		—		182		214
Total	$	15,140	$	16,369	$	15,236	$	16,648

Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	$	17	$	96	$	88
Interest rate contracts	8		13		49		71
Total	$	8	$	30	$	145	$	159



		Years Ended December 31,
		2019			2018			2017
(In millions)	Location of Gain (Loss) on Derivative in Consolidated Statement of Income	Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Foreign exchange trading services revenue	$	630		$	723		$	632
Foreign exchange contracts	Software and processing fees⁽¹⁾	—			—			(23		)
Foreign exchange contracts	Interest expense⁽¹⁾	(153		)	(41		)	—
Interest rate contracts	Foreign exchange trading services revenue	(3		)	(6		)	8
Interest rate contracts	Software and processing fees⁽¹⁾	—			(1		)	—
Other derivative contracts	Foreign exchange trading services revenue	—			5			—
Other derivative contracts	Compensation and employee benefits	(205		)	(171		)	(143		)
Total		$	269		$	509		$	474

⁽¹⁾2018 includes approximately $15 million of swap costs related to the first quarter of 2018 that were reclassified from software and processing fees to NII.



	December 31, 2019
	Hedged Items Currently Designated					Hedged Items No Longer Designated⁽¹⁾
(In millions)	Carrying Amount of Assets and Liabilities⁽²⁾		Cumulative Hedge Accounting Basis Adjustments			Carrying Amount of Assets and Liabilities		Cumulative Hedge Accounting Basis Adjustments
Long-term debt	$	9,769	$	164		$	1,199	$	(8	)
Available-for-sale securities	940		49			—		—
Total	$	10,709	$	213		$	1,199	$	(8	)

	December 31, 2018
	Hedged Items Currently Designated					Hedged Items No Longer Designated⁽¹⁾
(In millions)	Carrying Amount of Assets and Liabilities⁽²⁾		Cumulative Hedge Accounting Basis Adjustments			Carrying Amount of Assets and Liabilities		Cumulative Hedge Accounting Basis Adjustments
Long-term debt	$	8,270	$	(137	)	$	1,197	$	(20	)
Available-for-sale securities	1,496		72			50		1
Total	$	9,766	$	(65	)	$	1,247	$	(19	)



		Years Ended December 31,												Years Ended December 31,
		2019			2018			2017						2019				2018			2017
(In millions)	Location of Gain (Loss) on Derivative in Consolidated Statement of Income	Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income										Hedged Item in Fair Value Hedging Relationship	Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income	Amount of Gain (Loss) on Hedged Item Recognized in Consolidated Statement of Income
Derivatives designated as fair value hedges:
Foreign exchange contracts	Software and processing fees	$	—		$	(74	)	$	18			Investment securities	Software and processing fees	$	—			$	74		$	(18	)
Foreign exchange contracts	Software and processing fees	—			(328		)	626				Foreign exchange deposit	Software and processing fees	—				328			(626		)
Interest rate contracts	Net interest income	(4		)	31			—				Available-for-sale securities⁽¹⁾	Net interest income	2				(32		)	—
Interest rate contracts	Net interest income	266			(58		)	—				Long-term debt	Net interest income	(255		)		49			—
Interest rate contracts	Software and processing fees	—			—			39			—	Available-for-sale securities⁽¹⁾	Software and processing fees	—			—	—			(37		)
Interest rate contracts	Software and processing fees	—			—			(38		)	—	Long-term debt	Software and processing fees	—			—	—			39
Total		$	262		$	(429	)	$	645					$	(253	)		$	419		$	(642	)



	Years Ended December 31,									Years Ended December 31,
	2019		2018			2017			Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	2019			2018			2017
(In millions)	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative									Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives designated as cash flow hedges:
Interest rate contracts	$	8	$	(12	)	$	(14	)	Net interest income	$	(10	)	$	(1	)	$	2
Foreign exchange contracts	43		(12		)	(104		)	Net interest income	27			27			24
Total derivatives designated as cash flow hedges	$	51	$	(24	)	$	(118	)		$	17		$	26		$	26

Derivatives designated as net investment hedges:
Foreign exchange contracts	$	30	$	81		$	(160	)	Gains (Losses) related to investment securities, net	$	—		$	—		$	—
Total derivatives designated as net investment hedges	30		81			(160		)		—			—			—

Total	$	81	$	57		$	(278	)		$	17		$	26		$	26

Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the consolidated statement of condition for those counterparties with whom we have legally binding master netting agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting. Additional information on netting is provided in Note 11.

Certain of our derivatives are subject to master netting agreements with our derivative counterparties containing credit risk-related contingent features, which requires us to maintain an investment grade credit rating with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the provisions, and counterparties to the derivatives could request immediate payment or demand full overnight collateralization on derivatives instruments in net liability positions. The aggregate fair value of all derivatives with credit contingent features and in a liability position as of December 31, 2019 totaled approximately $2.03 billion, against which we provided $0.71 billion of collateral in the normal course of business. If our credit related contingent features underlying these agreements were triggered as of December 31, 2019, the maximum additional collateral we would be required to post to our counterparties is approximately $1.32 billion.