UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


X		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-7182

MERRILL LYNCH & CO., INC.

(Exact name of Registrant as specified in its charter)


Delaware		13-2740599

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Bank of America Corporate Center 100 N. Tryon Street Charlotte, North Carolina		28255

(Address of principal executive offices)		(Zip Code)

(704) 386-5681

Registrant’s telephone number, including area code:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

X YES NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

X YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	Accelerated filer	Non-accelerated filer X	Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES X NO

As of the close of business on November 3, 2011, there were 1,000 shares of Common Stock outstanding, all of which were held by Bank of America Corporation.

The registrant is a wholly-owned subsidiary of Bank of America Corporation and meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format as permitted by Instruction H(2).

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
TABLE OF CONTENTS


Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings (Loss)			3
Condensed Consolidated Balance Sheets			5
Condensed Consolidated Statements of Cash Flows			7
Condensed Consolidated Statements of Comprehensive Income (Loss)			8
Notes to Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies			9
Note 2. Transactions with Bank of America			19
Note 3. Segment and Geographic Information			21
Note 4. Fair Value Disclosures			22
Note 5. Fair Value of Financial Instruments			40
Note 6. Derivatives			41
Note 7. Securities Financing Transactions			55
Note 8. Investment Securities			56
Note 9. Securitizations and Other Variable Interest Entities			59
Note 10. Loans, Notes, and Mortgages			66
Note 11. Goodwill and Intangible Assets			70
Note 12. Borrowings and Deposits			71
Note 13. Stockholder’s Equity and Earnings Per Share			74
Note 14. Commitments, Contingencies and Guarantees			75
Note 15. Employee Benefit Plans			87
Note 16. Regulatory Requirements			88
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			90
Introduction			91
Executive Overview			93
Results of Operations			98
Off-Balance Sheet Exposures			102
Funding and Liquidity			110
Item 3. Quantitative and Qualitative Disclosures About Market Risk			113
Item 4. Controls and Procedures			113
Part II. Other Information
Item 1. Legal Proceedings			114
Item 1A. Risk Factors			114
Item 6. Exhibits			114
Signatures			115
Exhibit Index			116
EX-12
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — Financial Information


Item 1.	Financial Statements (Unaudited)

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)


	Three Months Ended			Three Months Ended
(dollars in millions)	September 30, 2011			September 30, 2010

Revenues
Principal transactions	$	2,781		$	1,243
Commissions		1,441			1,351
Managed account and other fee-based revenues		1,354			1,114
Investment banking		1,016			1,326
Earnings from equity method investments		70			281
Other revenues		(899	)		478
Other-than-temporary impairment losses on available-for-sale debt securities:
Total other-than-temporary impairment losses		(12	)		(45	)
Less: Portion of other-than-temporary impairment losses recognized in other comprehensive income		7			3

Subtotal		5,758			5,751
Interest and dividend revenues		2,314			2,245
Less interest expense		2,202			2,260

Net interest income (expense)		112			(15	)

Revenues, net of interest expense		5,870			5,736

Non-interest expenses
Compensation and benefits		3,638			3,507
Communications and technology		432			493
Occupancy and related depreciation		385			351
Brokerage, clearing, and exchange fees		279			227
Advertising and market development		122			114
Professional fees		266			265
Office supplies and postage		31			38
Provision for representations and warranties		17			34
Other		1,090			973

Total non-interest expenses		6,260			6,002

Pre-tax loss		(390	)		(266	)
Income tax (benefit) expense		(523	)		114

Net earnings (loss)	$	133		$	(380	)

Preferred stock dividends		-			38

Net earnings (loss) applicable to common stockholder	$	133		$	(418	)

See Notes to Condensed Consolidated Financial Statements.

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)


	Nine Months Ended			Nine Months Ended
(dollars in millions)	September 30, 2011			September 30, 2010

Revenues
Principal transactions	$	6,125		$	7,381
Commissions		4,478			4,317
Managed account and other fee-based revenues		3,976			3,328
Investment banking		4,162			3,800
Earnings from equity method investments		328			658
Other revenues		2,337			2,758
Other-than-temporary impairment losses on available-for-sale debt securities:
Total other-than-temporary impairment losses		(59	)		(168	)
Less: Portion of other-than-temporary impairment losses recognized in other comprehensive income		10			3

Subtotal		21,357			22,077
Interest and dividend revenues		6,220			6,985
Less interest expense		6,945			7,235

Net interest expense		(725	)		(250	)

Revenues, net of interest expense		20,632			21,827

Non-interest expenses
Compensation and benefits		12,146			11,593
Communications and technology		1,338			1,465
Occupancy and related depreciation		1,056			1,053
Brokerage, clearing, and exchange fees		882			781
Advertising and market development		358			313
Professional fees		718			660
Office supplies and postage		95			118
Provision for representations and warranties		2,736			(145	)
Other		3,535			2,177

Total non-interest expenses		22,864			18,015

Pre-tax (loss) earnings		(2,232	)		3,812
Income tax (benefit) expense		(1,329	)		1,286

Net (loss) earnings	$	(903	)	$	2,526

Preferred stock dividends		-			114

Net (loss) earnings applicable to common stockholder	$	(903	)	$	2,412

See Notes to Condensed Consolidated Financial Statements.

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


(dollars in millions, except per share amounts)	September 30, 2011		December 31, 2010

ASSETS

Cash and cash equivalents	$	13,301	$	17,220

Cash and securities segregated for regulatory purposes or deposited with clearing organizations		13,172		12,424

Securities financing transactions
Receivables under resale agreements (includes $89,119 in 2011 and $74,255 in 2010 measured at fair value in accordance with the fair value option election)		175,640		138,219
Receivables under securities borrowed transactions (includes $1,543 in 2011 and $1,672 in 2010 measured at fair value in accordance with the fair value option election)		61,362		60,458

		237,002		198,677

Trading assets, at fair value (includes securities pledged as collateral that can be sold or repledged of $42,251 in 2011 and $33,933 in 2010):
Derivative contracts		39,233		39,371
Equities and convertible debentures		25,066		34,204
Non-U.S. governments and agencies		28,345		22,248
Corporate debt and preferred stock		20,272		27,703
Mortgages, mortgage-backed, and asset-backed		7,240		10,994
U.S. Government and agencies		43,566		41,378
Municipals, money markets, physical commodities and other		15,089		14,759

		178,811		190,657

Investment securities (includes $201 in 2011 and $310 in 2010 measured at fair value in accordance with the fair value option election)		8,031		17,769

Securities received as collateral, at fair value		12,558		20,363

Receivables from Bank of America		55,658		60,655

Other receivables
Customers (net of allowance for doubtful accounts of $15 in 2011 and $8 in 2010)		23,253		22,080
Brokers and dealers		10,378		16,483
Interest and other		12,504		10,633

		46,135		49,196


Loans, notes, and mortgages (net of allowances for loan losses of $90 in 2011 and $170 in 2010) (includes $2,399 in 2011 and $3,190 in 2010 measured at fair value in accordance with the fair value option election)		21,916		25,803

Equipment and facilities, net		1,471		1,712

Goodwill and intangible assets		9,482		9,714

Other assets		17,745		17,436


Total Assets	$	615,282	$	621,626


Assets of Consolidated VIEs Included in Total Assets Above (pledged as collateral)

Trading assets, excluding derivative contracts	$	8,766	$	10,838
Derivative contracts		-		41
Investment securities		264		309
Loans, notes, and mortgages (net)		108		221
Other assets		1,511		1,597


Total Assets of Consolidated VIEs	$	10,649	$	13,006

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


(dollars in millions, except per share amounts)	September 30, 2011			December 31, 2010

LIABILITIES

Securities financing transactions
Payables under repurchase agreements (includes $36,943 in 2011 and $37,394 in 2010 measured at fair value in accordance with the fair value option election)	$	203,220		$	183,758
Payables under securities loaned transactions		14,795			15,251

		218,015			199,009


Short-term borrowings (includes $5,527 in 2011 and $6,472 in 2010 measured at fair value in accordance with the fair value option election)		7,104			15,248

Deposits		12,277			12,826

Trading liabilities, at fair value
Derivative contracts		29,538			32,197
Equities and convertible debentures		16,602			14,026
Non-U.S. governments and agencies		16,702			15,705
Corporate debt and preferred stock		9,655			9,500
U.S. Government and agencies		16,677			24,747
Municipals, money markets and other		473			571

		89,647			96,746


Obligation to return securities received as collateral, at fair value		12,558			20,363
Payables to Bank of America		33,587			23,021

Other payables
Customers		42,430			39,045
Brokers and dealers		11,211			12,895
Interest and other (includes $189 in 2011 and $165 in 2010 measured at fair value in accordance with the fair value option election)		19,888			19,900

		73,529			71,840


Long-term borrowings (includes $31,021 in 2011 and $39,214 in 2010 measured at fair value in accordance with the fair value option election)		114,917			128,851
Junior subordinated notes (related to trust preferred securities)		3,594			3,576

Total Liabilities		565,228			571,480

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER’S EQUITY

Common stock (par value $1.331/3 per share; authorized: 3,000,000,000 shares; issued: 1,000 shares)		-			-
Paid-in capital		41,257			40,416
Accumulated other comprehensive loss (net of tax)		(284	)		(254	)
Retained earnings		9,081			9,984

Total Stockholder’s Equity		50,054			50,146

Total Liabilities and Stockholder’s Equity	$	615,282		$	621,626


Liabilities of Consolidated VIEs Included in Total Liabilities Above
Short-term borrowings	$	5,314		$	4,642
Derivative contracts		4			1
Payables to Bank of America		13			2
Other payables		180			53
Long-term borrowings		5,617			6,674

Total Liabilities of Consolidated VIEs	$	11,128		$	11,372

See Notes to Condensed Consolidated Financial Statements.

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended			Nine Months Ended
(dollars in millions)	September 30, 2011			September 30, 2010

Cash flows from operating activities:
Net (loss) earnings	$	(903	)	$	2,526
Adjustments to reconcile net earnings to cash provided by operating activities
Provision for representations and warranties		2,736			(145	)
Depreciation and amortization		562			692
Share-based compensation expense		1,578			1,039
Deferred taxes		(204	)		673
Earnings from equity method investments		(328	)		(306	)
Other		2,435			1,744
Changes in operating assets and liabilities:
Trading assets		11,846			(17,876	)
Cash and securities segregated for regulatory purposes or deposited with clearing organizations		(748	)		2,184
Receivables from Bank of America		4,997			(2,674	)
Receivables under resale agreements		(37,421	)		(75,377	)
Receivables under securities borrowed transactions		(904	)		5,632
Customer receivables		(1,180	)		12,191
Brokers and dealers receivables		6,106			4,999
Proceeds from loans, notes, and mortgages held for sale		3,928			4,989
Other changes in loans, notes, and mortgages held for sale		(2,428	)		(2,559	)
Trading liabilities		(7,129	)		31,664
Payables under repurchase agreements		19,462			43,268
Payables under securities loaned transactions		(456	)		(8,216	)
Payables to Bank of America		10,566			(2,209	)
Customer payables		3,385			385
Brokers and dealers payables		(1,684	)		(4,451	)
Other, net		(8,159	)		9,933

Cash provided by operating activities		6,057			8,106

Cash flows from investing activities:
Proceeds from (payments for):
Maturities of available-for-sale securities		1,442			1,201
Sales of available-for-sale securities		3,876			14,966
Purchases of available-for-sale securities		(1,430	)		(771	)
Maturities of held-to-maturity securities		250			-
Equipment and facilities, net		(89	)		(294	)
Loans, notes, and mortgages held for investment		2,111			2,656
Other investments		5,480			2,459

Cash provided by investing activities		11,640			20,217

Cash flows from financing activities:
Proceeds from (payments for):
Commercial paper and short-term borrowings		(8,144	)		(5,031	)
Issuance and resale of long-term borrowings		7,657			6,440
Settlement and repurchases of long-term borrowings		(20,610	)		(29,452	)
Deposits		(549	)		(1,295	)
Derivative financing transactions		30			(1	)
Dividends		-			(114	)

Cash used for financing activities		(21,616	)		(29,453	)

Decrease in cash and cash equivalents		(3,919	)		(1,130	)
Cash and cash equivalents, beginning of period		17,220			15,142

Cash and cash equivalents, end of period	$	13,301		$	14,012

Supplemental Disclosure of Cash Flow Information:
Income taxes paid	$	147		$	2,460
Interest paid		5,716			5,471

Non-cash investing and financing activities:

During the nine months ended September 30, 2010, Merrill Lynch received a non-cash capital contribution of approximately $1 billion from Bank of America associated with certain employee stock awards. In addition, as of January 1, 2010, Merrill Lynch assumed assets and liabilities in connection with the consolidation of certain variable interest entities.

See Notes to Condensed Consolidated Financial Statements.

Merrill Lynch & Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended
(dollars in millions)	September 30, 2011			September 30, 2011			September 30, 2010			September 30, 2010

Net earnings (loss)	$	133		$	(903	)	$	(380	)	$	2,526
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment		(27	)		(25	)		28			(30	)
Net unrealized (loss) gain on investment securities available-for-sale		(15	)		(3	)		68			(49	)
Net deferred gain (loss) on cash flow hedges		2			(5	)		10			18
Defined benefit pension and postretirement plans		(1	)		3			2			5

Total other comprehensive (loss) income, net of tax		(41	)		(30	)		108			(56	)

Comprehensive income (loss)	$	92		$	(933	)	$	(272	)	$	2,470

See Notes to Condensed Consolidated Financial Statements.

Merrill Lynch & Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

September 30, 2011

Note 1. Summary of Significant Accounting Policies

Merrill Lynch & Co. Inc. (“ML & Co.”) and together with its subsidiaries (“Merrill Lynch”), provides investment, financing and other related services to individuals and institutions on a global basis through its broker, dealer, banking and other financial services subsidiaries. On January 1, 2009, ML & Co. was acquired by Bank of America Corporation (“Bank of America”) in exchange for common and preferred stock with a value of $29.1 billion. ML & Co. is a wholly-owned subsidiary of Bank of America.

Merger with Banc of America Securities Holdings Corporation (“BASH”)

On November 1, 2010, ML & Co. merged with BASH, a wholly-owned subsidiary of Bank of America, with ML & Co. as the surviving corporation in the merger. In addition, as a result of the BASH merger, Banc of America Securities LLC (“BAS”), a wholly-owned broker-dealer subsidiary of BASH, became a wholly-owned broker-dealer subsidiary of ML & Co. Subsequently, on November 1, 2010, BAS was merged into Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned broker-dealer subsidiary of ML & Co., with MLPF&S as the surviving corporation in the merger. In accordance with Accounting Standards Codification (“ASC”) 805-10, Business Combinations (“Business Combinations Accounting”), Merrill Lynch’s Condensed Consolidated Financial Statements for the three and nine month periods ended September 30, 2011 and September 30, 2010 include the historical results of BASH and subsidiaries as if the BASH merger had occurred as of January 1, 2009, the date at which both entities were first under the common control of Bank of America. Merrill Lynch has recorded the assets and liabilities acquired in connection with the BASH merger at their historical carrying values.

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Merrill Lynch. The Condensed Consolidated Financial Statements are presented in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Intercompany transactions and balances within Merrill Lynch have been eliminated. Transactions and balances with Bank of America have not been eliminated. The interim Condensed Consolidated Financial Statements are unaudited; however, all adjustments for a fair presentation of the Condensed Consolidated Financial Statements have been included.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in Merrill Lynch’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”). The nature of Merrill Lynch’s business is such that the results of any interim period are not necessarily indicative of results for a full year. Certain prior-period amounts have been reclassified to conform to the current period presentation.

Consolidation Accounting

Merrill Lynch determines whether it is required to consolidate an entity by first evaluating whether the entity qualifies as a voting rights entity (“VRE”) or as a variable interest entity (“VIE”).

The Condensed Consolidated Financial Statements include the accounts of Merrill Lynch, whose subsidiaries are generally controlled through a majority voting interest or a controlling financial interest. On January 1, 2010, Merrill Lynch adopted accounting guidance on consolidation of VIEs,

which has been deferred for certain investment funds managed on behalf of third parties if Merrill Lynch does not have an obligation to fund losses that could potentially be significant to these funds. Any funds meeting the deferral requirements will continue to be evaluated for consolidation in accordance with the prior guidance.

VREs — VREs are defined to include entities that have both equity at risk that is sufficient to fund future operations and have equity investors that have a controlling financial interest in the entity through their equity investments. In accordance with ASC 810, Consolidation, (“Consolidation Accounting”), Merrill Lynch generally consolidates those VREs where it has the majority of the voting rights. For investments in limited partnerships and certain limited liability corporations that Merrill Lynch does not control, Merrill Lynch applies ASC 323, Investments — Equity Method and Joint Ventures (“Equity Method Accounting”), which requires use of the equity method of accounting for investors that have more than a minor influence, which is typically defined as an investment of greater than 3% to 5% of the outstanding equity in the entity. For more traditional corporate structures, in accordance with Equity Method Accounting, Merrill Lynch applies the equity method of accounting where it has the ability to exercise significant influence over operating and financing decisions of the investee. Significant influence can be evidenced by a significant ownership interest (which is generally defined as a voting interest of 20% to 50%), significant board of director representation, or other contracts and arrangements.

VIEs — Those entities that do not meet the VRE criteria are generally analyzed for consolidation as VIEs. A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. Merrill Lynch consolidates those VIEs for which it is the primary beneficiary. In accordance with Consolidation Accounting guidance, Merrill Lynch is considered the primary beneficiary when it has a controlling financial interest in a VIE. Merrill Lynch has a controlling financial interest when it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Merrill Lynch reassesses whether it is the primary beneficiary of a VIE on a quarterly basis. The quarterly reassessment process considers whether Merrill Lynch has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether Merrill Lynch has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the VIEs with which Merrill Lynch is involved may change as a result of such reassessments.

Securitization Activities

In the normal course of business, Merrill Lynch has securitized commercial and residential mortgage loans; municipal, government, and corporate bonds; and other types of financial assets. Merrill Lynch may retain interests in the securitized financial assets by holding notes or other debt instruments issued by the securitization vehicle. In accordance with ASC 860, Transfers and Servicing (“Financial Transfers and Servicing Accounting”), Merrill Lynch recognizes transfers of financial assets where it relinquishes control as sales to the extent of cash and any other proceeds received.

Revenue Recognition

Principal transactions revenue includes both realized and unrealized gains and losses on trading assets and trading liabilities, investment securities classified as trading investments and fair value changes associated with certain structured debt. These instruments are recorded at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Gains and losses on sales are recognized on a trade date basis.

Commissions revenues include commissions, mutual fund distribution fees and contingent deferred sales charge revenue, which are all accrued as earned. Commissions revenues also include mutual fund redemption fees, which are recognized at the time of redemption. Commissions revenues earned from certain customer equity transactions are recorded net of related brokerage, clearing and exchange fees.

Managed account and other fee-based revenues primarily consist of asset-priced portfolio service fees earned from the administration of separately managed accounts and other investment accounts for retail investors, annual account fees, and certain other account-related fees.

Investment banking revenues include underwriting revenues and fees for merger and acquisition and other advisory services, which are accrued when services for the transactions are substantially completed. Underwriting revenues are presented net of transaction-related expenses.

Earnings from equity method investments include Merrill Lynch’s pro rata share of income and losses associated with investments accounted for under the equity method of accounting.

Other revenues include gains (losses) on investment securities, including sales and other-than-temporary-impairment (“OTTI”) losses associated with certain available-for-sale securities, gains (losses) on private equity investments and other principal investments and gains (losses) on loans and other miscellaneous items.

Contractual interest received and paid, and dividends received on trading assets and trading liabilities, excluding derivatives, are recognized on an accrual basis as a component of interest and dividend revenues and interest expense. Interest and dividends on investment securities are recognized on an accrual basis as a component of interest and dividend revenues. Interest related to loans, notes, and mortgages, securities financing activities and certain short- and long-term borrowings are recorded on an accrual basis as interest revenue or interest expense, as applicable.

Use of Estimates

In presenting the Condensed Consolidated Financial Statements, management makes estimates including the following:


•	Valuations of assets and liabilities requiring fair value estimates;

•	The allowance for credit losses;

•	Determination of other-than-temporary impairments for available-for-sale investment securities;

•	The outcome of litigation;

•	Determination of the liability for representations and warranties made in connection with the sales of residential mortgage and home equity loans;

•	Determination of whether VIEs should be consolidated;

•	The ability to realize deferred taxes and the recognition and measurement of uncertain tax positions;

•	The carrying amount of goodwill and intangible assets;

•	The amortization period of intangible assets with definite lives;

•	Incentive-based compensation accruals and valuation of share-based payment compensation arrangements; and


•	Other matters that affect the reported amounts and disclosure of contingencies in the Condensed Consolidated Financial Statements.

Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ from those estimates and could have a material impact on the Condensed Consolidated Financial Statements, and it is possible that such changes could occur in the near term. A discussion of certain areas in which estimates are a significant component of the amounts reported in the Condensed Consolidated Financial Statements follows:

Fair Value Measurement

Merrill Lynch accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. Merrill Lynch accounts for certain financial assets and liabilities at fair value under various accounting literature, including ASC 320, Investments — Debt and Equity Securities (“Investment Accounting”), ASC 815, Derivatives and Hedging (“Derivatives Accounting”), and the fair value option election in accordance with ASC 825-10-25, Financial Instruments — Recognition (the “fair value option election”). Merrill Lynch also accounts for certain assets at fair value under applicable industry guidance, namely ASC 940, Financial Services — Broker and Dealers (“Broker-Dealer Guide”) and ASC 946, Financial Services — Investment Companies (“Investment Company Guide”).

ASC 820, Fair Value Measurements and Disclosures (“Fair Value Accounting”) defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

Fair values for over-the-counter (“OTC”) derivative financial instruments, principally forwards, options, and swaps, represent the present value of amounts estimated to be received from or paid to a marketplace participant in settlement of these instruments (i.e., the amount Merrill Lynch would expect to receive in a derivative asset assignment or would expect to pay to have a derivative liability assumed). These derivatives are valued using pricing models based on the net present value of estimated future cash flows and directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services, while taking into account the counterparty’s creditworthiness, or Merrill Lynch’s own creditworthiness, as appropriate. Determining the fair value for OTC derivative contracts can require a significant level of estimation and management judgment.

New and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions that market participants would use in pricing the instrument, which may impact the results of operations reported in the Condensed Consolidated Financial Statements. For instance, on long-dated and illiquid contracts extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. This enables Merrill Lynch to mark to fair value all positions consistently when only a subset of prices are directly observable. Values for OTC derivatives are verified using observed information about the costs of hedging the risk and other trades in the market. As the markets for these products develop, Merrill Lynch continually refines its pricing models to correlate more closely to the market price of these instruments. The recognition of significant inception gains and losses that incorporate unobservable inputs is reviewed by management to ensure such gains and losses are derived from observable inputs and/or incorporate reasonable assumptions about the unobservable component, such as implied bid-offer adjustments.

Certain financial instruments recorded at fair value are initially measured using mid-market prices which results in gross long and short positions valued at the same pricing level prior to the application of position netting. The resulting net positions are then adjusted to fair value representing the exit price as defined in Fair Value Accounting. The significant adjustments include liquidity and counterparty credit risk.

Liquidity

Merrill Lynch makes adjustments to bring a position from a mid-market to a bid or offer price, depending upon the net open position. Merrill Lynch values net long positions at bid prices and net short positions at offer prices. These adjustments are based upon either observable or implied bid-offer prices.

Counterparty Credit Risk

In determining fair value, Merrill Lynch considers both the credit risk of its counterparties, as well as its own creditworthiness. Merrill Lynch attempts to mitigate credit risk to third parties by entering into netting and collateral arrangements. Net counterparty exposure (counterparty positions netted by offsetting transactions and both cash and securities collateral) is then valued for counterparty creditworthiness and this resultant value is incorporated into the fair value of the respective instruments. Merrill Lynch generally calculates the credit risk adjustment for derivatives based on observable market credit spreads.

Fair Value Accounting also requires that Merrill Lynch consider its own creditworthiness when determining the fair value of certain instruments, including OTC derivative instruments and certain structured notes carried at fair value under the fair value option election (i.e., debit valuation adjustment or “DVA”). Merrill Lynch’s DVA is measured in the same manner as third party counterparty credit risk. The impact of Merrill Lynch’s DVA is incorporated into the fair value of instruments such as OTC derivative contracts even when credit risk is not readily observable in the instrument. OTC derivative liabilities are valued based on the net counterparty exposure as described above.

Legal and Representation and Warranty Reserves

Merrill Lynch is a party in various actions, some of which involve claims for substantial amounts. Amounts are accrued for the financial resolution of claims that have either been asserted or are deemed probable of assertion if, in the opinion of management, it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many cases, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no accrual is made until that time. Accruals are subject to significant estimation by management, with input from any outside counsel handling the matter.

In addition, Merrill Lynch and certain of its subsidiaries made various representations and warranties in connection with the sale of residential mortgage and home equity loans. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies. Refer to Note 14 for further information.

Income Taxes

Merrill Lynch provides for income taxes on all transactions that have been recognized in the Condensed Consolidated Financial Statements in accordance with ASC 740, Income Taxes (“Income Tax Accounting”). Accordingly, deferred taxes are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more-likely-than-not to be realized. Pursuant to Income Tax Accounting, Merrill Lynch may consider various sources of evidence in assessing the necessity of valuation allowances to reduce deferred tax assets to amounts more-likely-than-not to be realized, including the following: 1) past and projected earnings, including losses, of

Merrill Lynch and Bank of America, as certain tax attributes such as U.S. net operating losses (“NOLs”), U.S. capital loss carryforwards and foreign tax credit carryforwards can be utilized by Bank of America in certain income tax returns, 2) tax carryforward periods, and 3) tax planning strategies and other factors of the legal entities, such as the intercompany tax-allocation policy. Included within Merrill Lynch’s net deferred tax assets are carryforward amounts generated in the U.S. and the U.K. that are deductible in the future as NOLs. Merrill Lynch has concluded that these deferred tax assets are more-likely-than-not to be fully utilized prior to expiration, based on the projected level of future taxable income of Merrill Lynch and Bank of America, which is relevant due to the intercompany tax-allocation policy. For this purpose, future taxable income was projected based on forecasts, historical earnings after adjusting for the past market disruptions and the anticipated impact of the differences between pre-tax earnings and taxable income.

Merrill Lynch recognizes and measures its unrecognized tax benefits in accordance with Income Tax Accounting. Merrill Lynch estimates the likelihood, based on their technical merits, that tax positions will be sustained upon examination considering the facts and circumstances and information available at the end of each period. Merrill Lynch adjusts the level of unrecognized tax benefits when there is more information available, or when an event occurs requiring a change. In accordance with Bank of America’s policy, any new or subsequent change in an unrecognized tax benefit related to a Bank of America state consolidated, combined or unitary return in which Merrill Lynch is a member will generally not be reflected in Merrill Lynch’s balance sheet. However, upon Bank of America’s resolution of the item, any material impact determined to be attributable to Merrill Lynch will be reflected in Merrill Lynch’s balance sheet. Merrill Lynch accrues income-tax-related interest and penalties, if applicable, within income tax expense.

Merrill Lynch’s results of operations are included in the U.S. federal income tax return and certain state income tax returns of Bank of America. The method of allocating income tax expense is determined under the intercompany tax allocation policy of Bank of America. This policy specifies that income tax expense will be computed for all Bank of America subsidiaries generally on a separate pro forma return basis, taking into account the tax position of the consolidated group and the pro forma Merrill Lynch group. Under this policy, tax benefits associated with NOLs (or other tax attributes) of Merrill Lynch are payable to Merrill Lynch upon the earlier of the utilization in Bank of America’s tax returns or the utilization in Merrill Lynch’s pro forma tax returns.

Securities Financing Transactions

Merrill Lynch enters into repurchase and resale agreements and securities borrowed and loaned transactions to accommodate customers and earn interest rate spreads (also referred to as “matched book transactions”), obtain securities for settlement and finance inventory positions. Resale and repurchase agreements are generally accounted for as collateralized financing transactions and may be recorded at their contractual amounts plus accrued interest or at fair value under the fair value option election. In resale and repurchase agreements, typically the termination date of the agreements is before the maturity date of the underlying security. However, in certain situations, Merrill Lynch may enter into agreements where the termination date of the transaction is the same as the maturity date of the underlying security. These transactions are referred to as “repo-to-maturity” transactions. Merrill Lynch enters into repo-to-maturity sales only for high quality, very liquid securities such as U.S. Treasury securities or securities issued by the government-sponsored enterprises (“GSEs”). Merrill Lynch accounts for repo-to-maturity transactions as sales and purchases in accordance with applicable accounting guidance, and accordingly, removes or recognizes the securities from the Condensed Consolidated Balance Sheet and recognizes a gain or loss, as appropriate, in the Condensed Consolidated Statement of Earnings. Repo-to-maturity transactions were not material for the periods presented.

Resale and repurchase agreements recorded at fair value are generally valued based on pricing models that use inputs with observable levels of price transparency. Where the fair value option election has

been made, changes in the fair value of resale and repurchase agreements are reflected in principal transactions revenues and the contractual interest coupon is recorded as interest revenue or interest expense, respectively. For further information refer to Note 4.

Resale and repurchase agreements recorded at their contractual amounts plus accrued interest approximate fair value, as the fair value of these items is not materially sensitive to shifts in market interest rates because of the short-term nature of these instruments and/or variable interest rates or to credit risk because the resale and repurchase agreements are substantially collateralized.

Merrill Lynch may use securities received as collateral for resale agreements to satisfy regulatory requirements such as Rule 15c3-3 of the Securities Exchange Act of 1934.

Securities borrowed and loaned transactions may be recorded at the amount of cash collateral advanced or received plus accrued interest or at fair value under the fair value option election. Securities borrowed transactions require Merrill Lynch to provide the counterparty with collateral in the form of cash, letters of credit, or other securities. Merrill Lynch receives collateral in the form of cash or other securities for securities loaned transactions. For these transactions, the fees received or paid by Merrill Lynch are recorded as interest revenue or expense. The carrying value of securities borrowed and loaned transactions, recorded at the amount of cash collateral advanced or received, approximates fair value as these items are not materially sensitive to shifts in market interest rates because of their short-term nature and/or variable interest rates or to credit risk because securities borrowed and loaned transactions are substantially collateralized.

For securities financing transactions, Merrill Lynch’s policy is to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under the agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is generally valued daily and Merrill Lynch may require counterparties to deposit additional collateral or may return collateral pledged when appropriate. Securities financing agreements give rise to negligible credit risk as a result of these collateral provisions, and no allowance for loan losses is considered necessary. These instruments therefore are managed based on market risk rather than credit risk.

Substantially all securities financing activities are transacted under master agreements that give Merrill Lynch the right, in the event of default, to liquidate collateral held and to offset receivables and payables with the same counterparty. Merrill Lynch offsets certain repurchase and resale transactions with the same counterparty on the Condensed Consolidated Balance Sheets where it has such a master agreement, that agreement is legally enforceable and the transactions have the same maturity date.

All Merrill Lynch-owned securities pledged to counterparties where the counterparty has the right, by contract or custom, to sell or repledge the securities are disclosed parenthetically in trading assets or in investment securities on the Condensed Consolidated Balance Sheets.

In transactions where Merrill Lynch acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset on the Condensed Consolidated Balance Sheets carried at fair value, representing the securities received (securities received as collateral), and a liability for the same amount, representing the obligation to return those securities (obligation to return securities received as collateral). The amounts on the Condensed Consolidated Balance Sheets result from such non-cash transactions.

At the end of certain quarterly periods during the year ended December 31, 2009, BAS, which was merged into MLPF&S (see “Merger with Banc of America Securities Holdings Corporation” in this Note for a description of the merger), had recorded as sales certain transfers of agency mortgage-backed securities (“MBS”) which, based on an internal review and interpretation, should have been recorded as secured financings. As a result of the merger with BASH, Merrill Lynch has included the

effect of these transactions in its consolidated financial statements. Merrill Lynch has recently completed a detailed review to determine whether there are additional sales of agency MBS that should have been recorded as secured financings and has identified additional transactions. These transactions did not have a material impact on Merrill Lynch’s Condensed Consolidated Financial Statements for any of the affected periods.

Trading Assets and Liabilities

Merrill Lynch’s trading activities consist primarily of securities brokerage and trading; derivatives dealing and brokerage; commodities trading and futures brokerage; and securities financing transactions. Trading assets and trading liabilities consist of cash instruments (e.g., securities and loans) and derivative instruments. Trading assets also include commodities inventory. See Note 6 for additional information on derivative instruments.

Trading assets and liabilities are generally recorded on a trade date basis at fair value. Included in trading liabilities are securities that Merrill Lynch has sold but did not own and will therefore be obligated to purchase at a future date (“short sales”). Commodities inventory is recorded at the lower of cost or fair value. Changes in fair value of trading assets and liabilities (i.e., unrealized gains and losses) are recognized as principal transactions revenues in the current period. Realized gains and losses and any related interest amounts are included in principal transactions revenues and interest revenues and expenses, depending on the nature of the instrument.

Derivatives

Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest rate swaps or currency forwards) or to purchase or sell other financial instruments at specified terms on a specified date (e.g., options to buy or sell securities or currencies). Refer to Note 6 for further information.

Investment Securities

Investment securities consist of marketable investment securities and non-qualifying investments. Refer to Note 8.

Marketable Investment Securities

ML & Co. and certain of its non-broker-dealer subsidiaries follow the guidance within Investment Accounting for investments in debt and publicly traded equity securities. Merrill Lynch classifies those debt securities that it does not intend to sell as held-to-maturity securities. Held-to-maturity securities are carried at amortized cost unless a decline in value is deemed other-than-temporary, in which case the carrying value is reduced. For Merrill Lynch, the trading classification under Investment Accounting generally includes those securities that are bought and held principally for the purpose of selling them in the near term, securities that are economically hedged, or securities that may contain a bifurcatable embedded derivative as defined in Derivatives Accounting. Securities classified as trading assets are marked to fair value through earnings. All other qualifying securities are classified as available-for-sale (“AFS”) and are held at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) (“OCI”).

Realized gains and losses on investment securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each investment sold is based on the specific identification method.

Merrill Lynch regularly (at least quarterly) evaluates each held-to-maturity and available-for-sale security whose fair value has declined below amortized cost to assess whether the decline in fair value is other-than-temporary. A decline in a debt security’s fair value is considered to be other-than-temporary if it is probable that all amounts contractually due will not be collected or Merrill Lynch either plans to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost. For unrealized losses on debt securities that are deemed other-than-temporary, the credit component of an other-than-temporary impairment is recognized in earnings and the non-credit component is recognized in OCI when Merrill Lynch does not intend to sell the security and it is more likely than not that Merrill Lynch will not be required to sell the security prior to recovery.

Non-Qualifying Investments

Non-qualifying investments are those investments that are not within the scope of Investment Accounting and primarily include private equity investments accounted for at fair value and other equity securities carried at cost or under the equity method of accounting.

Private equity investments that are held for capital appreciation and/or current income are accounted for under the Investment Company Guide and carried at fair value. Additionally, certain private equity investments that are not accounted for under the Investment Company Guide may be carried at fair value under the fair value option election. The fair value of private equity investments reflects expected exit values based upon market prices or other valuation methodologies, including market comparables of similar companies and discounted expected cash flows.

Merrill Lynch has non-controlling investments in the common shares of corporations and in partnerships that do not fall within the scope of Investment Accounting or the Investment Company Guide. Merrill Lynch accounts for these investments using either the cost or the equity method of accounting based on management’s ability to influence the investees or Merrill Lynch may elect the fair value option. See the Consolidation Accounting section of this Note for more information.

For investments accounted for using the equity method, income is recognized based on Merrill Lynch’s share of the earnings or losses of the investee. Dividend distributions are generally recorded as reductions in the investment balance. Impairment testing is based on the guidance provided in Equity Method Accounting, and the investment is reduced when an impairment is deemed other-than-temporary.

For investments accounted for at cost, income is recognized when dividends are received, or the investment is sold. Instruments are periodically tested for impairment based on the guidance provided in Investment Accounting, and the cost basis is reduced when impairment is deemed other-than-temporary.

Loans, Notes and Mortgages, Net

Merrill Lynch’s lending and related activities include loan originations, syndications and securitizations. Loan originations include corporate and institutional loans, residential and commercial mortgages, asset-backed loans, and other loans to individuals and businesses. Merrill Lynch also engages in secondary market loan trading (see the Trading Assets and Liabilities section of this Note) and margin lending. Loans included in loans, notes and mortgages are classified for accounting purposes as loans held for investment and loans held for sale. Upon completion of the acquisition of Merrill Lynch by Bank of

America, certain loans carried by Merrill Lynch were subject to the requirements of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Acquired Impaired Loan Accounting”).

Loans held for investment are generally carried at amortized cost, less an allowance for loan losses, which represents Merrill Lynch’s estimate of probable losses inherent in its lending activities. The fair value option election has been made for certain held-for-investment loans, notes and mortgages. Merrill Lynch performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess overall collectability. These reviews, which are updated on a quarterly basis, consider a variety of factors including, but not limited to, historical loss experience, estimated defaults, delinquencies, economic conditions, credit scores and the fair value of any underlying collateral. Provisions for loan losses are included in interest and dividend revenue in the Condensed Consolidated Statements of Earnings (Loss).

Merrill Lynch’s estimate of loan losses includes judgment about collectability based on available information at the balance sheet date, and the uncertainties inherent in those underlying assumptions. While management has based its estimates on the best information available, future adjustments to the allowance for loan losses may be necessary as a result of changes in the economic environment or variances between actual results and the original assumptions.

In general, loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are classified as non-performing unless well-secured and in the process of collection. Loans, primarily commercial, whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as non-performing until the loans have performed for an adequate period of time under the restructured agreement. Interest accrued but not collected is reversed when a commercial loan is considered non-performing. Interest collections on commercial loans for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Commercial loans may be restored to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.

Loans held for sale are carried at lower of cost or fair value. The fair value option election has been made for certain held-for-sale loans, notes and mortgages. Estimation is required in determining these fair values. The fair value of loans made in connection with commercial lending activity, consisting mainly of senior debt, is primarily estimated using the market value of publicly issued debt instruments when available or discounted cash flows.

Nonrefundable loan origination fees, loan commitment fees, and “draw down” fees received in conjunction with held for investment loans are generally deferred and recognized over the contractual life of the loan as an adjustment to the yield. If, at the outset, or any time during the term of the loan, it becomes probable that the repayment period will be extended, the amortization is recalculated using the expected remaining life of the loan. When the loan contract does not provide for a specific maturity date, management’s best estimate of the repayment period is used. At repayment of the loan, any unrecognized deferred fee is immediately recognized in earnings. If the loan is accounted for as held for sale, the fees received are deferred and recognized as part of the gain or loss on sale in other revenues. If the loan is accounted for under the fair value option election, the fees are included in the determination of the fair value and included in other revenues.

New Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on TDRs, including criteria to determine whether a loan modification represents a concession and whether the debtor is experiencing financial difficulties. This new accounting guidance was effective for Merrill

Lynch’s interim period ended September 30, 2011 with retrospective application back to January 1, 2011. The new accounting guidance was not material to Merrill Lynch.

In April 2011, the FASB issued new accounting guidance that addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance will be effective, on a prospective basis, for new transactions or modifications to existing transactions, on January 1, 2012. The adoption of this guidance is not expected to have a material impact on Merrill Lynch’s consolidated financial position or results of operations.

In May 2011, the FASB issued amendments to Fair Value Accounting. The amendments clarify the application of the highest and best use and valuation premise concepts, preclude the application of blockage factors in the valuation of all financial instruments and include criteria for applying the fair value measurement principles to portfolios of financial instruments. The amendments additionally prescribe enhanced financial statement disclosures for Level 3 fair value measurements. The new amendments will be effective for the three months ended March 31, 2012. Merrill Lynch is currently assessing the impact of this guidance on its consolidated financial position and results of operations.

In June 2011, the FASB issued new accounting guidance on the presentation of comprehensive income in financial statements. The new guidance requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. This new accounting guidance will be effective for Merrill Lynch for the three months ended March 31, 2012. The adoption of this guidance, which involves disclosures only, will not impact Merrill Lynch’s consolidated financial position or results of operations.

In September 2011, the FASB issued new accounting guidance that simplifies goodwill impairment testing. The new guidance permits entities to make a qualitative assessment of whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value before applying the two-step impairment test. If it is not more-likely-than-not that the fair value of a reporting unit is less than the carrying amount, an entity would not be required to perform the two-step impairment test. The guidance includes factors for entities to consider when making the qualitative assessment, including macroeconomic and company-specific factors as well as factors relating to a specific reporting unit. Merrill Lynch early adopted the new accounting guidance for the annual goodwill impairment test completed during the three months ended September 30, 2011 and the adoption did not have a material impact on the results of the goodwill impairment test.

Note 2. Transactions with Bank of America

Merrill Lynch has entered into various transactions with Bank of America, primarily to integrate certain activities within either Bank of America or Merrill Lynch. Transactions with Bank of America also include various asset and liability transfers and transactions associated with intercompany sales and trading and financing activities.

Merger with BASH

See Note 1 — “Merger with Banc of America Securities Holdings Corporation (“BASH”)” for further information on this transaction.

Other Related Party Transactions

Merrill Lynch has entered into various other transactions with Bank of America, primarily in connection with certain sales and trading and financing activities. Details on amounts receivable from

and payable to Bank of America as of September 30, 2011 and December 31, 2010 are presented below:

Receivables from Bank of America are comprised of:


(dollars in millions)	September 30, 2011		December 31, 2010


Cash and cash equivalents	$	6,707	$	14,471
Cash and securities segregated for regulatory purposes		7,405		5,508
Receivables under resale agreements		29,106		31,053
Trading assets		1,475		643
Net intercompany funding receivable		9,264		7,305
Other receivables		1,701		1,460
Other assets		-		215

Total	$	55,658	$	60,655

Payables to Bank of America are comprised of:


(dollars in millions)	September 30, 2011		December 31, 2010


Payables under repurchase agreements	$	20,210	$	12,890
Payables under securities loaned transactions		2,359		2,352
Short-term borrowings		2,395		1,901
Deposits		90		33
Trading liabilities		2,334		520
Other payables		3,620		2,746
Long-term borrowings⁽¹⁾		2,579		2,579

Total	$	33,587	$	23,021


(1)		Amounts are subordinated borrowings from Bank of America (see Note 12).

Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended September 30, 2011 were $288 million and $537 million, respectively. Such revenues and expenses for the nine months ended September 30, 2011 were $822 million and $1,766 million, respectively. Total net revenues and non-interest expenses related to transactions with Bank of America for the three months ended September 30, 2010 were net losses of $111 million and expenses of $365 million, respectively. Such revenues and expenses for the nine months ended September 30, 2010 were net losses of $100 million and expenses of $816 million, respectively. Non-interest expenses for the three and nine months ended September 30, 2011 reflect increased intercompany service fees resulting from the integration of Bank of America’s and Merrill Lynch’s methodologies for allocating expenses associated with shared services to their subsidiaries. The results for the nine months ended September 30, 2011 and September 30, 2010 included gains of $5 million and $282 million, respectively, from the sale of approximately $3.7 billion and $11.2 billion, respectively, of available-for-sale securities to Bank of America. These transfers were made to enable Bank of America or its non-Merrill Lynch subsidiaries to more efficiently manage the existing portfolio of similar available-for-sale securities.

Bank of America and Merrill Lynch have entered into certain intercompany lending and borrowing arrangements to facilitate centralized liquidity management. Included in these arrangements is a $50 billion one-year revolving line of credit that allows Bank of America to borrow funds from Merrill Lynch at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. The line of credit matures on January 1, 2012 and will automatically be extended by one year to the succeeding January 1st unless Merrill Lynch provides written notice not to extend at least 45 days prior to the maturity date. Approximately $7.1 billion and $6.1 billion were outstanding under this line of credit as of September 30, 2011 and December 31, 2010, respectively. In addition, in October 2011, Merrill Lynch

entered into a short-term revolving credit facility that will allow Bank of America to borrow up to an additional $25 billion. For information on Merrill Lynch’s other borrowing arrangements with Bank of America, including Bank of America’s guarantees of certain debt securities, warrants and/or other certificates and obligations of certain subsidiaries of ML & Co., refer to Note 12. Bank of America has also guaranteed the performance of Merrill Lynch on certain derivative transactions (see Note 6).

Note 3. Segment and Geographic Information

Segment Information

Pursuant to ASC 280, Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. The business activities of Merrill Lynch are included within certain of the operating segments of Bank of America. Detailed financial information related to the operations of Merrill Lynch, however, is not provided to Merrill Lynch’s chief operating decision maker. As a result, Merrill Lynch does not contain any identifiable operating segments under Segment Reporting, and therefore the financial information of Merrill Lynch is presented as a single segment.

Geographic Information

Merrill Lynch conducts its business activities through offices in the following five regions:


•	United States;

•	Europe, Middle East and Africa (“EMEA”);

•	Pacific Rim;

•	Latin America; and

•	Canada.

The principal methodologies used in preparing the geographic information below are as follows:


•	Revenues are generally recorded based on the location of the employee generating the revenue; and

•	Intercompany transfers are based primarily on service agreements.

The information that follows, in management’s judgment, provides a reasonable representation of each region’s contribution to the consolidated net revenues:


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
(dollars in millions)	September 30, 2011		September 30, 2011		September 30, 2010		September 30, 2010


Revenues, net of interest expense
Europe, Middle East, and Africa	$	568	$	3,217	$	1,079	$	3,811
Pacific Rim		692		2,028		421		1,521
Latin America		312		1,039		203		783
Canada		74		227		49		177

Total Non-U.S.		1,646		6,511		1,752		6,292
United States⁽¹⁾⁽²⁾		4,224		14,121		3,984		15,535

Total revenues, net of interest expense⁽³⁾	$	5,870	$	20,632	$	5,736	$	21,827


(1)		U.S. results for the three and nine months ended September 30, 2011 included gains of $2.9 billion and $2.7 billion, respectively, due to the impact of changes in Merrill Lynch’s credit spreads on the carrying values of certain long-term borrowings, primarily structured notes. U.S. results for the three and nine months ended September 30, 2010 included losses of $0.3 billion and gains of $1.1 billion, respectively, due to the impact of changes in Merrill Lynch’s credit spreads on the carrying values of certain long-term borrowings, primarily structured notes.
(2)		Corporate net revenues and adjustments are reflected in the U.S. region.
(3)		Results for the three and nine months ended September 30, 2011 included gains of $0.7 billion and $0.6 billion, respectively, associated with the valuation of derivative liabilities due to changes in Merrill Lynch’s credit spreads. Results for the three months ended September 30, 2010 included losses of $0.1 billion associated with the valuation of derivative liabilities due to changes in Merrill Lynch’s credit spreads; the impact on the results for the nine months ended September 30, 2010 was not material.

Note 4. Fair Value Disclosures

Fair Value Accounting

Fair Value Hierarchy

In accordance with Fair Value Accounting, Merrill Lynch has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1.	Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Merrill Lynch has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, U.S. Government securities, and certain other sovereign government obligations).

Level 2.	Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:


	a)	Quoted prices for similar assets or liabilities in active markets (examples include restricted stock and U.S. agency securities);


	b)	Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which can trade infrequently);


	c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and


	d)	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).

Level 3.

Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s view about the assumptions a market participant would use in pricing the asset or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets and long-dated or complex derivatives).

As required by Fair Value Accounting, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Level 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 reconciliation below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, the following reconciliations do not take into consideration the offsetting effect of Level 1 and 2 financial instruments entered into by Merrill Lynch that economically hedge certain exposures to the Level 3 positions.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Level 3 gains and losses represent amounts incurred during the period in which the instrument was classified as Level 3. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or transfers out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. Refer to the recurring and non-recurring sections within this Note for further information on transfers in and out of Level 3.

Valuation Techniques

The following outlines the valuation methodologies for Merrill Lynch’s material categories of assets and liabilities:

U.S. Government and agencies

U.S. Treasury securities U.S. Treasury securities are valued using quoted market prices and are generally classified as Level 1 in the fair value hierarchy.

U.S. agency securities U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. The fair value of agency issued debt securities is derived using market prices and recent trade activity gathered from independent dealer pricing services or brokers. Mortgage pass-throughs include To-be-announced (“TBA”) securities and mortgage pass-through certificates. TBA securities are generally valued using quoted market prices. Generally, the fair value of mortgage pass-through certificates is based on market prices of comparable securities. Agency

issued debt securities and mortgage pass-throughs are generally classified as Level 2 in the fair value hierarchy.

Non-U.S. governments and agencies

Sovereign government obligations Sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on reference to recent trading activity and quoted prices of similar securities. These securities are generally classified in Level 1 or Level 2 in the fair value hierarchy, primarily based on the issuing country.

Municipal debt

Municipal bonds The fair value of municipal bonds is calculated using recent trade activity, market price quotations and new issuance levels. In the absence of this information, fair value is calculated using comparable bond credit spreads. Current interest rates, credit events, and individual bond characteristics such as coupon, call features, maturity, and revenue purpose are considered in the valuation process. The majority of these bonds are classified as Level 2 in the fair value hierarchy.

Auction Rate Securities (“ARS”) Merrill Lynch holds investments in certain ARS, including student loan and municipal ARS. Student loan ARS are comprised of various pools of student loans. Municipal ARS are issued by states and municipalities for a wide variety of purposes, including but not limited to healthcare, industrial development, education and transportation infrastructure. The fair value of the student loan ARS is calculated using a pricing model that relies upon a number of assumptions including weighted average life, coupon, discount margin and liquidity discounts. The fair value of the municipal ARS is calculated based upon projected refinancing and spread assumptions. In both cases, recent trades and issuer tenders are considered in the valuations. Student loan ARS and municipal ARS are classified as Level 3 in the fair value hierarchy.

Corporate and other debt

Corporate bonds Corporate bonds are valued based on either the most recent observable trade and/or external quotes, depending on availability. The most recent observable trade price is given highest priority as the valuation benchmark based on an evaluation of transaction date, size, frequency, and bid-offer. This price may be adjusted by bond or credit default swap spread movement. When credit default swap spreads are referenced, cash-to-synthetic basis magnitude and movement as well as maturity matching are incorporated into the value. When neither external quotes nor a recent trade is available, the bonds are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spread and/or price terms with the traded comparable is considered. Corporate bonds are generally classified as Level 2 or Level 3 in the fair value hierarchy.

Corporate loans and commitments The fair values of corporate loans and loan commitments are based on market prices and most recent transactions when available. When not available, a discounted cash flow valuation approach is applied using market-based credit spreads of comparable debt instruments, recent new issuance activity or relevant credit derivatives with appropriate cash-to-synthetic basis adjustments. Corporate loans and commitments are generally classified as Level 2 in the fair value hierarchy. Certain corporate loans, particularly those related to emerging market, leveraged and distressed companies have limited price transparency. These loans are generally classified as Level 3 in the fair value hierarchy.

Mortgages, mortgage-backed and asset-backed

Residential Mortgage-Backed Securities (“RMBS”), Commercial Mortgage-Backed Securities (“CMBS”), and other Asset-Backed Securities (“ABS”) RMBS, CMBS and other ABS are valued based on observable price or credit spreads for the particular security, or when price or credit spreads are not observable, the valuation is based on prices of comparable bonds or the present value of expected future cash flows. Valuation levels of RMBS and CMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions.

When estimating the fair value based upon the present value of expected future cash flows, Merrill Lynch uses its best estimate of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved, while also taking into account performance of the underlying collateral.

RMBS, CMBS and other ABS are classified as Level 3 in the fair value hierarchy if external prices or credit spreads are unobservable or if comparable trades/assets involve significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are classified as Level 2 in the fair value hierarchy.

Equities

Exchange-Traded Equity Securities Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, they are classified as Level 1 in the fair value hierarchy, otherwise they are classified as Level 2.

Derivative contracts

Listed Derivative Contracts Listed derivatives that are actively traded are generally valued based on quoted prices from the exchange and are classified as Level 1 in the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally classified as Level 2 in the fair value hierarchy.

OTC Derivative Contracts OTC derivative contracts include forwards, swaps and options related to interest rate, foreign currency, credit, equity or commodity underlyings.

The fair value of OTC derivatives is derived using market prices and other market based pricing parameters such as interest rates, currency rates and volatilities that are observed directly in the market or gathered from independent sources such as dealer consensus pricing services or brokers. Where models are used, they are used consistently and reflect the contractual terms of and specific risks inherent in the contracts. Generally, the models do not require a high level of subjectivity since the valuation techniques used in the models do not require significant judgment and inputs to the models are readily observable in active markets. When appropriate, valuations are adjusted for various factors such as liquidity and credit considerations based on available market evidence. In addition, for most collateralized interest rate and currency derivatives the requirement to pay interest on the collateral may be considered in the valuation. The majority of OTC derivative contracts are classified as Level 2 in the fair value hierarchy.

OTC derivative contracts that do not have readily observable market based pricing parameters are classified as Level 3 in the fair value hierarchy. Examples of derivative contracts classified within Level 3 include contractual obligations that have tenures that extend beyond periods in which inputs to the model would be observable, exotic derivatives with significant inputs into a valuation model that are less transparent in the market and certain credit default swaps (“CDS”) referenced to mortgage-backed securities. For example, derivative instruments, such as certain CDS referenced to RMBS,

CMBS, ABS and collateralized debt obligations (“CDOs”), may be valued based on the underlying mortgage risk where these instruments are not actively quoted. Inputs to the valuation will include available information on similar underlying loans or securities in the cash market. The prepayments and loss assumptions on the underlying loans or securities are estimated using a combination of historical data, prices on recent market transactions, relevant observable market indices such as the Asset Backed Securities Index (“ABX”) or Commercial Mortgage Backed Securities Index (“CMBX”) and prepayment and default scenarios and analyses.

CDOs The fair value of CDOs is derived from a referenced basket of CDS, the CDO’s capital structure, and the default correlation, which is an input to a proprietary CDO valuation model. The underlying CDO portfolios typically contain investment grade as well as non-investment grade obligors. After adjusting for differences in risk profile, the correlation parameter for an actual transaction is estimated by benchmarking against observable standardized index tranches and other comparable transactions. CDOs are classified as either Level 2 or Level 3 in the fair value hierarchy.

Investment securities non-qualifying

Investments in Private Equity, Real Estate and Hedge Funds Merrill Lynch has investments in numerous asset classes, including: direct private equity, private equity funds, hedge funds and real estate funds. Valuing these investments requires significant management judgment due to the nature of the assets and the lack of quoted market prices and liquidity in these assets. Initially, the transaction price of the investment is generally considered to be the best indicator of fair value. Thereafter, valuation of direct investments is based on an assessment of each individual investment using various methodologies, which include publicly traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization) of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flows. These valuations are subject to appropriate discounts for lack of liquidity or marketability. Certain factors which may influence changes to fair value include but are not limited to, recapitalizations, subsequent rounds of financing, and offerings in the equity or debt capital markets. For fund investments, Merrill Lynch generally records the fair value of its proportionate interest in the fund’s capital as reported by the fund’s respective managers.

Investment securities non-qualifying include equity securities that have recently gone through initial public offerings or secondary sales of public positions. These investments are primarily classified as either Level 1 or Level 2 in the fair value hierarchy. Level 2 classifications generally include those publicly traded equity investments that have a legal or contractual transfer restriction. All other investments in private equity, real estate and hedge funds are classified as Level 3 in the fair value hierarchy due to infrequent trading and/or unobservable market prices.

Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. For such agreements, the fair value is estimated using a discounted cash flow model which incorporates inputs such as interest rate yield curves and option volatility. Resale and repurchase agreements for which the fair value option has been elected are generally classified as Level 2 in the fair value hierarchy.

Long-term and short-term borrowings

Merrill Lynch and its consolidated VIEs issue structured notes that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair value of structured notes is estimated using valuation models for the combined derivative and debt portions of the notes when the fair value option has been elected. These models incorporate observable, and in some instances unobservable, inputs including security prices, interest rate yield

curves, option volatility, currency, commodity or equity rates and correlations between these inputs. The impact of Merrill Lynch’s own credit spreads is also included based on Merrill Lynch’s observed secondary bond market spreads. Structured notes are classified as either Level 2 or Level 3 in the fair value hierarchy.

Recurring Fair Value

The following tables present Merrill Lynch’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, respectively.


	Fair Value Measurements on a Recurring Basis
	as of September 30, 2011
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj⁽¹⁾			Total


Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	-	$	319	$	-	$	-		$	319
Non-U.S. governments and agencies		-		1,777		-		-			1,777
U.S. Government and agencies		982		765		-		-			1,747

Total securities segregated for regulatory purposes or deposited with clearing organizations		982		2,861		-		-			3,843

Receivables under resale agreements		-		89,119		-		-			89,119
Receivables under securities borrowed transactions		-		1,543		-		-			1,543
Trading assets, excluding derivative contracts:
Equities		13,339		7,078		164		-			20,581
Convertible debentures		-		4,331		154		-			4,485
Non-U.S. governments and agencies		26,144		1,826		375		-			28,345
Corporate debt		-		15,661		4,314		-			19,975
Preferred stock		-		-		297		-			297
Mortgages, mortgage-backed and asset-backed		-		4,020		3,220		-			7,240
U.S. Government and agencies		23,656		19,910		-		-			43,566
Municipals and money markets		1,345		11,031		2,266		-			14,642
Physical commodities and other		-		447		-		-			447

Total trading assets, excluding derivative contracts		64,484		64,304		10,790		-			139,578

Derivative contracts⁽²⁾		4,524		803,294		10,895		(779,480	)		39,233
Investment securities available-for-sale:
U.S. treasury securities and agency debentures		393		-		-		-			393
Securities, mortgage-backed
and asset-backed — Agency CMOs		-		-		55		-			55
— Non-agency MBSs		-		404		86		-			490
— Corporate ABS		-		-		242		-			242

Total investment securities available-for-sale		393		404		383		-			1,180

Investment securities non-qualifying		2,497		195		1,288		-			3,980

Total investment securities		2,890		599		1,671		-			5,160

Securities received as collateral		11,874		684		-		-			12,558
Loans, notes and mortgages		-		560		1,839		-			2,399
Other Assets		-		-		1,578		-			1,578


	Fair Value Measurements on a Recurring Basis
	as of September 30, 2011
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj⁽¹⁾			Total


Liabilities:
Payables under repurchase agreements		-		36,943		-		-			36,943
Short-term borrowings		-		5,527		-		-			5,527
Trading liabilities, excluding derivative contracts: Equities		14,228		2,239		-		-			16,467
Convertible debentures		-		135		-		-			135
Non-U.S. governments and agencies		16,092		610		-		-			16,702
Corporate debt		-		9,588		53		-			9,641
Preferred stock		-		-		14		-			14
U.S. Government and agencies		14,216		2,461		-		-			16,677
Municipals, money markets and other		360		110		3		-			473

Total trading liabilities, excluding derivative contracts		44,896		15,143		70		-			60,109

Derivative contracts⁽²⁾		4,044		800,649		6,442		(781,597	)		29,538
Obligation to return securities received as collateral		11,874		684		-		-			12,558
Other payables — interest and other		-		182		7		-			189
Long-term borrowings		-		28,877		2,144		-			31,021


(1)		Represents counterparty and cash collateral netting.
(2)		Refer to Note 6 for product level detail.

Transfers between Level 1 and Level 2 assets and liabilities were not significant for the three or nine month periods ended September 30, 2011.

Level 3 derivative contracts (assets) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $2.6 billion, $3.5 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.7 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 non-qualifying investment securities primarily relate to certain private equity positions.

Level 3 loans, notes and mortgages primarily relate to residential mortgage and corporate loans.

Level 3 other assets represent net monoline exposure to a single counterparty. This exposure was reclassified from derivative contracts (assets) during the third quarter of 2011 because of the inherent default risk and given that these contracts no longer provide a hedge benefit (see Note 6).

Level 3 derivative contracts (liabilities) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $1.7 billion, $1.0 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $3.7 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 long-term borrowings primarily relate to equity-linked structured notes of $1.7 billion, which have unobservable model valuation inputs (e.g., unobservable correlation).


	Fair Value Measurements on a Recurring Basis
	as of December 31, 2010
							Netting
(dollars in millions)	Level 1		Level 2		Level 3		Adj⁽¹⁾			Total


Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	-	$	306	$	-	$	-		$	306
Non-U.S. governments and agencies		1,652		1,402		-		-			3,054
U.S. Government and agencies		1,419		1,413		-		-			2,832

Total securities segregated for regulatory purposes or deposited with clearing organizations		3,071		3,121		-		-			6,192


Receivables under resale agreements⁽²⁾		-		74,255		-		-			74,255
Receivables under securities borrowed transactions		-		1,672		-		-			1,672
Trading assets, excluding derivative contracts:
Equities		20,458		7,673		170		-			28,301
Convertible debentures		-		5,903		-		-			5,903
Non-U.S. governments and agencies		18,393		3,612		243		-			22,248
Corporate debt		-		22,300		4,605		-			26,905
Preferred stock		-		511		287		-			798
Mortgages, mortgage-backed and asset-backed		-		5,247		5,747		-			10,994
U.S. Government and agencies⁽³⁾		17,742		23,636		-		-			41,378
Municipals and money markets		732		11,102		2,327		-			14,161
Physical commodities and other		-		598		-		-			598

Total trading assets, excluding derivative contracts		57,325		80,582		13,379		-			151,286

Derivative contracts⁽⁴⁾		1,622		590,020		14,359		(566,630	)		39,371
Investment securities available-for-sale:
U.S. Treasury securities and agency debentures		430		-		-		-			430
Mortgage-backed securities — residential MBS		-		3,869		-		-			3,869
Mortgage-backed securities — agency CMOs		-		61		-		-			61
Mortgage-backed securities — non-agency MBS		-		518		213		-			731

Total investment securities available-for-sale		430		4,448		213		-			5,091

Investment securities non-qualifying		2,792		690		3,394					6,876

Total investment securities		3,222		5,138		3,607		-			11,967

Securities received as collateral		19,471		892		-		-			20,363
Loans, notes and mortgages		-		1,423		1,891		-			3,314
Liabilities:
Payables under repurchase agreements		-		37,394		-		-			37,394
Short-term borrowings		-		6,472		-		-			6,472
Trading liabilities, excluding derivative contracts:
Equities		11,706		914		-		-			12,620
Convertible debentures		-		1,406		-		-			1,406
Non-U.S. governments and agencies		14,748		957		-		-			15,705
Corporate debt		-		9,500		-		-			9,500
U.S. Government and agencies		19,860		4,887		-		-			24,747
Municipals, money markets and other		224		347		-		-			571

Total trading liabilities, excluding derivative contracts		46,538		18,011		-		-			64,549

Derivatives contracts⁽⁴⁾		1,142		590,138		7,991		(567,074	)		32,197
Obligation to return securities received as collateral		19,471		892		-		-			20,363
Other payables — interest and other		-		39		126		-			165
Long-term borrowings		-		36,818		2,396		-			39,214


(1)		Represents counterparty and cash collateral netting.


(2)		Receivables under resale agreements have been revised from approximately $51 billion (as previously reported) to approximately $74 billion. A similar revision has been made on the balance sheet to the parenthetical disclosure of receivables under resale agreements measured at fair value in accordance with the fair value option election.
(3)		U.S. Government and agencies trading asset amounts shown in Level 1 and Level 2 have been revised from approximately $7 billion and $34 billion, respectively (as previously reported) to approximately $18 billion and $24 billion, respectively.
(4)		Refer to Note 6 for product level detail.

Level 3 derivative contracts (assets) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $5.7 billion, $4.1 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.5 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 non-qualifying investment securities primarily relate to certain private equity positions.

Level 3 loans, notes and mortgages primarily relate to residential mortgage and corporate loans.

Level 3 derivative contracts (liabilities) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $2.2 billion, $2.0 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $3.8 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 long-term borrowings primarily relate to equity-linked structured notes of $1.9 billion that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

The following tables provide a summary of changes in Merrill Lynch’s Level 3 financial assets and liabilities for the three and nine months ended September 30, 2011 and September 30, 2010.


(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Three Months Ended September 30, 2011
											Total Realized
			Total Realized and Unrealized Gains or (Losses)								and Unrealized			Unrealized
			included in Income								Gains or (Losses)			Gains or
	Beginning		Principal			Other					included in			(Losses) to														Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		Income			OCI			Sales			Purchases			Issuances		Settlements			In		Out			Balance


Assets:
Trading assets, excluding derivative contracts:
Equities	$	163	$	(9	)	$	-		$	-	$	(9	)	$	-		$	(73	)	$	73		$	-	$	(1	)	$	11	$	-		$	164

Convertible debentures		152		-			-			-		-			-			(13	)		9			-		-			18		(12	)		154
Non-U.S. governments and agencies		391		(17	)		-			-		(17	)		-			(3	)		3			-		-			1		-			375
Corporate debt		3,846		(199	)		-			-		(199	)		-			(433	)		925			-		(238	)		516		(103	)		4,314
Preferred stock		307		1			-			-		1			-			(17	)		30			-		(24	)		-		-			297
Mortgages, mortgage-backed and asset-backed		4,848		(98	)		-			-		(98	)		-			(1,281	)		83			-		(51	)		-		(281	)		3,220
Municipals and money markets		2,486		22			-			-		22			-			(158	)		52			-		(189	)		54		(1	)		2,266

Total trading assets, excluding derivative contracts		12,193		(300	)		-			-		(300	)		-			(1,978	)		1,175			-		(503	)		600		(397	)		10,790

Derivative contracts, net		5,101		988			-			-		988			-			(114	)		109			-		(1,912	)		285		(4	)		4,453
Investment securities available-for-sale:
Mortgage-backed securities — agency CMOs		55		-			-			-		-			-			-			-			-		-			-		-			55
Mortgage-backed securities — non-agency MBSs		96		-			(5	)		-		(5	)		(13	)		(1	)		9			-		-			-		-			86
Corporate ABS		86		-			(6	)		-		(6	)		-			-			162			-		-			-		-			242

Total investment securities available-for-sale		237		-			(11	)		-		(11	)		(13	)		(1	)		171			-		-			-		-			383

Investment securities non-qualifying		1,571		-			106			-		106						(286	)		6			-		(109	)		-		-			1,288

Total investment securities		1,808		-			95			-		95			(13	)		(287	)		177			-		(109	)		-		-			1,671

Loans, notes and mortgages		1,940		-			(61	)		8		(53	)		-			(154	)		2			450		(20	)		-		(326	)		1,839
Other Assets		-		-			-			-		-			-			-			1,578			-		-			-		-			1,578
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		28		1			-			-		1			-			12			(10	)		-		-			24		-			53
Preferred stock		23		2			-			-		2			-			-			(7	)		-		-			-		-			14
Municipals, money markets and other		3		(1	)		-			-		(1	)		-			-			(1	)		-		-			-		-			3

Total trading liabilities, excluding derivative contracts		54		2			-			-		2			-			12			(18	)		-		-			24		-			70

Other payables — interest and other		108		-			1			-		1			-			-			-			-		-			-		(100	)		7
Long-term borrowings		2,532		344			18			-		362			-			17			(120	)		164		(173	)		326		(240	)		2,144

Net gains in principal transactions related to derivative contracts, net were primarily due to credit spreads widening on short CDS baskets.

Sales of mortgages, mortgage-backed and asset-backed securities primarily relates to the sale of CDO and collateralized loan obligation (“CLO”) positions.

Purchases of corporate debt primarily relates to purchases of non-investment grade and distressed corporate loans and bonds.

The purchases for other assets and settlements for derivative contracts, net reflect the reclassification of approximately $1.6 billion of net monoline exposure from derivative contracts (assets) to other assets because of the inherent default risk and given that these contracts no longer provide a hedge benefit.

Transfers in for corporate debt are primarily due to decreased observability (i.e., decreased market liquidity) for certain corporate loans and bonds. Transfers out for mortgages, mortgage-backed and asset-backed securities primarily relates to increased observability (i.e., trading activity) for certain CMBS positions. Transfers in for derivative contracts, net are primarily due to certain equity derivative positions with unobservable correlation. Transfers out for loans, notes and mortgages and other payables — interest and other primarily relates to increased observability (i.e., liquid comparables) for certain corporate loans and unfunded loan commitments. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.


(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Nine Months Ended September 30, 2011
			Total Realized and Unrealized								Total Realized
			Gains or (Losses)								and Unrealized			Unrealized
			included in Income								Gains or (Losses)			Gains or
	Beginning		Principal			Other					included in			(Losses) to														Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		Income			OCI			Sales			Purchases			Issuances		Settlements			In		Out			Balance


Assets:
Trading assets, excluding derivative contracts:
Equities	$	170	$	26		$	-		$	-	$	26		$	-		$	(159	)	$	181		$	-	$	(64	)	$	11	$	(1	)	$	164
Convertible debentures		-		7			-			-		7			-			(97	)		238			-		-			18		(12	)		154
Non-U.S. governments and agencies		243		68			-			-		68			-			(18	)		125			-		(3	)		4		(44	)		375
Corporate debt		4,605		128			-			-		128			-			(2,529	)		2,043			-		(346	)		763		(350	)		4,314
Preferred stock		287		29			-			-		29			-			(123	)		60			-		(76	)		120		-			297
Mortgages, mortgage-backed and asset-backed		5,747		286			-			-		286			-			(3,689	)		1,596			-		(90	)		1		(631	)		3,220
Municipals and money markets		2,327		53			-			-		53			-			(1,810	)		1,936			-		(361	)		126		(5	)		2,266

Total trading assets, excluding derivative contracts		13,379		597			-			-		597			-			(8,425	)		6,179			-		(940	)		1,043		(1,043	)		10,790

Derivative contracts, net		6,368		1,015			-			-		1,015			-			(796	)		742			-		(2,774	)		584		(686	)		4,453
Investment securities available-for-sale:
Mortgage-backed securities — agency CMOs		-		-			-			-		-			-			-			56			-		(1	)		-		-			55
Mortgage-backed securities — non-agency MBSs		213		-			(20	)		-		(20	)		(35	)		(83	)		11			-		-			-		-			86
Corporate ABS		-		-			(6	)		-		(6	)		-			-			248			-		-			-		-			242

Total investment securities available-for-sale		213		-			(26	)		-		(26	)		(35	)		(83	)		315			-		(1	)		-		-			383

Investment securities non-qualifying		3,394		-			451			-		451			-			(1,138	)		52			-		(298	)		375		(1,548	)		1,288

Total investment securities		3,607		-			425			-		425			(35	)		(1,221	)		367			-		(299	)		375		(1,548	)		1,671

Loans, notes and mortgages		1,891		-			168			25		193			-			(650	)		146			665		(175	)		135		(366	)		1,839
Other Assets		-		-			-			-		-			-			-			1,578			-		-			-		-			1,578
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		-		-			-			-		-			-			84			(55	)		-		-			24		-			53
Preferred stock		-		2			-			-		2			-			23			(7	)		-		-			-		-			14
Municipals, money markets and other		-		(1	)		-			-		(1	)		-			22			(20	)		-		-			-		-			3

Total trading liabilities, excluding derivative contracts		-		1			-			-		1			-			129			(82	)		-		-			24		-			70

Other payables — interest and other		126		-			26			-		26			-			4			(6	)		9		-			-		(100	)		7
Long-term borrowings		2,396		242			3			-		245			-			72			(232	)		412		(499	)		855		(615	)		2,144

Net gains in principal transactions related to derivative contracts, net were primarily due to credit spreads widening on short CDS baskets in the third quarter of 2011.

Sales of corporate debt primarily relates to sales of corporate ARS and distressed loans during the first quarter of 2011. Sales of mortgages, mortgage-backed and asset-backed securities primarily relates to the sale of CDO positions in conjunction with the liquidation of a VIE and sales of CLO positions due to the unwind of Merrill Lynch’s proprietary trading business. Purchases of corporate debt primarily relates to purchases of non-investment grade and distressed corporate loans and bonds. Purchases of mortgages, mortgage-backed and asset-backed securities primarily relates to purchases of CDO and CLO positions. Sales and purchases of municipal securities is primarily due to dealer activity in student loan ARS. Sales of investment securities non-qualifying primarily relates to the sale of a private equity investment during the first quarter of 2011.

Transfers in for corporate debt are primarily due to decreased observability (i.e., decreased market liquidity) for certain corporate loans and bonds. Transfers out for corporate debt primarily relates to increased price observability (e.g., trading comparables) for certain corporate bond positions. Transfers out for mortgages, mortgage-backed and asset-backed securities primarily relates to increased price observability for certain RMBS, CMBS and consumer ABS portfolios. Transfers in for derivative contracts, net primarily relates to changes in the valuation methodology for certain CDO positions, in addition to certain equity derivative positions with unobservable correlation. Transfers out for derivative contracts, net primarily relates to increased price observability for certain equity and credit derivative positions. Transfers in for investment securities non-qualifying are due to a change in the valuation methodology for a private equity fund. Transfers out related to investment securities non-qualifying are due to a private equity investment that underwent an initial public offering during the first quarter of 2011. Transfers out for loans, notes and mortgages and other payables — interest and other primarily relates to increased observability (i.e., liquid comparables) for certain corporate loans and unfunded loan commitments. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.


(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Three Months Ended September 30, 2010
																Purchases,
			Total Realized and Unrealized Gains or (Losses)								Total Realized and			Unrealized		Sales,
			Included in Income								Unrealized Gains			Gains or		Issuances
	Beginning		Principal			Other					or (Losses)			(Losses) to		and			Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		included in Income			OCI		Settlements			In		out			Balance


Assets:
Trading assets, excluding derivative contracts:
Equities	$	345	$	(20	)	$	-		$	-	$	(20	)	$	-	$	5		$	2	$	(4	)	$	328
Non-U.S. governments and agencies		940		22			-			-		22			-		(52	)		11		(653	)		268
Corporate debt		5,580		202			-			-		202			-		(442	)		260		(555	)		5,045
Preferred stock		188		2			-			-		2			-		15			-		-			205
Mortgages, mortgage-backed and asset-backed		6,874		111			-			-		111			-		(226	)		20		-			6,779
Municipals and money markets		3,116		28			-			-		28			-		(221	)		-		-			2,923

Total trading assets, excluding derivative contracts		17,043		345			-			-		345			-		(921	)		293		(1,212	)		15,548

Derivative contracts, net		6,591		(246	)		-			-		(246	)		-		818			182		(551	)		6,794
Investment securities available-for-sale:
Mortgage-backed securities — residential non-agency MBSs		352		-			(27	)		-		(27	)		23		(33	)		21		-			336

Total investment securities available-for-sale		352		-			(27	)		-		(27	)		23		(33	)		21		-			336

Investment securities non-qualifying		4,128		-			(249	)		-		(249	)		-		(104	)		-		-			3,775

Total investment securities		4,480		-			(276	)		-		(276	)		23		(137	)		21		-			4,111

Loans, notes and mortgages		3,152		-			289			32		321			-		(196	)		11		(66	)		3,222
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and agencies		7		-			-			-		-			-		(7	)		-		-			-

Total trading liabilities, excluding derivative contracts		7		-			-			-		-			-		(7	)		-		-			-

Other liabilities — interest and other		154		-			16			-		16			-		-			-		-			138
Long-term borrowings		4,006		(120	)		(102	)		-		(222	)		-		(254	)		390		(441	)		3,923

Transfers out for non-U.S. governments and agencies primarily relates to increased price testing coverage for certain positions.

Increase in purchases, sales, issuances and settlements related to derivatives contracts, net primarily relates to the termination of certain total return swaps in a liability position.

Transfers out for derivatives contracts, net primarily relates to $1.3 billion of derivatives assets and $700 million of derivative liabilities transferred to Level 2 as a result of increase price observability and price testing coverage for certain positions.

Transfers in and transfers out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.


(dollars in millions)
	Level 3 Financial Assets and Liabilities
	Nine Months Ended September 30, 2010
			Total Realized and Unrealized Gains or (Losses)								Total Realized and			Unrealized			Purchases,
			Included in Income								Unrealized Gains			Gains or			Sales,
	Beginning		Principal			Other					or (Losses)			(Losses) to			Issuances and			Transfers		Transfers			Ending
	Balance		Transactions			Revenue			Interest		Included in Income			OCI			Settlements			In		Out			Balance


Assets:
Trading assets, excluding derivative contracts:
Equities	$	351	$	(31	)	$	-		$	-	$	(31	)	$	-		$	10		$	74	$	(76	)	$	328
Non-U.S. governments and agencies		1,142		(133	)		-			-		(133	)		-			(131	)		102		(712	)		268
Corporate debt		6,790		453			-			-		453			-			(1,958	)		912		(1,152	)		5,045
Preferred stock		562		(23	)		-			-		(23	)		-			(333	)		-		(1	)		205
Mortgages, mortgage-backed and asset-backed		7,294		187			-			-		187			-			(661	)		404		(445	)		6,779
Municipals and money markets		2,148		44			-			-		44			-			(390	)		1,234		(113	)		2,923

Total trading assets, excluding derivative contracts		18,287		497			-			-		497			-			(3,463	)		2,726		(2,499	)		15,548

Derivative contracts, net		6,866		(882	)		-			-		(882	)		-			665			692		(547	)		6,794
Investment securities available-for-sale:
Mortgage-backed securities — residential non-agency MBSs		473		-			(94	)		24		(70	)		(29	)		(102	)		76		(12	)		336

Total investment securities available-for-sale		473		-			(94	)		24		(70	)		(29	)		(102	)		76		(12	)		336

Investment securities non-qualifying		3,696		-			962			-		962			-			(748	)		-		(135	)		3,775

Total investment securities		4,169		-			868			24		892			(29	)		(850	)		76		(147	)		4,111

Loans, notes and mortgages		4,115		-			148			123		271			-			(1,109	)		11		(66	)		3,222
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and agencies		386		21			2			-		23			-			17			-		(380	)		-

Total trading liabilities, excluding derivative contracts		386		21			2			-		23			-			17			-		(380	)		-

Other liabilities — interest and other		186		-			27			-		27			-			(21	)		-		-			138
Long-term borrowings		4,683		475			90			-		565			-			(51	)		1,206		(1,350	)		3,923

Other revenue related to investment securities non-qualifying primarily represents net gains on certain private equity investments.

Decreases in purchases, sales, issuances and settlements related to corporate debt primarily relates to the sale of certain positions (e.g., ARS) during the first and second quarter of 2010. Decreases in purchases, sales, issuances and settlements related to loans, notes and mortgages primarily relates to sales and repayments of sizable positions and portfolios during the first and second quarter of 2010.

Transfers in for municipals and money markets relates to reduced price transparency (e.g., lower trading activity) for municipal ARS. Transfers out for corporate debt primarily relates to increased price testing coverage for certain positions. Transfers in and transfers out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

The following tables provide the portion of gains or losses included in income for the three and nine months ended September 30, 2011 and September 30, 2010 attributable to unrealized gains or losses relating to those Level 3 assets and liabilities held at September 30, 2011 and September 30, 2010, respectively.


(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended September 30, 2011											Nine Months Ended September 30, 2011
	Principal			Other								Principal			Other
	Transactions			Revenue			Interest		Total			Transactions			Revenue			Interest		Total


Assets:
Trading assets, excluding derivative contracts:
Equities	$	(9	)	$	-		$	-	$	(9	)	$	(55	)	$	-		$	-	$	(55	)
Convertible debentures		-			-			-		-			3			-			-		3
Non-U.S. governments and agencies		16			-			-		16			86			-			-		86
Corporate debt		(206	)		-			-		(206	)		(52	)		-			-		(52	)
Preferred stock		(11	)		-			-		(11	)		12			-			-		12
Mortgages, mortgage-backed and asset-backed		(116	)		-			-		(116	)		85			-			-		85
Municipals and money markets		1			-			-		1			17			-			-		17

Total trading assets, excluding derivative contracts		(325	)		-			-		(325	)		96			-			-		96

Derivative contracts, net		875			-			-		875			1,144			-			-		1,144
Investment securities available-for-sale:
Mortgage-backed securities — non-agency MBSs		-			(5	)		-		(5	)		-			(30	)		-		(30	)
Corporate/Agency bonds		-			(6	)		-		(6	)		-			(6	)		-		(6	)

Total investment securities available-for-sale		-			(11	)		-		(11	)		-			(36	)		-		(36	)

Investment securities non-qualifying		-			(54	)		-		(54	)		-			38			-		38

Total investment securities		-			(65	)		-		(65	)		-			2			-		2

Loans, notes and mortgages		-			(61	)		-		(61	)		-			124			-		124
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt		1			-			-		1			-			-			-		-
Preferred stock		2			-			-		2			2			-			-		2
Municipals, money markets and other		(1	)		-			-		(1	)		(1	)		-			-		(1	)

Total trading liabilities, excluding derivative contracts		2			-			-		2			1			-			-		1

Other payables — interest and other		-			(1	)		-		(1	)		-			1			-		1
Long-term borrowings		331			18			-		349			229			(9	)		-		220

Net unrealized gains in principal transactions related to derivative contracts, net were primarily due to credit spreads widening on short CDS baskets in the third quarter of 2011.


(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended September 30, 2010											Nine Months Ended September 30, 2010
	Principal			Other								Principal			Other
	Transactions			Revenue			Interest		Total			Transactions			Revenue			Interest		Total


Assets:
Trading assets, excluding derivative contracts:
Equities	$	(3	)	$	-		$	-	$	(3	)	$	(6	)	$	-		$	-	$	(6	)
Non-U.S. governments and agencies		22			-			-		22			(133	)		-			-		(133	)
Corporate debt		82			-			-		82			175			-			-		175
Preferred stock		2			-			-		2			(23	)		-			-		(23	)
Mortgages, mortgage-backed and asset-backed		78			-			-		78			116			-			-		116
Municipals and money markets		28			-			-		28			44			-			-		44


Total trading assets, excluding derivative contracts		209			-			-		209			173			-			-		173

Derivative contracts, net		(189	)		-			-		(189	)		(779	)		-			-		(779	)
Investment securities available-for-sale:
Mortgage-backed securities - non-agency MBSs		-			(20	)		-		(20	)		-			(42	)		24		(18	)

Total investment securities available-for-sale		-			(20	)		-		(20	)		-			(42	)		24		(18	)

Investment securities non-qualifying		-			(249	)		-		(249	)		-			233			-		233

Total investment securities		-			(269	)		-		(269	)		-			191			24		215

Loans, notes and mortgages		-			287			-		287			-			248			-		248
Liabilities:
Trading liabilities, excluding derivative contracts:
Non-U.S. governments and agencies		29			-			-		29			52			-			-		52

Total trading liabilities, excluding derivative contracts		29			-			-		29			52			-			-		52

Other payables — interest and other		-			16			-		16			-			27			-		27
Long-term borrowings		(113	)		(103	)		-		(216	)		381			88			-		469

Non-recurring Fair Value

Certain assets and liabilities are measured at fair value on a non-recurring basis and are not included in the tables above. These assets and liabilities primarily include loans and loan commitments held for sale that are reported at lower of cost or fair value and loans held for investment that were initially measured at cost and have been written down to fair value as a result of an impairment. The following tables show the fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2011 and December 31, 2010, respectively.


(dollars in millions)
									Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)
									Three Months			Nine Months			Three Months			Nine Months
	Non-Recurring Basis								Ended			Ended			Ended			Ended
	as of September 30, 2011								September 30,			September 30,			September 30,			September 30,
	Level 1		Level 2		Level 3		Total		2011			2011			2010			2010


Assets:
Investment securities non-qualifying	$	-	$	-	$	34	$	34	$	-		$	(5	)	$	-		$	(13	)
Loans, notes and mortgages		-		565		322		887		(43	)		1			113			(79	)
Other assets		-		-		15		15		-			(7	)		(20	)		(25	)
Liabilities:
Other payables — interest and other		-		-		19		19		-			(1	)		-			7


(dollars in millions)
	Non-Recurring Basis
	as of December 31, 2010
	Level 1		Level 2		Level 3		Total

Assets:
Investment securities non-qualifying	$	-	$	-	$	85	$	85
Loans, notes and mortgages		-		25		1,280		1,305
Other assets		-		10		35		45
Liabilities:
Other payables — interest and other		-		-		31		31

Loans, notes and mortgages includes held for sale loans that are carried at the lower of cost or fair value and for which the fair value was below the cost basis at September 30, 2011 and December 31, 2010. It also includes certain impaired held for investment loans where an allowance for loan losses has been calculated based upon the fair value of the loans or collateral. Level 3 assets as of September 30, 2011 and December 31, 2010 primarily relate to commercial real estate loans that are classified as held for sale where there continues to be significant illiquidity in the loan trading and securitization markets.

Other payables — interest and other includes amounts recorded for loan commitments at lower of cost or fair value where the funded loan will be held for sale.

Fair Value Option Election

The fair value option election allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value for assets and liabilities for which the election is made will be recognized in earnings as they occur. The fair value option election is permitted on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. As discussed above, certain of Merrill Lynch’s financial instruments are required to be accounted for at fair value under Investment Accounting and Derivatives Accounting, as well as industry level guidance. For certain financial instruments that are not accounted for at fair value under other applicable accounting guidance, the fair value option election has been made.

The following tables provide information about the line items in the Condensed Consolidated Statements of Earnings where changes in fair values of assets and liabilities, for which the fair value

option election has been made, are included for the three and nine months ended September 30, 2011 and September 30, 2010.


(dollars in millions)
	Changes in Fair Value For the									Changes in Fair Value For the
	Three Months Ended September 30, 2011,									Nine Months Ended September 30, 2011,
	for Items Measured									for Items Measured
	at Fair Value Pursuant									at Fair Value Pursuant
	to the Fair Value Option Election									to the Fair Value Option Election
	Gains/			Gains/			Total			Gains/			Gains/			Total
	(Losses)			(Losses)			Changes			(Losses)			(Losses)			Changes
	Principal			Other			in Fair			Principal			Other			in Fair
	Transactions			Revenues			Value			Transactions			Revenues			Value


Assets:
Receivables under resale agreements	$	169		$	-		$	169		$	197		$	-		$	197
Investment securities		-			(26	)		(26	)		-			4			4
Loans⁽¹⁾		(23	)		(114	)		(137	)		(23	)		25			2
Liabilities:
Payables under repurchase agreements		(16	)		-			(16	)		(13	)		-			(13	)
Short-term borrowings		214			-			214			307			-			307
Other payables — interest and other		-			(65	)		(65	)		-			(49	)		(49	)
Long-term borrowings		4,568			134			4,702			4,062			134			4,196


(1)		Effective July 1, 2011, includes certain loans accounted for under the fair value option that were reclassified from loans held for sale to trading assets because they are risk managed on that basis.


(dollars in millions)
	Changes in Fair Value For the									Changes in Fair Value For the
	Three Months Ended September 30, 2010									Nine Months Ended September 30, 2010
	for Items Measured									for Items Measured
	at Fair Value Pursuant									at Fair Value Pursuant
	to the Fair Value Option Election									to the Fair Value Option Election
	Gains/			Gains/			Total			Gains/		Gains/			Total
	(Losses)			(Losses)			Changes			(Losses)		(Losses)			Changes
	Principal			Other			in Fair			Principal		Other			in Fair
	Transactions			Revenues			Value			Transactions		Revenues			Value


Assets:
Receivables under resale agreements⁽¹⁾	$	54		$	-		$	54		$	73	$	-		$	73
Investment securities		-			16			16			-		62			62
Loans, notes and mortgages		-			302			302			-		396			396
Liabilities:
Payables under repurchase agreements		(2	)		-			(2	)		18		-			18
Short-term borrowings		5			-			5			112		-			112
Other payables — interest and other		-			2			2			-		4			4
Long-term borrowings⁽²⁾		(1,243	)		(82	)		(1,325	)		1,238		(102	)		1,136


(1)		Changes in fair value for the three months ended September 30, 2010 were revised from approximately $49 million (as previously reported) to approximately $54 million. Changes in fair value for the nine months ended September 30, 2010 were revised from approximately $50 million (as previously reported) to approximately $73 million.


(2)		Other revenues primarily represent fair value changes on non-recourse long-term borrowings issued by consolidated VIEs.

The following describes the rationale for electing to account for certain financial assets and liabilities at fair value, as well as the impact of instrument-specific credit risk on the fair value.

Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. The fair value option election was made based on the tenor of the resale and repurchase agreements, which reflects the magnitude of the interest rate risk. The majority of resale and repurchase agreements collateralized by U.S. Government securities were excluded from the fair value option election as these contracts are generally short-dated and therefore the interest rate risk is not considered significant. Amounts loaned under resale agreements require collateral with a market value equal to or in excess of the principal amount loaned, resulting in minimal credit risk for such transactions.

Loans and loan commitments

Merrill Lynch made the fair value option election for certain loans that are risk managed on a fair value basis. Upon the acquisition of Merrill Lynch by Bank of America, Merrill Lynch also made the fair value option election for certain mortgage, corporate, and leveraged loans and loan commitments. The changes in the fair value of loans and commitments, for which the fair value option was elected, that were attributable to changes in borrower-specific credit risk were not material for the three and nine months ended September 30, 2011 and September 30, 2010.

As of September 30, 2011 and December 31, 2010, the aggregate fair value of loans for which the fair value option election has been made that were 90 days or more past due was $26 million and $32 million, respectively, and the aggregate fair value of loans that were in non-accrual status was $26 million and $32 million, respectively. As of September 30, 2011 and December 31, 2010, the unpaid principal amount due exceeded the aggregate fair value of such loans that are 90 days or more past due and/or in non-accrual status by $129 million and $173 million, respectively.

Short-term and long-term borrowings

Merrill Lynch made the fair value option election for certain short-term and long-term borrowings that are risk managed on a fair value basis (e.g., structured notes) and/or for which hedge accounting under Derivatives Accounting had been difficult to obtain. The majority of the fair value changes on long-term borrowings are from structured notes with coupon or repayment terms that are linked to the performance of debt and equity securities, indices, currencies or commodities. Excluding gains (losses) for the three and nine months ended September 30, 2011 and September 30, 2010 related to changes in Merrill Lynch’s credit spreads, the majority of the gains (losses) for the respective periods are offset by gains (losses) on derivatives that economically hedge these borrowings and that are accounted for at fair value under Derivatives Accounting. The changes in the fair value of liabilities for which the fair value option election was made that were attributable to changes in Merrill Lynch’s credit spreads were gains of approximately $2.9 billion and $2.7 billion for the three and nine months ended September 30, 2011, respectively, and losses of approximately $0.3 billion and gains of approximately $1.1 billion for the three and nine months ended September 30, 2010, respectively. Changes in Merrill Lynch specific credit risk are derived by isolating fair value changes due to changes in Merrill Lynch’s credit spreads as observed in the secondary cash market.

The fair value option election was also made for certain non-recourse long-term borrowings and secured borrowings issued by consolidated VIEs. The fair value of these borrowings is not materially affected by changes in Merrill Lynch’s creditworthiness.

The following tables present the difference between fair values and the aggregate contractual principal amounts of receivables under resale agreements, receivables under securities borrowed transactions, loans and long-term borrowings for which the fair value option election has been made as of September 30, 2011 and December 31, 2010.


(dollars in millions)
			Principal
	Fair Value		Amount
	at		Due Upon
	September 30, 2011		Maturity		Difference


Assets:
Receivables under resale agreements	$	89,119	$	88,644	$	475
Receivables under securities borrowed transactions		1,543		1,735		(192	)
Loans⁽¹⁾		2,892		4,230		(1,338	)
Liabilities:
Long-term borrowings⁽²⁾		31,021		38,554		(7,533	)


(1)		Includes $493 million of loans held for sale accounted for under the fair value option that were reclassified to trading assets because they are risk managed on that basis.

(2)		The majority of the difference between the fair value and principal amount due upon maturity at September 30, 2011 relates to the impact of widening of Merrill Lynch’s credit spreads, as well as the fair value of the embedded derivative, where applicable.


(dollars in millions)
			Principal
	Fair Value		Amount
	at		Due Upon
	December 31, 2010		Maturity		Difference


Assets:
Receivables under resale agreements⁽¹⁾	$	74,255	$	73,941	$	314
Receivables under securities borrowed transactions		1,672		1,672		-
Loans, notes and mortgages		3,190		4,518		(1,328	)
Liabilities:
Long-term borrowings⁽²⁾		39,214		43,014		(3,800	)


(1)		The fair value and principal amount due upon maturity of receivables under resale agreements have been revised from approximately $51 billion for each (as previously reported) to approximately $74 billion.

(2)		The majority of the difference relates to the impact of the widening of Merrill Lynch’s credit spreads since issuance and the change in fair value of non-recourse debt issued by consolidated VIEs.

Note 5. Fair Value of Financial Instruments

The fair values of financial instruments have been derived, in part, by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially different from the estimates presented below. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of Merrill Lynch.

The following disclosures represent financial instruments for which the ending balances at September 30, 2011 and December 31, 2010 are not carried at fair value in their entirety on Merrill Lynch’s Condensed Consolidated Balance Sheets.

Short-term Financial Instruments

The carrying value of short-term financial instruments, including cash and cash equivalents, cash and securities segregated for regulatory purposes or deposited with clearing organizations, certain securities financing transactions, customer and broker-dealer receivables and payables, and other short-term borrowings, approximates the fair value of these instruments. These financial instruments generally expose Merrill Lynch to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates.

Loans, Notes and Mortgages

Fair values were generally determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that Merrill Lynch believes a market participant would consider in determining fair value. Merrill Lynch estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate its best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. Merrill Lynch made the fair value option election for certain loans and loan commitments. See Note 4 for additional information.

Deposits

The fair value for certain deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no stated maturities, the carrying amount was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of Merrill Lynch’s long-term relationships with depositors.

Long-term Borrowings

Merrill Lynch uses quoted market prices for its long-term borrowings when available. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for Merrill Lynch debt with similar maturities. Merrill Lynch made the fair value option election for certain long-term borrowings, including structured notes. See Note 4 for additional information.

The book and fair values of certain financial instruments at September 30, 2011 and December 31, 2010 were as follows:


(dollars in millions)
	September 30, 2011				December 31, 2010
	Book Value		Fair Value		Book Value		Fair Value


Financial assets
Loans, notes and mortgages⁽¹⁾	$	21,916	$	21,150	$	25,803	$	24,383
Financial liabilities
Deposits		12,277		12,277		12,826		12,826
Long-term borrowings⁽²⁾		118,511		111,781		132,427		131,694


(1)		Loans are presented net of the allowance for loan losses.

(2)		Includes junior subordinated notes (related to trust preferred securities).

Note 6. Derivatives

A derivative is an instrument whose value is derived from an underlying instrument or index, such as interest rates, equity security prices, currencies, commodity prices or credit spreads. Derivatives include futures, forwards, swaps, option contracts, and other financial instruments with similar characteristics. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest rate swaps or currency forwards) or

to purchase or sell other financial instruments at specified terms on a specified date (e.g., options to buy or sell securities or currencies).

Derivatives Accounting establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. Derivatives Accounting requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The fair value of all derivatives is recorded on a net-by-counterparty basis on the Condensed Consolidated Balance Sheets where Merrill Lynch believes a legal right of setoff exists under an enforceable netting agreement. All derivatives, including bifurcated embedded derivatives within structured notes, are reported on the Condensed Consolidated Balance Sheets as trading assets and liabilities.

The accounting for changes in fair value of a derivative instrument depends on its intended use and if it is designated and qualifies as an accounting hedging instrument under Derivatives Accounting.

Trading derivatives

Merrill Lynch enters into derivatives to facilitate client transactions, for trading and financing purposes, and to manage risk exposures arising from trading assets and liabilities. Changes in fair value for these derivatives are reported in current period earnings as principal transactions revenues.

Derivatives that contain a significant financing element

In the ordinary course of trading activities, Merrill Lynch enters into certain transactions that are documented as derivatives where a significant cash investment is made by one party. Certain derivative instruments that contain a significant financing element at inception and where Merrill Lynch is deemed to be the borrower are included in financing activities in the Condensed Consolidated Statements of Cash Flows. The cash flows from all other derivative transactions that do not contain a significant financing element at inception are included in operating activities.

Non-trading derivatives

Merrill Lynch also enters into derivatives in order to manage risk exposures arising from assets and liabilities not carried at fair value as follows:


1.	Merrill Lynch’s debt was issued in a variety of maturities and currencies to achieve the lowest cost financing possible. Merrill Lynch enters into derivative transactions to hedge these liabilities. Derivatives used most frequently include swap agreements that:


	•	Convert fixed-rate interest payments into variable-rate interest payments;

	•	Change the underlying interest rate basis or reset frequency; and

	•	Change the settlement currency of a debt instrument.

Changes in the fair value of interest rate and foreign currency derivatives are reported in interest expense or other revenues when hedge accounting is applied; otherwise changes in fair value are reported in other revenue.


2.	Merrill Lynch uses foreign-exchange forward contracts, foreign-exchange options, and currency swaps to hedge its net investments in foreign operations, as well as other foreign currency exposures (e.g., non-U.S. dollar denominated debt and expenses). These derivatives are used to mitigate the impact of changes in exchange rates. Changes in the fair value of these derivatives are reported in


	OCI, other revenue and interest expense when net investment hedge accounting is applied; otherwise changes in fair value are reported in other revenues.


3.	Merrill Lynch enters into futures, swaps, options and forward contracts to manage the price risk of certain commodity inventory and forecasted commodity purchases and sales. Changes in fair value of these derivatives are reported in principal transaction revenues, unless cash flow hedge accounting is applied.

4.	Merrill Lynch enters into CDS to manage the credit risk on certain loans that are not part of trading activities. Changes in the fair value of these derivatives are reported in other revenue.

Derivatives that qualify as accounting hedges under the guidance in Derivatives Accounting are designated as one of the following:


1.	A hedge of the fair value of a recognized asset or liability (“fair value hedge”). Changes in the fair value of derivatives that are designated and qualify as fair value hedges of interest rate risk, foreign exchange risk and commodity price risk, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings as interest expense, other revenues, or principal transactions.

2.	A hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in OCI until earnings are affected by the variability of cash flows of the hedged asset or liability or when the forecasted purchase or sale occurs.

3.	A hedge of a net investment in a foreign operation (“net investment hedge”). Changes in the fair value of derivatives that are designated and qualify as hedges of a net investment in a foreign operation are recorded in the foreign currency translation adjustment account within OCI. Changes in the fair value of the hedging instruments that are associated with the difference between the spot rate and the contracted forward rate are recorded in current period earnings in other revenues and in interest expense.

Merrill Lynch formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives are highly effective in offsetting changes in fair value or cash flows of hedged items. Merrill Lynch uses regression analysis at the hedge’s inception and for each reporting period thereafter to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged item. When it is determined that a derivative is not highly effective as a hedge, Merrill Lynch discontinues hedge accounting.

Hedge accounting activity for 2011 and 2010 included the following:

Fair value hedges


(dollars in millions)
	2011									2010
				Hedged			Hedge					Hedged			Hedge
	Derivative⁽¹⁾			Item⁽¹⁾⁽²⁾			Ineffectiveness⁽¹⁾			Derivative⁽¹⁾		Item⁽¹⁾⁽²⁾			Ineffectiveness⁽¹⁾


For the three months ended September 30:
Interest rate risk on USD denominated long-term debt	$	1,555		$	(1,744	)	$	(189	)	$	843	$	(986	)	$	(143	)
Interest rate risk on foreign currency denominated long-term debt		(345	)		287			(58	)		1,311		(1,297	)		14
Commodity price risk on commodity inventory		16			(16	)		-			25		(23	)		2
For the nine months ended September 30:
Interest rate risk on USD denominated long-term debt		1,700			(2,100	)		(400	)		2,530		(2,913	)		(383	)
Interest rate risk on foreign currency denominated long-term debt		335			(499	)		(164	)		59		(284	)		(225	)
Commodity price risk on commodity inventory		-			-			-			66		(69	)		(3	)


	2011				2010
	Trading		Trading		Trading		Trading
	Assets		Liabilities		Assets		Liabilities


As of September 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives
Long-term debt	$	7,069	$	609	$	4,442	$	484
Commodity inventory		-		6		80		6
Notional amount of hedging derivatives
Long-term debt		45,584		10,544		43,924		13,967
Commodity inventory		1		23		232		14


(1)		Amounts are recorded in interest expense and other revenues for long-term debt and principal transactions for commodity inventory.

(2)		Excludes the impact of purchase accounting adjustments made to certain long-term borrowings in connection with the acquisition of Merrill Lynch by Bank of America.

Cash flow hedges

(dollars in millions)

2011

2010

Gains

Hedge

Gains

(losses) in

Hedge

Gains

(losses) in

Ineffectiveness

(losses)

Income

Ineffectiveness

(losses)

Income

and Amounts

Recognized in

Reclassified

and Amounts

Recognized in

Reclassified

Excluded

Accumulated

from

Excluded from

Accumulated

from

OCI on

Accumulated

Effectiveness

OCI on

Accumulated

Effectiveness

derivatives

OCI⁽¹⁾

Testing⁽¹⁾

derivatives

OCI⁽¹⁾

Testing⁽¹⁾

For the three months ended September 30:

Commodity price risk on forecasted purchases and sales⁽²⁾

For the nine months ended September 30:

Commodity price risk on forecasted purchases and sales⁽²⁾

)


	2011				2010
	Trading		Trading		Trading		Trading
	Assets		Liabilities		Assets		Liabilities


As of September 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives	$	73	$	8	$	109	$	5
Notional amount of hedging derivatives		197		161		255		134


(1)		Amounts are recorded in principal transactions.
(2)		Amount that is expected to be reclassified into earnings in the next 12 months included in principal transactions is $1 million and $22 million at September 30, 2011 and September 30, 2010, respectively.

Net investment hedges of foreign operations

(dollars in millions)

2011

2010

Gains

Hedge

Gains

Hedge

(losses) in

Ineffectiveness

(losses) in

Ineffectiveness

Gains

Income

and Amounts

Gains

Income

and Amounts

(losses)

Reclassified

Excluded

(losses)

Reclassified

Excluded

Recognized in

from

Recognized in

from

Accumulated

Effectiveness

Accumulated

Effectiveness

OCI

OCI⁽¹⁾

Testing⁽²⁾

OCI

OCI⁽¹⁾

Testing⁽²⁾

For the three months ended September 30:

Foreign exchange risk

1,215

(18

)

(110

)

(1,356

)

(49

)

For the nine months ended September 30:

Foreign exchange risk

254

(21

)

(267

)

(509

)

(138

)


	2011		2010


As of September 30, 2011 and December 31, 2010:
Carrying value of hedging derivatives
Trading assets	$	1,343	$	468
Trading liabilities		577		930
Carrying value of non-derivative hedges
Long-term borrowings		64		536
Notional amount of hedging derivatives
in an asset position		22,954		6,639
in a liability position		5,985		19,180


(1)		Amounts are recorded in other revenue.
(2)		Amounts are recorded in other revenues and interest expense.

Net gains (losses) on economic hedges


(dollars in millions)
	2011⁽¹⁾			2010⁽¹⁾


For the three months ended September 30:
Interest rate risk	$	182		$	239
Foreign currency risk		(2,350	)		4,507
Credit risk		65			(29	)

For the nine months ended September 30:
Interest rate risk		178			708
Foreign currency risk		796			(1,223	)
Credit risk		48			(23	)


(1)		Amounts are recorded in other revenue.

The amounts in the “Net gains (losses) on economic hedges” table above represent net gains (losses) on derivatives that are not used for trading purposes and are not used in accounting hedging relationships. Interest rate risk primarily relates to derivatives used to economically hedge long-term borrowings. Foreign currency risk primarily relates to economic hedges of foreign currency denominated transactions that generate earnings upon remeasurement in accordance with ASC 830-20, Foreign Currency Transactions (“Foreign Currency Transactions”). As both the remeasurement of the foreign currency risk on the transaction and the changes in fair value of the derivative are recorded in earnings, hedge accounting is not applied. Credit risk relates to credit default swaps used to economically manage the credit risk on certain loans not included in trading activities.

Derivative balances by primary risk

Derivative instruments contain numerous market risks. In particular, most derivatives have interest rate risk, as they contain an element of financing risk that is affected by changes in interest rates. Additionally, derivatives expose Merrill Lynch to counterparty credit risk, although this is generally mitigated by collateral margining and netting arrangements. For disclosure purposes below, the primary risk of a derivative is largely determined by the business that is engaging in the derivative activity. For instance, a derivative that is initiated by an equities derivative business will generally have equity price risk as its primary underlying market risk and is classified as such for the purposes of this disclosure, despite the fact that there may be other market risks that affect the value of the instrument.

The following tables identify the primary risk for derivative instruments, which includes trading, non-trading and bifurcated embedded derivatives, at September 30, 2011 and December 31, 2010. The

primary risk is provided on a gross basis, prior to the application of the impact of counterparty and cash collateral netting.


(dollars in millions)
	As of September 30, 2011
	Contract/		Trading Assets-			Contract/		Trading Liabilities-
	Notional		Derivative Contracts			Notional		Derivative Contracts


Interest rate contracts
Swaps	$	9,552,280	$	649,980		$	9,247,885	$	648,260
Futures and forwards		2,092,306		1,795			2,200,980		1,730
Written options		-		-			1,501,666		63,907
Purchased options		1,483,887		68,715			-		-
Foreign exchange contracts
Swaps		100,834		11,662			123,244		14,160
Spot, futures and forwards		109,094		6,182			101,500		5,731
Written options		-		-			312,446		10,285
Purchased options		294,075		10,156			-		-
Equity contracts
Swaps		26,629		1,866			22,791		2,011
Futures and forwards		45,805		2,541			56,411		2,319
Written options		-		-			341,472		20,749
Purchased options		342,128		21,510			-		-
Commodity contracts
Swaps		39,138		6,334			39,057		6,844
Futures and forwards		277,892		3,756			276,212		2,582
Written options		-		-			136,792		8,348
Purchased options		137,314		8,314			-		-
Credit derivatives
Purchased protection:
Credit default swaps		195,074		23,137			50,789		1,176
Total return swaps		2,602		442			2,234		308
Other Credit Derivatives		864		17			25		-
Written protection:
Credit default swaps		45,458		2,071			202,847		22,085
Total return swaps		2,565		235			2,321		632
Other Credit Derivatives		-		-			203		8

Gross derivative assets/liabilities	$	14,747,945	$	818,713		$	14,618,875	$	811,135

Less: Legally enforceable master netting				(747,835	)				(747,835	)
Less: Cash collateral applied				(31,645	)				(33,762	)

Total derivative assets and liabilities			$	39,233				$	29,538


(dollars in millions)
	As of December 31, 2010
	Contract/		Trading Assets-			Contract/		Trading Liabilities-
	Notional		Derivative Contracts			Notional		Derivative Contracts


Interest rate contracts
Swaps	$	8,492,025	$	452,115		$	8,333,391	$	452,564
Futures and forwards		1,916,110		1,549			1,955,861		1,608
Written options		-		-			1,708,493		46,064
Purchased options		1,836,089		48,185			-		-
Foreign exchange contracts
Swaps		93,721		10,396			98,987		11,947
Spot, futures and forwards		118,363		5,637			105,671		5,702
Written options		-		-			280,290		10,673
Purchased options		273,375		10,501			-		-
Equity contracts
Swaps		17,411		1,622			20,764		1,871
Futures and forwards		35,483		2,897			43,257		2,122
Written options		-		-			221,791		15,677
Purchased options		174,313		15,338			-		-
Commodity contracts
Swaps		39,284		8,872			50,710		9,158
Futures and forwards		215,588		4,122			198,130		2,817
Written options		-		-			86,241		6,628
Other Credit Derivatives		84,554		6,565			-		-
Credit derivatives
Purchased protection:
Credit default swaps		322,230		29,670			251,679		8,001
Total return swaps		2,127		301			3,243		208
Other Credit Derivatives		440		8			47		-
Written protection:
Credit default swaps		248,509		7,978			326,448		23,755
Total return swaps		3,802		245			1,607		475
Other Credit Derivatives		-		-			214		1

Gross derivative assets/liabilities	$	13,873,424	$	606,001		$	13,686,824	$	599,271

Less: Legally enforceable master netting				(538,055	)				(538,055	)
Less: Cash collateral applied				(28,575	)				(29,019	)

Total derivative assets and liabilities			$	39,371				$	32,197

Trading revenues

Merrill Lynch enters into trading derivatives and non-derivative cash instruments to facilitate client transactions, for trading and financing purposes, and to manage risk exposures arising from trading assets and liabilities. The resulting risk from derivatives and non-derivative cash instruments is managed on a portfolio basis as part of Merrill Lynch’s sales and trading activities and the related revenue is recorded on different income statement line items, including principal transactions, commissions, other revenues and net interest income (expense).

Sales and trading revenue includes changes in fair value and realized gains and losses on the sales of trading and other assets, which are included in principal transactions and other revenues, net interest income, and commissions. Initial trading related revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. That revenue is included within principal transactions on the Condensed Consolidated Statement of Earnings (Loss). For equity securities, commissions related to purchases and sales are recorded in commissions on the Condensed Consolidated Statement of Earnings (Loss). Changes in the

fair value of these equity securities are included in principal transactions. These amounts are reflected in equity risk in the tables below. For debt securities, revenue, with the exception of interest, is typically included in principal transactions. Unlike commissions for equity securities, the initial revenue related to broker/dealer services for debt securities is included in the pricing of the instrument rather than charged through separate fee agreements. Therefore, this revenue is recorded in principal transactions as part of the initial mark to fair value. In transactions where Merrill Lynch acts as an agent, fees are earned and recorded in commissions. In the tables below, most sovereign government debt securities are reflected in interest rate risk. All other government debt securities (including, for example, municipal bonds and emerging markets sovereign debt) and corporate debt securities are included in credit risk.

For derivatives, revenue is typically included in principal transactions. Similar to debt securities, the initial revenue related to dealer services is included in the initial pricing of the instrument rather than charged through separate fee agreements. Therefore, this revenue is recorded in principal transactions as part of the initial mark to fair value. In transactions where Merrill Lynch acts as agent, which includes exchange traded futures and options, fees are earned and recorded in commissions. Derivatives are included in the tables below based on their predominant risk (e.g., credit default swaps are included in credit risk.)

Certain instruments, primarily available-for-sale securities and loans, are not considered trading assets or liabilities. Gains/losses on sales and changes in fair value of these instruments, where applicable (e.g., the fair value option has been elected), are recorded in other revenues. These instruments are typically reflected in credit risk.

Interest revenue for debt securities and loans is included in net interest income (expense).

The following tables identify the amounts in the income statement line items attributable to trading and non-trading activities, including both derivatives and non-derivative cash instruments categorized by primary risk for the three and nine months ended September 30, 2011 and September 30, 2010.

Non-trading related amounts include activities in connection with principal investment, wealth management, and certain lending activities; economic hedging activity discussed in the Non-trading derivatives section above; and the impact of changes in Merrill Lynch’s own creditworthiness on borrowings accounted for at fair value.

Trading and Non-Trading Related Revenue for Derivatives and Non-Derivative Cash Instruments


(dollars in millions)
For the Three Months	Principal					Other			Net Interest
Ended September 30, 2011	Transactions			Commissions		Revenues⁽¹⁾			Income (Expense)			Total


Interest Rate Risk	$	396		$	21	$	-		$	205		$	622
Foreign Exchange Risk		24			-		-			1			25
Equity Risk		132			792		36			104			1,064
Commodity Risk		216			-		1			(29	)		188
Credit Risk		(829	)		16		33			634			(146	)

Total trading — related		(61	)		829		70			915			1,753
Non-trading related		2,842			612		(974	)		(803	)		1,677

Total	$	2,781		$	1,441	$	(904	)	$	112		$	3,430

Trading and Non-Trading Related Revenue for Derivatives and Non-Derivative Cash Instruments


(dollars in millions)
For the Nine Months	Principal				Other		Net Interest
Ended September 30, 2011	Transactions		Commissions		Revenues⁽¹⁾		Income (Expense)			Total


Interest Rate Risk	$	746	$	64	$	19	$	585		$	1,414
Foreign Exchange Risk		72		-		-		6			78
Equity Risk		2,020		2,458		94		(715	)		3,857
Commodity Risk		523		-		-		(86	)		437
Credit Risk		62		44		390		2,028			2,524

Total trading — related		3,423		2,566		503		1,818			8,310
Non-trading related		2,702		1,912		1,785		(2,543	)		3,856

Total	$	6,125	$	4,478	$	2,288	$	(725	)	$	12,166

Trading and Non-Trading Related Revenue for Derivatives and Non-Derivative Cash Instruments


(dollars in millions)
For the Three Months	Principal					Other		Net Interest
Ended September 30, 2010	Transactions			Commissions		Revenues⁽¹⁾		Income (Expense)			Total


Interest Rate Risk	$	136		$	19	$	7	$	188		$	350
Foreign Exchange Risk		(28	)		-		-		-			(28	)
Equity Risk		384			716		42		2			1,144
Commodity Risk		138			-		5		(30	)		113
Credit Risk		912			12		283		815			2,022

Total trading — related		1,542			747		337		975			3,601
Non-trading related		(299	)		604		99		(990	)		(586	)

Total	$	1,243		$	1,351	$	436	$	(15	)	$	3,015

Trading and Non-Trading Related Revenue for Derivatives and Non-Derivative Cash Instruments


(dollars in millions)
For the Nine Months	Principal				Other		Net Interest
Ended September 30, 2010	Transactions		Commissions		Revenues⁽¹⁾		Income (Expense)			Total


Interest Rate Risk	$	1,066	$	60	$	49	$	538		$	1,713
Foreign Exchange Risk		44		-		-		(1	)		43
Equity Risk		1,660		2,323		210		(459	)		3,734
Commodity Risk		200		-		6		(93	)		113
Credit Risk		3,612		32		615		2,480			6,739

Total trading — related		6,582		2,415		880		2,465			12,342
Non-trading related		799		1,902		1,713		(2,715	)		1,699

Total	$	7,381	$	4,317	$	2,593	$	(250	)	$	14,041


(1)		Includes other income and OTTI losses on available-for-sale debt securities.

Derivatives as guarantees

Merrill Lynch enters into certain derivative contracts that meet the definition of a guarantee under ASC 460, Guarantees (“Guarantees Accounting”). Guarantees are defined to include derivative contracts that contingently require a guarantor to make payment to a guaranteed party based on

changes in an underlying (such as changes in the value of interest rates, security prices, currency rates, commodity prices, indices, etc.) that relate to an asset, liability or equity security of a guaranteed party. Derivatives that meet the accounting definition of a guarantee include certain OTC written options (e.g., written interest rate and written currency options). Merrill Lynch does not track, for accounting purposes, whether its clients enter into these derivative contracts for speculative or hedging purposes. Accordingly, Merrill Lynch has disclosed information about all credit derivatives, credit-related notes and certain types of written options that can potentially be used by clients to protect against changes in an underlying, regardless of how the contracts are actually used by the client.

Merrill Lynch’s derivatives that act as guarantees at September 30, 2011 and December 31, 2010 are summarized below:


(dollars in millions)
	Maximum
	Payout/		Less than								Carrying
	Notional		1 year		1 - 3 years		3 - 5 years		Over 5 years		Value⁽¹⁾


At September 30, 2011:
Derivative contracts:
Credit derivatives:
Investment grade⁽²⁾	$	82,461	$	9,330	$	27,980	$	24,287	$	20,864	$	4,601
Non-investment grade⁽²⁾

MERRILL LYNCH & CO., INC. 10-Q