NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 2006 and 2005 (in thousands of dollars, except per share amounts)
4. DERIVATIVE FINANCIAL INSTRUMENTS: TSX Inc. has entered into total return swaps which synthetically replicate the economics of TSX Inc. purchasing the Company’s shares as a partial economic hedge to the share appreciation rights of restricted share units and deferred share units that are awarded to directors and employees of the Company and its affiliates. TSX Inc. marks to market the value of the hedged units as an adjustment to income, and simultaneously marks to market the liability to holders of the share units as an adjustment to income. The fair values of the contracts and the obligation to unit holders are reflected on the balance sheet. The contracts are settled in cash upon maturity. The following tables represent the total return swaps which are outstanding at December 31. As at December 31, 2006:
| | | Remaining term to maturity
(notional amount) | Fair value |
| | | Under 1 year | 1 to 3 years | Total | Gain | Loss | Net |
| | Equity Swap Contract #5 | $ 695 | $ – | $ 695 | $ 457 | $ – | $ 457 | | Equity Swap Contract #7 | 12,388 | – | 12,388 | 736 | – | 736 | | Equity Swap Contract #8 | 621 | – | 621 | – | (11) | (11) | | Equity Swap Contract #10 | – | 664 | 664 | – | (13) | (13) | | Equity Swap Contract #11 | 4,268 | – | 4,268 | – | (333) | (333) | | Equity Swap Contract #12 | 620 | – | 620 | – | (22) | (22) |
| | $ 18,592 | $ 664 | $ 19,256 | $ 1,193 | $ (379) | $ 814 |
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As at December 31, 2005:
| | | Remaining term to maturity
(notional amount) | Fair value |
| | | Under 1 year | 1 to 3 years | Total | Gain | Loss | Net |
| | Equity Swap Contract #3 | $ 711 | $ – | $ 711 | $ 601 | $ – | $ 601 | | Equity Swap Contract #4 | 772 | – | 772 | 652 | – | 652 | | Equity Swap Contract #5 | – | 695 | 695 | 409 | – | 409 | | Equity Swap Contract #6 | 935 | – | 935 | 471 | – | 471 | | Equity Swap Contract #7 | – | 12,388 | 12,388 | 430 | – | 430 |
| | $ 2,418 | $ 13,083 | $ 15,501 | $ 2,563 | $ – | $ 2,563 |
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