## BPM7 Annex 7. Selected Financial Issues: Annotated Outline

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**Canonical URL:** [BPM7 Annex 7. Selected Financial Issues: Annotated Outline](https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ann-7.pdf)

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### Overview
- The annex covers two topics in separate sub-annexes: financial derivatives (Annex 7.A) and reverse transactions (Annex 7.B).
- The annexes maintain the BPM6 definition and concept to assist compilers’ understanding of the topics and data compilation.
- Annex 7.A combines guidance on financial derivatives from BPM7 Chapters 5, 6, 7, 8, 9, and Appendix 14 and incorporates recommendations in Guidance Notes F.4 and F.5.
- Annex 7.B combines guidance on reverse transactions from BPM7 Chapters 5, 7, 8, and 12 and incorporates recommendations in Guidance Note F.3.

### Annex 7.A — Financial Derivatives
I. Introduction
- Purpose: provide the definition, concept, and recording of financial derivatives by consolidating guidance across BPM7.
- Items to be brought together:
  - Definition and explanation about options, forwards, swaps, credit derivatives, margins, and employee stock options (Chapter 5. Classifications of Financial Assets and Liabilities).
  - Financial derivatives in functional categories (Chapter 6. Functional Categories).
  - Valuation and recording (Chapter 7. International Investment Position).
  - Recording at inception, in secondary markets, on ongoing servicing and margins, at settlement; recording of employee stock options (Chapter 8. Financial Account).
  - Revaluations (Chapter 9. Other Changes in Financial Assets and Liabilities Account).
  - Currency composition of notional values of foreign exchange derivatives, option/forward breakdowns (Appendix 14).

II. Specific Issues Relating to Financial Derivatives
- Following GN F.4 and GN F.5, guidance will be provided on:
  - A. Additional Breakdowns (all these breakdowns are supplementary items)
    - Breakdown by market risk category (foreign exchange, single-currency interest rate, equity, commodity, credit, and other).
    - Breakdown by instrument (options, forwards and related instruments, futures, swaps, credit derivatives, and marketable employee stock options).
    - Breakdown by trading venue and clearing status (exchange traded, over-the-counter (cleared), and over-the-counter (not cleared)).
  - B. Currency Composition of Notional Values of Foreign Exchange Derivatives
    - Emphasize compilation of the data as these derivatives often involve delivery of the underlying items, making them similar to foreign currency debt.
  - C. Revaluation of Foreign Currency Derivatives
    - Record other price changes, instead of foreign exchange changes, when these two cannot be separated.
  - D. Recording of Post Trading Activities
    - Provide guidance on the recording of novation and portfolio compression.
  - E. Gross and Net Recording
    - Provide guidance on the cases where net recording is allowed for transactions in assets and liabilities of financial derivatives.

### Annex 7.B — Reverse Transactions
I. Introduction
- Purpose: provide the definition, concept, and recording of reverse transactions (RTs) by consolidating guidance across BPM7.
- Items to be brought together:
  - Definition of securities repurchase agreement, securities lending, and a gold swap under loans (Chapter 5. Classifications of Financial Assets and Liabilities).
  - Definition and recording (Chapter 7. International Investment Position).
  - Recording in the financial account (e.g., loans) (Chapter 8. Financial Account).
  - Recording of investment income (Chapter 12. Earned Income Account).

II. Specific Issues Relating to Reverse Transactions
- Following GN F.3, guidance will be provided on:
  - A. Clarification for Recording a Short Position as a Negative Asset
    - Short positions generated by on-selling are recorded as negative assets for the short-seller (as if the short-seller holds a negative amount of the securities) to address double-counting by the economic (original) owner and the final owner and implications for who-to-whom presentations by counterpart sector and geography.
  - B. Clarification of Income for Security Lender, Borrower, and Short-Seller
    - Manufactured interest/dividends are recorded as positive credit entries in interest/dividends for the security lender and negative credit entries in interest/dividends for the security borrower.
  - C. Identification of the Partner Economy and Sector for Manufactured Dividends and Interest
    - The partner economy and sector for manufactured interest/dividends are identified by the security issuer, not the security borrower (actual payer), consistent with Item B above.
  - D. Clarification on Commodities Under RTs
    - Commodities are also used for RTs in addition to securities and gold.
  - E. Supplementary Information on RTs
    - Discuss usefulness of separate identification of RT-related transactions and positions and encourage economies to prepare supplementary information where RTs are significant.
  - F. Reclassification of Securities and Monetary Gold Collateral from Reserve Assets
    - Where securities or monetary gold provided as collateral under reverse transactions are not readily available for a balance of payments financing need, they are reclassified to portfolio investment or nonmonetary gold.

### Schematic Overview (structure summary)
- Annex 7.A
  - I Introduction
  - II Specific Issues Relating to Financial Derivatives
    - A. Additional Breakdowns
    - B. Currency Composition of Notional Values of Foreign Exchange Derivatives
    - C. Revaluation of Foreign Currency Derivatives
    - D. Recording of Post Trading Activities
    - E. Gross and Net Recording
- Annex 7.B
  - I Introduction
  - II Specific Issues Relating to Reverse Transactions
    - A. Clarification for Recording a Short Position as a Negative Asset
    - B. Clarification of Income for Security Lender, Borrower, and Short-Seller
    - C. Identification of the Partner Economy and Sector for Manufactured Dividends and Interest
    - D. Clarification on Commodities Under RTs
    - E. Supplementary Information on RTs
    - F. Reclassification of Securities and Monetary Gold Collateral from Reserve Assets

### References and Consultations
- References: Guidance Notes F.3, F.4, and F.5.
- Key stakeholders consulted:
  - System of National Account and Balance of Payments Manual editors.
  - IMF Statistics Department Financial Institutions Division and Government Finance Division.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ann-7.pdf_