## Reverse Transactions

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---

### SECTION I: THE ISSUE — Background and methodological context
- Reverse transactions (RTs) are arrangements that involve a change in legal ownership but no change in economic ownership of an asset and a commitment to reverse the legal ownership in the future (BPM6, paragraphs 3.41, 4.159, and 7.58; and 2008 SNA, paragraphs 11.59, 11.74–11.76, 17.254, and A3.94).
- Major types of RTs: securities repurchase agreements (repos), securities lending, and gold swaps (gold swaps: exchange of gold for foreign exchange deposits with agreement to reverse at an agreed future date at an agreed gold price) (BPM6, paragraph 5.55; and 2008 SNA, paragraph 11.77).
- Economic ownership: securities and gold in RTs do not change economic ownership and remain assets of the original holder/owner (BPM6, paragraphs 5.54–5.55; and 2008 SNA, paragraphs 11.76–11.77).
- Economic equivalence: repos, securities lending with cash collateral, and sale-buybacks have the same economic effect — provision of securities as collateral for a loan or deposit (BPM6, paragraphs 3.41 and 5.52; and 2008 SNA, paragraphs 11.59 and 11.75).
- Exception: securities repurchase agreements that do not involve the supply of cash (e.g., exchange of one security for another, or one party supplies a security without collateral) entail no loan or deposit and no transaction should be recorded in the financial account (BPM6, paragraph 5.53; and 2008 SNA, paragraph 11.75; BPM6, paragraph 6.90).
- Income treatment:
  - Fees for securities lending without cash collateral and gold loans are payments for putting a financial instrument at the disposal of another unit and are treated as interest (BPM6, paragraph 11.68; and 2008 SNA, paragraph A3.121).
  - This implies recording of interest without recognizing the underlying financial instrument/debt in the IIP/SNA balance sheets.
- Identified consequences meriting examination:
  - Recording of negative assets in on-selling (short positions).
  - Recording income flows between parties that do not hold recognized claims on each other.
  - Chains of RTs with potential liquidity effects (experience from the 2008 global financial crisis).

### Issues for discussion (Issues 1–6) — framing and options
- Issue 1 — Methodological Framework for Recording RTs
  - Current description: change in legal ownership but no change in economic ownership; no transaction in the asset is recorded; fees recorded as interest.
  - Options:
    - a. Revisit the methodological framework on RTs, with a view to developing an alternative recording.
    - b. Maintain the current methodological framework on recording RTs in the BPM6 and 2008 SNA.

- Issue 2 — Clarification for Recording of Short (Negative) Positions
  - Issue: On-selling can create short selling recorded as a negative asset; BPM6 lacks clear explanation of purpose/implications for who-to-whom presentations; short-selling is not discussed in the SNA.
  - Options:
    - a. No changes in the updated BPM and SNA; explain issues in other documents.
    - b. Introduce further clarifications (possibly a Box) for recording of short positions (including income streams and from-whom-to-whom implications) in the updated BPM and SNA.

- Issue 3 — Classification of Income for Security Lender, Borrower, and Short-Seller
  - Issue: Economic owner continues recording dividends and accrual of interest even when legal ownership changes; where RT covers dividend/interest payment period, security taker typically compensates lender via “manufactured dividends” (BPM6, paragraph 11.69).
  - Options:
    - a. No changes in the updated BPM and SNA; explain in other documents.
    - b. Incorporate recordings in paragraphs 1–5 in Annex II into the updated BPM and SNA, including clarification of manufactured interest/dividends as either:
      - b.1. Credit/debit entries in interest for the security lender/borrower.
      - b.2. Positive credit entry in interest/dividends for the security lender and negative credit entry in interest/dividends for the security borrower.

- Issue 4 — Identification of Partner Economy and Sector Counterpart for “Manufactured Dividends or Interest”
  - Issue: Security borrower may not be in same economy as issuer; affects identification of partner economy and sector counterpart for manufactured payments.
  - Options:
    - a. Identify partner economy and sector counterpart by the security issuer (consistent with Issue 3 option b.2).
    - b. Identify partner economy and counterpart sector by the security borrower (actual payer) (consistent with Issue 3 option b.1).

- Issue 5 — Clarification on Commodities Under RTs
  - Issue: Commodities are used for RTs in some jurisdictions (ESMA technical standards under SFTR and EMIR-SFTR); BPM6 and 2008 SNA do not mention commodity RTs.
  - Options:
    - a. No changes in the updated BPM and SNA; explain in other documents.
    - b. Include commodities in the discussion on RTs in the updated BPM and SNA.

- Issue 6 — Supplementary Information on RTs
  - Issue: RTs are not separately identified in current ESS and NA presentations. A memorandum/supplementary table could show loans/deposits, securities, and other items under RTs, covering movements regardless of change in economic ownership.
  - Options:
    - a. No changes in the updated BPM and SNA.
    - b. Introduce a table as a memorandum or supplementary item.
    - c. Discuss the usefulness of separate presentation of RTs in the updated BPM and SNA without introducing a table.

### Outcomes and recommendations (Section II highlights relevant to Issue 1–6)
- Recommendation for Issue 1 — Option B
  - Maintain current BPM6 and 2008 SNA recording: no change in economic ownership of underlying assets; record securities/gold lending fees as interest; record short positions from on-selling as negative assets.
  - Rationale: No strong case to change the framework; current framework extensively discussed and widely supported.
  - Note: A supplementary table (Issue 6) could separately identify RTs without changing the methodological framework and could be expanded to record income streams related to RTs.

- Recommendation for Issue 2 — Option B
  - Introduce tables that clarify recording of different types of RTs including their income streams, along the lines of detailed tables in Annex II, to provide guidance for compilers.
  - Supporting materials: Monetary and Financial Statistics Manual and Compilation Guide (paragraphs 4.73–4.78) clarifies some short-position questions; new data initiatives have introduced more detail on RT aggregates and collateral re-use.

- Recommendation for Issue 3 — Option B.2
  - Record a positive credit in dividends/interest for the security lender and a negative credit in dividends/interest for the security borrower.
  - Rationale:
    - Majority of public consultation comments supported option b.2 as current prevalent practice.
    - Negative credit for the borrower provides coherence between income and positions in the underlying instrument and offsets double-recording of positive credit.
    - Dividends/interest from the issuer do not belong to the security borrower; receipts by the borrower should not be recorded in the borrower’s income account but in the lender’s income account (see Tables 2 and 3 in Annex II).
    - Practicality: security lenders cannot reliably distinguish manufactured income paid by the borrower from income passed through from the issuer; recording both alike is more practical.

- Recommendation for Issue 4 — Option A
  - Identify partner economy and sector counterpart for manufactured dividends/interest by the economy and sector of the security issuer, consistent with recording under Issue 3 option b.2.
  - Rationale: Consistency between income recording and positions held by security lender and borrower.

- Recommendation for Issue 5 — Option B
  - Include commodities in the discussion on RTs in the updated BPM and SNA.
  - Rationale: Recording principles for commodities under RTs are the same as for securities and gold; market practices and national standards (e.g., SFTR) already provide reporting basis for commodity RTs.

- Recommendation for Issue 6 — Option C
  - Do not introduce a specific new table in the updated BPM and SNA. Instead, discuss the usefulness of separate identification of RTs and note that related data are already available from other international initiatives.
  - Rationale: Separate identification has high analytical value, but related data exist from other initiatives and RTs may be limited in some countries.

### Results of the discussion (committee and expert group reactions)
- Paragraph 31 — IMF Committee on Balance of Payments Statistics
  - Most members supported the proposed recommendations on the six issues.
  - Some members indicated practical challenges to collect information on manufactured payments and requested detailed practical guidance in the updated BPM7 Compilation Guide.
  - One member noted potential methodological problems from the proposed approach, specifically recording income flows between parties that do not have a claim on each other.
  - Another member noted that Issue 4’s proposed treatment (identify counterpart by issuer) may lead to bilateral asymmetries: lender and on-buyer both record positive income credits against the issuer while the on-seller records a negative entry; the negative and one of the two positive entries will cancel out and could reduce global asymmetries.

- Paragraph 32 — Advisory Expert Group on National Accounts (AEG)
  - AEG supported the GN recommendations and specifically agreed to:
    - maintain the present treatment of reverse transactions in the update of the BPM and System of National Accounts (SNA);
    - introduce further clarifications for recording short positions in the IIP and related entries (including income streams) in the income and financial accounts;
    - record income for security lenders, borrowers, and on-sellers, including recording negative credit for the security borrower for manufactured interests or dividends;
    - identify the partner economy and sector for “manufactured dividends and interest”;
    - include commodities (and potentially other nonfinancial assets) in the items used in reverse transactions;
    - present the usefulness of separate identification of repo-related transactions and positions in the updated BPM and SNA and encourage countries engaged in reverse transactions to prepare supplementary information on these transactions.

### Annex I — Alternative recording of securities lending in the SNA (summary)
- Alternative recording: record securities lending as separate transactions and positions coded AF.39 (“debt securities lent”) or AF.59 (“equity lent”), recognized as an economic asset of the security lender and a liability of the security borrower in the SNA.
- Clean security lending operation (example: long-term debt securities) would:
  - (i) reclassify the instrument lent from AF.32 to AF.39 in the balance sheet of the lender (total portfolio AF.3 unchanged) by way of transactions; and
  - (ii) change the security borrower’s balance sheet to show the debt security borrowed as an asset (AF.32) with a matching liability in ‘debt securities lent’ (AF.39).
- Repos or similar buy-and-sell-back transactions would be recorded as two back-to-back transactions: a loan in cash and a loan in securities.
- Effects and advantages:
  - The alternative inflates balance sheets of security borrowers/cash takers compared to current 2008 SNA recording.
  - Advantage: shows the security lent as an explicit position between security lenders and borrowers, reflecting the borrower’s obligation to return a specific asset and the lender’s exposure to risks.
  - Short-selling would create no difficulty because the security borrower would already hold the security in its balance sheet, avoiding a negative asset.
- Valuation and income:
  - The AF.39 link would have the same valuation as the underlying security lent.
  - Property income under AF.39/AF.59 would reflect interest/dividend passed on to the lender or manufactured, plus fees if any.
  - This approach eliminates the appearance of a property income flow from the security borrower to the security lender upon short-selling, addressing conceptual and consolidation anomalies.
- Trade-offs:
  - The proposed alternative aligns asset positions with custodian information but deviates from current IFRS/IPSAS recording and, presumably, from the risks and rewards principle.

### Annex II — Recording RTs and related transactions (operational entries)
- Paragraph 1 — Recording dividends/accrued interest when shares go ex-dividend or interest accrues:
  - Income Account:
    - Credit entry in dividends/interest accrued for the security lender.
    - Debit entry in dividends/interest accrued for the security issuer.
  - Financial Account:
    - Security issuer: increase in accounts payable for dividends and in security liabilities for accrued interest.
    - Security lender: increase in accounts receivable for dividends and in security assets for accrued interest.
    - Security borrower: No recording.

- Paragraph 2 — Recording dividend/interest cash payments:
  - Income Account:
    - No recording for the security lender, security borrower, and security issuer.
  - Financial Account:
    - Security lender: decrease in accounts receivable for dividend receipts and decrease in security assets for interest receipts.
    - Security issuer: decrease in accounts payable for dividend payments and decrease in security liabilities for interest payments.
    - Security borrower: no recording other than an initial increase in currency and deposits (for dividend/interest receipt from the security issuer) followed by a decrease in currency and deposits (for subsequent dividend/interest payment to the security lender); if cash not transferred immediately, the security borrower records accounts payable.

- Paragraph 3 — On-selling of securities acquired under repo or security lending:
  - Financial Account:
    - Decrease in security assets for the on-seller (security borrower).
    - Increase in security assets for the purchaser.
  - Balance Sheets and IIP:
    - A negative position in security assets for the on-seller, assuming the opening position is zero (and a positive position in security assets for the security purchaser).

- Paragraph 4 — Manufactured dividends and manufactured interest when on-sold securities are held through their ex-dividend/ex-interest period:
  - Income Account:
    - Credit entries in dividends and interest for the securities lender.
    - Negative credit entries in dividends and interest for the securities borrower (consistent with the negative asset position and matching, for debt securities, the further decrease in negative asset position reflecting accrual of interest).
  - Financial Account:
    - Security lender: accounts receivable and security assets increase for “manufactured dividends” and “manufactured interest”.
    - Security borrower: accounts payable increase and security assets decrease for “manufactured dividends” and “manufactured interest”.
  - Footnotes:
    - The negative asset position increases further by the amount of accrued “manufactured interest.”
    - In detailed from-whom-to-whom accounts, counterpart attribution differs by instrument type (equity vs debt).

- Paragraph 5 — Payment of manufactured dividends/interest for on-sold securities:
  - Income Account:
    - No entries for both the security lender and the security borrower.
  - Financial Account:
    - Security lender: accounts receivable and security assets decrease for manufactured dividends and manufactured interest payments.
    - Security borrower: accounts payable decrease and security assets increase for manufactured dividends and manufactured interest payments.
  - Footnote:
    - The negative asset position decreases (becomes less negative) by the amount of paid “manufactured interest.”

- High-level illustrative tables described:
  - Table 1: RTs — Accrual recording of transactions related to repos and security lending (including accrual entries and loan/asset/liability changes; security lending fees recorded as interest per BPM6 §11.68).
  - Table 2: Recording of dividends and accrued interests for securities acquired under repo and security lending (Income Account and Financial Account entries by security lender/borrower/issuer).
  - Table 3: Recording of actual dividend and interest payments (no income-account recording on payment; associated financial-account changes).
  - Table 4: Recording of on-selling of securities acquired under repo and security lending (security assets decrease for borrower; increase for purchaser; negative position for on-seller).
  - Table 5 and Table 6: Recording of manufactured dividends/interest and their payments for on-sold securities (entries interpreted based on debtor/creditor approach for counterpart country/sector attributions).

*Source: International Monetary Fund Guidance Note on Reverse Transactions.*

### SECTION I: THE ISSUE

### SECTION I: THE ISSUE

### Background
- The Balance of Payments and International Investment Position Manual, sixth edition (BPM6) and System of National Accounts 2008 (2008 SNA) identified Reverse transactions (RTs) as a topic for possible future research (BPM6 paragraph 1.43 (d) and 2008 SNA paragraph A4.46).  
- RTs are described as arrangements that involve a change in legal ownership but no change in economic ownership of an asset and a commitment to reverse the legal ownership in the future (BPM6, paragraphs 3.41, 4.159, and 7.58; and 2008 SNA, paragraphs 11.59, 11.74–11.76, 17.254, and A3.94).  
- Major types of RTs: securities repurchase agreements (repos), securities lending, and gold swaps. A gold swap involves exchange of gold for foreign exchange deposits with an agreement to reverse at an agreed future date at an agreed gold price (BPM6, paragraph 5.55; and 2008 SNA, paragraph 11.77).  
- Securities and gold in RTs do not change economic ownership and remain assets of the original holder/owner (BPM6, paragraphs 5.54–5.55; and 2008 SNA, paragraphs 11.76–11.77).  
- Repos, securities lending with cash collateral, and sale-buybacks have the same economic effect: provision of securities as collateral for a loan or deposit (BPM6, paragraphs 3.41 and 5.52; and 2008 SNA, paragraphs 11.59 and 11.75).  
- If a securities repurchase agreement does not involve the supply of cash (e.g., exchange of one security for another, or one party supplies a security without collateral), there is no loan or deposit and no transaction should be recorded in the financial account (BPM6, paragraph 5.53; and 2008 SNA, paragraph 11.75; BPM6, paragraph 6.90).

### Overview of methodological context
- Fees for securities lending without cash collateral and gold loans are payments for putting a financial instrument at the disposal of another unit and are treated as interest (BPM6, paragraph 11.68; and 2008 SNA, paragraph A3.121).  
- This treatment implies recording of interest without recognizing the underlying financial instrument/debt in the IIP/SNA balance sheets.  
- Consequences of current treatment that merit examination include: recording of negative assets in on-selling, recording income flows between parties that do not hold recognized claims on each other, and chains of RTs with potential liquidity effects (experience from the 2008 global financial crisis).

### Issues for discussion (Issues 1–6)
- Issue 1 — Methodological Framework for Recording RTs
  - Current description: change in legal ownership but no change in economic ownership; no transaction in the asset is recorded; fees recorded as interest.
  - Acknowledged concern: potential artefacts (negative assets, income flows between non-claimant parties) and the need to consider accounting alternatives such as recognizing a liability of the security borrower to the lender.
  - Options:
    - a. Revisit the methodological framework on RTs, with a view to developing an alternative recording.
    - b. Maintain the current methodological framework on recording RTs in the BPM6 and 2008 SNA.

- Issue 2 — Clarification for Recording of Short (Negative) Positions
  - Context: The party acquiring securities under an RT can on-sell them, creating short selling recorded as a negative asset (BPM6, paragraphs 7.28 and 7.61). BPM6 does not clearly explain the purpose of negative positions or implications for who-to-whom presentations; short-selling is not discussed in the SNA.
  - Options:
    - a. No changes in the updated BPM and SNA; explain issues in other documents (e.g., compilation guide and clarification notes).
    - b. Introduce further clarifications (possibly a Box) for recording of short positions (including their income streams and from-whom-to-whom implications) in the income and financial accounts for RTs in the updated BPM and SNA.

- Issue 3 — Classification of Income for Security Lender, Borrower, and Short-Seller
  - Context: Economic owner continues recording dividends and accrual of interest even when legal ownership changes. If RT covers the period when dividends or interest are payable, the security taker (borrower) is typically obliged to compensate the lender via “manufactured dividends” (BPM6, paragraph 11.69).
  - Options to clarify income treatment:
    - a. No changes in the updated BPM and SNA; explain in other documents.
    - b. Incorporate the recordings in paragraphs 1–5 in Annex II into the updated BPM and SNA, including clarification of manufactured interest/dividends as either:
      - b.1. Credit/debit entries in interest for the security lender/borrower.
      - b.2. Positive credit entry in interest/dividends for the security lender and negative credit entry in interest/dividends for the security borrower.

- Issue 4 — Identification of Partner Economy and Sector Counterpart for “Manufactured Dividends or Interest”
  - Context: The security borrower may not be in the same economy as the security issuer; this affects identification of the partner economy and sector counterpart for manufactured payments.
  - Options:
    - a. Identify the partner economy and sector counterpart by the security issuer (consistent with option b.2 of Issue 3).
    - b. Identify the partner economy and counterpart sector by the security borrower (actual payer) of the manufactured dividends or interest (consistent with option b.1 of Issue 3).

- Issue 5 — Clarification on Commodities Under RTs
  - Context: Commodities are used for RTs in some jurisdictions (ESMA technical standards under SFTR and EMIR-SFTR); BPM6 and 2008 SNA do not mention commodity RTs.
  - Options:
    - a. No changes in the updated BPM and SNA; explain in other documents.
    - b. Include commodities in the discussion on RTs in the updated BPM and SNA.

- Issue 6 — Supplementary Information on RTs
  - Context: RTs are not separately identified in current ESS and NA presentations. A memorandum/supplementary table could show loans/deposits, securities, and other items (commodities) under RTs, covering movements regardless of change in economic ownership. The model table example:
    - Table 1. Model Table on Assets Under RTs
      - Type of asset under RTs / Role of asset in RTs / Provided/lent / Received/borrowed
      - Cash / Securities / Other
  - Options:
    - a. No changes in the updated BPM and SNA.
    - b. Introduce a table as a memorandum or supplementary item.
    - c. Discuss the usefulness of separate presentation of RTs in the updated BPM and SNA without introducing a table.

### Outcomes and recommendations (Section II highlights relevant to Issue 1–6)
- Recommendation for Issue 1 — Option B
  - Maintain the current recording of RTs as in BPM6 and 2008 SNA: no change in economic ownership of underlying assets; record securities/gold lending fees as interest; record short positions generated by on-selling as negative assets.
  - Rationale: No strong case to change the framework; current framework extensively discussed and widely supported.
  - Note: A supplementary table (Issue 6) could provide separate identification of RTs without changing the methodological framework and could be expanded to record income streams related to RTs.

- Recommendation for Issue 2 — Option B
  - Introduce tables that clarify recording of different types of RTs including their income streams, along the lines of detailed tables in Annex II, to provide guidance for compilers. Monetary and Financial Statistics Manual and Compilation Guide (paragraphs 4.73–4.78) clarifies some short-position questions; new data initiatives have introduced more detail on RT aggregates and collateral re-use.

- Recommendation for Issue 3 — Option B.2
  - Record positive credit in dividends/interest for the security lender and negative credit in dividends/interest for the security borrower.
  - Rationale:
    - Majority of public consultation comments supported option b.2 as current prevalent practice.
    - Negative credit for the borrower provides coherence between income and positions in the underlying instrument and offsets double-recording of positive credit.
    - Dividends/interest from the issuer do not belong to the security borrower; receipts by the borrower should not be recorded in the borrower’s income account but in the lender’s income account (Tables 2 and 3 in Annex II).
    - Practicality: security lenders cannot reliably distinguish manufactured income paid by the borrower from income passed through from the issuer; recording both alike is more practical.

- Recommendation for Issue 4 — Option A
  - Identify partner economy and sector counterpart for manufactured dividends/interest by the economy and sector of the security issuer, consistent with positions held by security lender and borrower.
  - Rationale: Consistency with the recommendation for Issue 3 (option b.2) leads to treating the issuer’s economy/sector as the appropriate counterpart.

- Recommendation for Issue 5 — Option B
  - Include commodities in the discussion on RTs in the updated BPM and SNA.
  - Rationale: Recording principles for commodities under RTs are the same as for securities and gold; market practices and national standards (e.g., SFTR) already provide reporting basis for commodity RTs.

- Recommendation for Issue 6 — Option C
  - Do not introduce a specific new table in the updated BPM and SNA. Instead, discuss the usefulness of separate identification of RTs and note that related data are already available from other international initiatives.
  - Rationale: Separate identification has high analytical value, but related data exist from other initiatives and RTs may be limited in some countries.

*Source: International Monetary Fund Guidance Note on Reverse Transactions (SECTION I: THE ISSUE).*

### 30.      Instead, this GN recommends that the updated BPM and SNA discuss the usefulness of

### f3-reverse-transactions - 30.      Instead, this GN recommends that the updated BPM and SNA discuss the usefulness of

### Results of the discussion
- Paragraph 31
  - Most members of the IMF Committee on Balance of Payments Statistics supported the proposed recommendations on the six issues presented in the GN.
  - Some members indicated practical challenges to collect information on manufactured payments and underscored the need for providing detailed practical guidance on all aspects of reverse transactions in the updated Balance of Payments and International Investment Position Manual (BPM7) Compilation Guide.
  - One member noted that the proposed approach contributes to methodological problems, in particular the recording of income flows between parties that do not have a claim on each other.
  - Another member noted that the proposed treatment on Issue 4 (identifying the counterpart economy and sector for manufactured dividends/interest by the economy and sector of the security issuer) may lead to bilateral asymmetries: both the lender and the on-buyer will record positive income credits against the issuer, whereas the on-seller will record a negative entry. Because the negative and one of the two positive entries will cancel out, the proposed approach could contribute to reducing global asymmetries.

- Paragraph 32 — Advisory Expert Group on National Accounts (AEG) agreement
  - The AEG supported the recommendations in the GN and specifically agreed to:
    - maintain the present treatment of reverse transactions in the update of the BPM and System of National Accounts (SNA);
    - introduce further clarifications for recording short positions in the IIP and the related entries (including income streams) in the income and financial accounts;
    - record income for security lenders, borrowers, and on-sellers, including the recording of negative credit for the security borrower for manufactured interests or dividends;
    - identify the partner economy and sector for “manufactured dividends and interest”;
    - include commodities (and potentially other nonfinancial assets) in the items used in reverse transactions;
    - present the usefulness of separate identification of repo-related transactions and positions in the updated BPM and SNA and encourage countries engaged in reverse transactions to prepare supplementary information on these transactions.

### Annex I. Alternative Recording of Securities Lending in the SNA
- Paragraph 1
  - Alternative recording would consist in recording securities lending as separate transactions and positions coded AF.39 (“debt securities lent”) or AF.59 (“equity lent”), recognized as an economic asset of the security lender and a liability of the security borrower in the SNA.

- Paragraph 2
  - A clean security lending operation (example: long-term debt securities) would:
    - (i) reclassify the instrument lent from AF.32 to AF.39 in the balance sheet of the lender (total portfolio AF.3 unchanged) by way of transactions; and
    - (ii) change the presentation in the security borrower’s balance sheet, which would show the debt security borrowed as an asset (AF.32) with a matching liability in ‘debt securities lent’ (AF.39).

- Paragraph 3
  - Repos or similar buy-and-sell-back transactions would be recorded as two back-to-back transactions: a loan in cash and a loan in securities.

- Paragraph 4
  - The proposed alternative recording inflates the balance sheets of security borrowers/cash takers compared to the current 2008 SNA recording.
  - Advantage: showing the security lent as an explicit position between security lenders and borrowers reflects the borrower’s present obligation to return a specific asset and the lender’s exposure to risks.
  - Short-selling would create no difficulty because the security borrower would already hold the security in its balance sheet, avoiding the need to record a negative asset.

- Paragraph 5
  - The AF.39 link would have the same valuation as the underlying security lent.
  - Property income under AF.39/AF.59 would reflect interest/dividend passed on to the lender or manufactured, plus fees if any.
  - This approach eliminates the appearance of a property income flow from the security borrower to the security lender upon short-selling, which is conceptually difficult and creates inaccurate from-whom-to-whom accounts and anomalies in consolidated general government accounts (example: social security subsectors holding central government bonds engaging in RT with banks).

- Paragraph 6
  - The proposed alternative would align asset positions of transferors/transferees (e.g., AF.32) with custodian information but deviates from current recording of IFRS/IPSAS and, presumably, from the risks and rewards principle.

### Annex II. Recording RTs and Related Transactions in Balance of Payments, IIP, and National Accounts
- Paragraph 1 — Recording dividends (as shares go ex-dividend)/accrued interest by security lender, security borrower, and security issuer:
  - Income Account:
    - Credit entry in dividends (as shares go ex-dividend)/interest accrued for the security lender.
    - Debit entry in dividends/interest accrued for the security issuer.
  - Financial Account:
    - Security issuer: increase in accounts payable for dividends and in security liabilities for accrued interest.
    - Security lender: increase in accounts receivable for dividends and in security assets for accrued interest.
  - Security borrower: No recording.

- Paragraph 2 — Recording dividend/interest cash payments by security lender, security borrower, and security issuer:
  - Income Account:
    - No recording for the security lender, security borrower, and security issuer.
  - Financial Account:
    - Security lender: decrease in accounts receivable for dividend receipts and decrease in security assets for interest receipts.
    - Security issuer: decrease in accounts payable for dividend payments and decrease in security liabilities for interest payments.
    - Security borrower: no recording other than an initial increase in currency and deposits (for dividend/interest receipt from the security issuer) followed by a decrease in currency and deposits (for subsequent dividend/interest payment to the security lender) in the financial account.
  - Note: For simplicity, corresponding entries in currency and deposits are excluded. In case the cash is not transferred immediately, the security borrower records accounts payable.

- Paragraph 3 — When securities acquired under repo or security lending are on-sold to third parties:
  - Financial Account:
    - Decrease in security assets for the on-seller (security borrower).
    - Increase in security assets for the purchaser of the security.
  - Balance Sheets and IIP:
    - A negative position in security assets for the on-seller, assuming the opening position is zero (and a positive position in security assets for the security purchaser).

- Paragraph 4 — When securities acquired under repos or security lending are on-sold, manufactured dividends and manufactured interest recordings:
  - Income Account:
    - Credit entries in dividends (as shares go ex-dividend) and interest (as interest accrues) for the securities lender.
    - Negative credit entries in dividends (as shares go ex-dividend) and interest (as interest accrues) for the securities borrower (consistent with the negative asset position and matching, for debt securities, the further decrease in negative asset position reflecting accrual of interest on the underlying instrument).
  - Financial Account:
    - Security lender: accounts receivable and security assets increase for “manufactured dividends” and “manufactured interest”, respectively.
    - Security borrower: accounts payable increase and security assets decrease for “manufactured dividends” and “manufactured interest”, respectively.
  - Footnotes:
    - The negative asset position increases further (more negative) by the amount of accrued “manufactured interest.”
    - In detailed financial accounts (from-whom-to-whom), the counterpart of the increase in accounts payable in the equity security borrower’s accounts is the security lender; the counterpart of the decrease in assets in the debt security borrower’s accounts is the security issuer, instead.

- Paragraph 5 — When the manufactured dividends/interest are paid for on-sold securities:
  - Income Account:
    - No entries for both the security lender and the security borrower.
  - Financial Account:
    - Security lender: accounts receivable and security assets decrease for manufactured dividends and manufactured interest payments, respectively.
    - Security borrower: accounts payable decrease and security assets increase for manufactured dividends and manufactured interest payments, respectively.
  - Footnote:
    - The negative asset position decreases (becomes less negative) by the amount of paid “manufactured interest.”

- Tables and illustrative recordings (high-level):
  - Table 1: RTs — Accrual recording of transactions related to repos and security lending (highlights include accrual entries, loan/asset/liability changes, and treatment of security lending fees recorded as interest per BPM6 §11.68).
  - Table 2: Recording of (1) dividends and (2) accrued interests for securities acquired under repo and security lending (shows Income Account and Financial Account entries by security lender/securities provided under repo, security borrower/securities acquired under reverse repo, and security issuer).
  - Table 3: Recording of actual (1) dividend and (2) interest payments for securities acquired under repo and security lending (shows no income-account recording on payment; associated financial-account decreases/increases described).
  - Table 4: Recording of on-selling of securities acquired under repo and security lending (shows security assets decrease for borrower and increase for purchaser; negative position for on-seller assuming opening position is zero).
  - Table 5 and Table 6: Recording of manufactured dividends/interest and their payments for on-sold securities (entries interpreted based on debtor/creditor approach for counterpart country/sector attributions).

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/f3-reverse-transactions.pdf_