## Financial derivatives by type — Guidance Note (BPM6 / 2008 SNA update)

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### SECTION I: THE ISSUE — Background and problems identified
- Purpose:
  - Re-examine concepts, treatment, and presentation of derivatives in the BPM6 and 2008 SNA update; address shortcomings and propose options for enhancing recording and presentation of financial derivatives in external sector statistics (ESS) and national accounts (NA).
- Definition and current treatment:
  - Derivatives are financial instruments linked to another specific financial instrument, indicator or commodity through which specific financial risks can be traded in their own right (BPM6, paragraph 5.80; 2008 SNA, paragraph 11.111).
  - Transactions and positions in derivatives are treated separately from underlying securities.
  - Derivatives are a separate functional category in BPM6 and are valued at market prices prevailing on balance sheet recording dates or using other fair value methods (BPM6, paragraph 7.33).
- Shortcomings identified:
  - Limited breakdowns in current presentation: BPM6 recommends classifying derivatives into two broad categories: “options” and “forward-type contracts” (BPM6, paragraph 5.84; 2008 SNA, paragraph 11.115), providing limited analytical characterisation of risks.
  - Dual-nature instruments (e.g., credit default swaps (CDS)) complicate classification and recording.
  - BPM6 lacks explicit recommendation for several useful classification schemes (market risk category; instrument; trading venue and clearing status; delivery type), though descriptions exist (BPM6, paragraphs 5.85–5.96; 5.95; 2008 SNA, paragraphs 11.112–11.125).
  - Insufficient emphasis on derivatives linked to foreign currencies; notional amounts of off-balance-sheet foreign currency derivatives are captured only in memorandum tables (BPM6 Appendix 9, Tables A9-I-1b and A9-I-2b) and very few countries provide these data.
  - Revaluation treatment for foreign currency derivatives: BPM6 records holding gains/losses as revaluations (paragraph 8.36) and recommends classifying all revaluations as exchange rate changes when separation is impractical (paragraph 9.31), which can conflict with BPM6 paragraph 9.28 that defines exchange rate effects as zero for instruments denominated in the currency of international accounts compilation.
  - Post-trade processes (novation, clearing, portfolio compression, collateral management) that became prominent after the 2008 financial crisis are not reflected in BPM6 or 2008 SNA; regulatory changes (EMIR, Dodd Frank) introduced stricter clearing and reporting obligations and expanded post-trade processes.
- Potential classification dimensions (not all currently explicitly recommended by BPM6):
  - By market risk categories: interest rate risk, foreign exchange risk, equity and commodity price risks, credit risk or risks to other underlying instruments (BPM6, paragraphs 5.80 and 5.95; 2008 SNA, paragraph 11.112).
  - By instrument: options, forwards and related instruments (futures), swaps, credit derivatives, marketable employee stock options, other instruments (BPM6 paragraphs 5.85–5.96; 2008 SNA paragraphs 11.117–11.125).
  - By trading venue and clearing status: exchange traded; over-the-counter (OTC) (cleared); OTC (not cleared).
  - By delivery type: physical or cash delivery.
- Alignment objective:
  - Explicit recommendation to include classifications by market risk category, trading venue and delivery type would bring ESS and SNA closer to BIS OTC derivatives statistics and the final report of the ESCB Task Force on Financial Derivatives.

### SECTION I — Issues for discussion and options
- Issue 1 — Broad Classification of Financial Derivatives
  - Problem: Broad classification into forward-type and option-type is not widely used; some instruments (CDS, hybrids) resist that binary split.
  - Proposed approach: Drop current presentation by broad type and replace with classifications: (i) by market risk categories; (ii) by instruments; and (iii) by trading venue and clearing status; cross-classification is a more ambitious option. Alternative: expand presentation to add a hybrid derivatives category.
  - Options (enumerated exactly):
    - a. By market risk category: foreign exchange; single-currency interest rate; equity; commodity; credit; others;
    - b. By instrument: options, forwards and related instruments, futures, swaps, credit derivatives, marketable employee stock options and other instruments;
    - c. By trading venue and clearing status: exchange traded; OTC (cleared); OTC (not cleared);
    - d. Cross classification: market risk category by instrument, trading venue and clearing status;
    - e. By broad type: forward-type derivatives; option-type derivatives; hybrid derivatives;
    - f. No change to the current presentation of derivatives in BPM6 and 2008 SNA.
- Issue 2 — Compiling Notional Values of Foreign Currency Derivatives
  - Problem: Very limited country coverage for BPM6 Appendix 9 Tables A9-I-2a and A9-I-2b capturing currency composition of notional amounts crossed by sector.
  - Options:
    - a. Emphasize in the main text of the updated BPM and SNA that presentation of foreign currency derivatives notional amounts by currency is requested as described in BPM6 Appendix 9, Tables A9-I-1b and A9-I-2b.
    - b. Remove Tables A9-I-1b, and A9-I-2b, and replace them with a simplified table that captures only the essential information on the notional value of foreign currency linked derivatives (as in Annex II).
    - c. No changes to this item in the updated BPM and SNA and related documents (compilation guide).
  - Additional recommendation: Mirror the same presentation of cross-border foreign currency derivatives notional amounts in NA for both domestic and cross-border derivatives.
- Issue 3 — Convention for Recording of Revaluations on Foreign Currency Derivatives
  - Problem: Classification of revaluations and exchange rate effects can be inconsistent for derivatives whose underlying is an exchange rate between two foreign currencies; BPM6 paragraph 9.28 defines exchange rate effects as zero on instruments denominated in the compilation currency.
  - Options:
    - a. Change the convention in BPM6, paragraph 9.31 so that all revaluation effects are due to other price revaluations rather than as exchange rate revaluations for those derivatives where it may not be practical to separate exchange rate changes from other revaluation.
    - b. No change to the convention currently included in BPM6, paragraph 9.31.
- Issue 4 — Recording of Post Trading Activities
  - Problem: Post-trade activities since 2008 (novations, clearing, portfolio compression, collateral management) are not reflected in BPM6 and 2008 SNA; guidance needed for symmetric recording across countries.
  - Options:
    - a. Expand BPM6 Chapter 8 (Financial Account) and 2008 SNA Chapter 17 by providing methodological guidance for recording novation and portfolio compression. Annex III illustrates a box for the main text of the updated BPM and SNA; detailed examples to be included in the BPM Compilation Guide.
    - b. No change to the current presentation of derivatives in BPM6 and 2008 SNA.
- Issue 5 — Gross and Net Recording of Assets and Liabilities
  - Problem: Guidance on net recording for transactions is not fully aligned between BPM6 and 2008 SNA and may lack sufficient detail; positions may switch between assets and liabilities.
  - Options:
    - a. Clarify in paragraph 8.34 of BPM6 that recording transactions on a net basis is acceptable where separate data on transactions in assets and liabilities are not available, and the position may change between assets and liabilities (e.g., forwards, swaps). The method used should be consistently applied during the life of the instrument, not only when switching from assets to liabilities. The same should be included in Chapter 17 of 2008 SNA.
    - b. No change to the current presentation of derivatives in BPM6 and 2008 SNA.

### SECTION II: OUTCOMES — Recommendations and endorsements
- Recommendations on breakdowns and classifications:
  - Proposes discontinuing the current breakdown by broad type in favor of more analytically useful classifications:
    - (a) by market risk category (standard component);
    - (b) by instrument (supplementary item);
    - (c) by trading venue (supplementary item);
    - (b) and (c) to be listed in the list of standard components and selected supplementary items/presentation tables [Appendix 9 of BPM6].
  - Rejection rationale:
    - Cross-classification (option d) not recommended because it requires collecting granular data which could be challenging for many reporters.
    - Expanded instrument broad category (option e) not recommended because it does not bring new analytical information.
  - GN F.5 Treatment of Credit Default Swaps recommended classifying CDS as option-type derivatives but recognized CDS dual nature and called for potential review in light of this GN.
- Currency composition and presentation of notional values (Issue 2):
  - Emphasizes compiling the currency composition of the notional values of derivatives linked to foreign currencies in the updated BPM and SNA.
  - Recommends presenting Tables A9-I-1b and A9-I-2b of BPM6 Appendix 9 more prominently in the updated BPM and SNA.
  - If compilation is too burdensome, proposes a simplified table (see Annex II).
  - Tables A9-II and A9-III of BPM6 Appendix 9 should remain as supplementary reporting tables.
- Revaluation conventions for FX components (Issue 3):
  - Proposes changing BPM6, paragraph 9.31, and 2008 SNA Chapter 17 so that for derivatives with an FX component where it may not be practical to separate exchange rate changes from other revaluations, all revaluations are attributed to other price revaluations rather than exchange rate revaluations.
  - Rationale: Enhances analytical clarity of exchange rate revaluations and complies with BPM6, paragraph 9.28.
- Recording novation and portfolio compression as transactions (Issue 4):
  - Proposes expanding BPM6 Chapter 8 (Financial Account) and 2008 SNA Chapter 11 to provide methodological guidance for recording novation and portfolio compression as financial transactions.
  - Recording novation and portfolio compression does not change methodology, but calls for additional guidance within existing methodology.
  - Notes market infrastructure changes since 2008 were not included in BPM6 and 2008 SNA; methodological guidance is needed to ensure symmetric recording across countries.
  - Annex III presents one possible solution and illustrative examples.
- Gross vs net recording of transactions (Issue 5):
  - Proposes expanding BPM6, paragraph 8.34, and 2008 SNA Chapter 17 by clarifying cases where net recording is acceptable (i.e., where separate data on transactions in assets and liabilities are not available and the position may change between assets and liabilities, e.g., forwards, swaps).
  - Reaffirms gross recording should remain the generic recommendation, but permits net recording when gross recording is impractical.
  - Option b was rejected to avoid discrepant interpretations of the manuals.
  - Change enhances clarity and consistency and complies with BPM6, paragraphs 8.34 and 3.118.
- FITT, BOPCOM, and AEG outcomes and endorsements:
  - Majority of FITT members strongly supported the GN proposals.
  - Most members of the IMF Committee on Balance of Payments Statistics (BOPCOM) and the Advisory Expert Group on National Accounts (AEG) expressed support for:
    - introducing breakdowns by (i) market risk category (standard component), (ii) instrument (supplementary item), and (iii) trading venue and clearing type (supplementary item);
    - discontinuing the current breakdown by broad type in the updated BPM and SNA.
  - Endorsements included:
    - emphasizing compilation of notional values of foreign currency derivatives by currency in the main text of the updated BPM and SNA;
    - changing BPM6 (paragraph 9.31) convention to attribute all revaluations to other price revaluations when separation from exchange rate changes is impractical;
    - introducing methodological guidance (BPM Compilation Guide or a Box in BPM6, Chapter 8 and 2008 SNA, Chapter 11) for recording novation and portfolio compression as financial transactions;
    - recommending gross recording where possible, while permitting net recording when gross recording is impractical (e.g., derivatives that can be either an asset or a liability depending on valuation).
- Annex II — Model table for foreign currency derivatives notional amounts (summary):
  - Simplified table separately covers:
    - Currencies to be received at maturity: Chinese yuan; Euro; Pound sterling; US dollar; Yen; Other currencies
    - Currencies to be provided at maturity: Chinese yuan; Euro; Pound sterling; US dollar; Yen; Other currencies
  - Proposes replacing current list of currencies (euro, US dollar, Yen, other) with currencies from a basket that determines the value of the SDR, or those used in COFER, or another set of major currencies.
- Annex III — Recording of post-trade activities — novation and portfolio compression (summary and examples):
  - Novation:
    - Novation replaces a bilateral OTC contract between two market participants with two bilateral contracts between each participant and a CCP.
    - Timing matters:
      - If novation occurs immediately after the initial contract (within reporting time frame), only the novated contracts vis-à-vis the CCP need reporting.
      - If novation is delayed, both counterparts should report two offsetting transactions for the relevant reference period(s): one terminating the initial contract and one creating the asset position vis-à-vis the CCP.
    - If initial parties are not clearing members, each side of the bilateral contract may be replaced by two contracts (entity to clearing member and clearing member to CCP), giving rise to four transactions/positions.
    - Residency of market participants and CCP determines whether novation is recorded in cross-border statistics and how treated in national accounts.
  - Portfolio compression:
    - Compression wholly or partially terminates derivatives submitted for inclusion and replaces them with new derivative(s) whose combined notional value is less than the terminated derivatives.
    - All counterparties involved must report offsetting transactions: (i) terminating initial contracts and (ii) creating new positions.
    - Overall net positions should remain unchanged, but post-compression gross positions and bilateral counterparts may differ substantially.
  - Example 1 (novation) key figures:
    - Two clearing members A and B resident in Country X sign an OTC contract with assets and liabilities of 100 each (domestic, no external positions).
    - Novation to CCP resident in Country Y creates cross-border assets/liabilities: A records Vis-à-vis non-residents Assets 100; B records Vis-à-vis non-residents Liabilities 100; domestic positions of 100 disappear.
    - Globally, positions double compared to before novation; net IIPs of countries X and Y remain unchanged at 0.
  - Example 2 (portfolio compression) key figures:
    - Before compression: Vis-à-vis non-residents Assets 10 (A), 20 (B), Liabilities 20 (A), 10 (B); Vis-à-vis domestic sectors Assets 30 (A), Liabilities 30 (A); Net assets position -20 (A), 10 (B), 10 (C).
    - After compression: Vis-à-vis non-residents Assets 10 (C); Liabilities 10 (A and B as applicable); Vis-à-vis domestic sectors Assets 10; Liabilities 10.
    - Compression reduces outstanding notional amounts and may change net IIP in cross-border deals; net positions on combined domestic and cross-border segments do not change for each entity in the compression process.

*Source: Guidance Note — SECTION I: THE ISSUE and SECTION II: OUTCOMES (BPM6 / 2008 SNA update).*

### SECTION I: THE ISSUE

### SECTION I: THE ISSUE

### BACKGROUND

- The update of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) and the System of National Accounts 2008 (2008 SNA) is an opportunity to re-examine concepts, treatment, and presentation of derivatives in the new international standards. The Guidance Note (GN) addresses shortcomings and proposes options for enhancing recording and presentation of financial derivatives in external sector statistics (ESS) and national accounts (NA).
- Derivatives are described as financial instruments linked to another specific financial instrument, indicator or commodity through which specific financial risks can be traded in their own right (BPM6, paragraph 5.80; 2008 SNA, paragraph 11.111). Transactions and positions in derivatives are treated separately from underlying securities. Derivatives are a separate functional category in BPM6 and are valued at market prices prevailing on balance sheet recording dates or using other fair value methods (BPM6, paragraph 7.33).
- Shortcomings identified:
  - Limited breakdowns in current presentation: BPM6 recommends classifying financial derivatives in supplementary items into two broad categories: “options” and “forward-type contracts” (BPM6, paragraph 5.84; 2008 SNA, paragraph 11.115), which provides limited analytical characterisation of risks.
  - Some derivatives (e.g., credit default swaps (CDS)) have dual nature with option- and forward-like characteristics, complicating classification and recording.
  - BPM6 does not explicitly recommend several potentially useful classification schemes (market risk category; instrument; trading venue and clearing status; delivery type), though descriptions exist (BPM6, paragraphs 5.85–5.96; 5.95; 2008 SNA, paragraphs 11.112–11.125).
  - BPM6 places insufficient emphasis on derivatives linked to foreign currencies; notional amounts of off-balance-sheet foreign currency derivatives are captured only in memorandum tables (BPM6 Appendix 9, Tables A9-I-1b and A9-I-2b) and very few countries provide these data.
  - Revaluations for foreign currency derivatives: BPM6 records holding gains/losses as revaluations (paragraph 8.36) and recommends classifying all revaluations as exchange rate changes when separation is impractical (paragraph 9.31), which is not fully aligned with BPM6 paragraph 9.28 that defines exchange rate effects as zero for instruments denominated in the currency of international accounts compilation.
  - Post-trade processes (novation, clearing, portfolio compression, collateral management) that became prominent after the 2008 financial crisis are not reflected in BPM6 or 2008 SNA; regulatory changes (EMIR, Dodd Frank) introduced stricter clearing and reporting obligations and expanded post-trade processes.

- Potential classifications of derivatives (not all currently recommended explicitly by BPM6):
  - By market risk categories: interest rate risk, foreign exchange risk, equity and commodity price risks, credit risk or risks to other underlying instruments (BPM6, paragraphs 5.80 and 5.95; 2008 SNA, paragraph 11.112).
  - By instrument: options, forwards and related instruments (futures), swaps, credit derivatives, marketable employee stock options, other instruments (BPM6 paragraphs 5.85–5.96; 2008 SNA paragraphs 11.117–11.125).
  - By trading venue and clearing status: exchange traded; over-the-counter (OTC) (cleared); OTC (not cleared).
  - By delivery type: physical or cash delivery.
- Alignment with other datasets: Explicit recommendation to include classifications by market risk category, trading venue and delivery type would bring ESS and SNA closer to BIS OTC derivatives statistics and final report of the ESCB Task Force on Financial Derivatives.

### ISSUES FOR DISCUSSION

Issue 1 — Broad Classification of Financial Derivatives

- Problem statement:
  - The broad classification into forward-type and option-type instruments is not widely used in analysis; users prefer classifications by market risk category and clearing status.
  - Some derivatives cannot be easily classified as forward- or option-type, suggesting need for a new generic category for CDS and hybrid instruments.

- Proposed approach:
  - Authors propose dropping current presentation by broad type and replacing with more analytically useful classifications: (i) by market risk categories; (ii) by instruments; and (iii) by trading venue and clearing status. A more ambitious approach would cross these breakdowns. Alternatively, expand current presentation to add a hybrid derivatives category.

- Options to address Issue 1 (preserving enumerations exactly):
  - a. By market risk category: foreign exchange; single-currency interest rate; equity; commodity; credit; others;
  - b. By instrument: options, forwards and related instruments, futures, swaps, credit derivatives, marketable employee stock options and other instruments;
  - c. By trading venue and clearing status: exchange traded; OTC (cleared); OTC (not cleared);
  - d. Cross classification: market risk category by instrument, trading venue and clearing status;
  - e. By broad type: forward-type derivatives; option-type derivatives; hybrid derivatives;
  - f. No change to the current presentation of derivatives in BPM6 and 2008 SNA.

Issue 2 — Compiling Notional Values of Foreign Currency Derivatives

- Problem statement:
  - Very limited set of countries compile data for BPM6 Appendix 9 Tables A9-I-2a and A9-I-2b that capture currency composition of notional amounts of derivatives with foreign currency payment obligations crossed by sector.

- Options to address Issue 2:
  - a. Emphasize in the main text of the updated BPM and SNA that the presentation of foreign currency derivatives notional amounts by currency is requested as described in BPM6 Appendix 9, Tables A9-I-1b and A9-I-2b.
  - b. Remove Tables A9-I-1b, and A9-I-2b, and replace them with a simplified table that captures only the essential information on the notional value of foreign currency linked derivatives (as in Annex II).
  - c. No changes to this item in the updated BPM and SNA and related documents (compilation guide).
- Additional recommendation:
  - The same presentation of cross-border foreign currency derivatives notional amounts in ESS should be mirrored in NA for both domestic and cross-border derivatives.

Issue 3 — Convention for Recording of Revaluations on Foreign Currency Derivatives

- Problem statement:
  - Amounts accruing under financial derivatives are classified as revaluations and included in other changes for assets and liabilities (BPM6, paragraph 6.59). Exchange rate options whose underlying is an exchange rate between a pair of foreign currencies may have market prices driven by movements between those foreign currencies rather than by movements in the compilation currency. BPM6 paragraph 9.28 defines exchange rate effects as always zero on instruments denominated in the currency of international accounts compilation.

- Options to address Issue 3:
  - a. Change the convention in BPM6, paragraph 9.31 so that all revaluation effects are due to other price revaluations rather than as exchange rate revaluations for those derivatives where it may not be practical to separate exchange rate changes from other revaluation, to enhance analytical clarity and comply with BPM6, paragraph 9.28.
  - b. No change to the convention currently included in BPM6, paragraph 9.31.

Issue 4 — Recording of Post Trading Activities

- Problem statement:
  - Market infrastructure changes for financial derivatives since 2008 (novations, clearing, portfolio compression, collateral management) were not included in BPM6 and 2008 SNA; methodological guidance is needed for symmetric recording across countries, especially where novation and portfolio compression involve CCPs and cross-border dimensions.

- Options to address Issue 4:
  - a. Expand BPM6 Chapter 8 (Financial Account) and 2008 SNA Chapter 17 by providing methodological guidance for recording novation and portfolio compression. Annex III illustrates a box for the main text of the updated BPM and SNA; detailed examples to be included in the BPM Compilation Guide.
  - b. No change to the current presentation of derivatives in BPM6 and 2008 SNA.

Issue 5 — Gross and Net Recording of Assets and Liabilities

- Problem statement:
  - 2008 SNA and BPM6 recognize need for net recording in some cases, but guidance for transactions is not fully aligned and may lack sufficient detail. Positions should be recorded on a gross basis and can switch between assets and liabilities (2008 SNA, paragraph 17.290; BPM6, paragraphs 7.36–7.37). BPM6 permits net recording when gross reporting is impractical (paragraph 8.34) without clear indication of meaning or link to recording of positions; 2008 SNA guidance on derivatives is limited and somewhat ambiguous (paragraph 11.114).

- Options to address Issue 5:
  - a. Clarify in paragraph 8.34 of BPM6 that recording of transactions on a net basis is acceptable where separate data on transactions in assets and liabilities are not available, and the position may change between assets and liabilities (e.g., forwards, swaps). The method used should be consistently applied during the life of the instrument, not only when switching from assets to liabilities. The same should be included in Chapter 17 of 2008 SNA.
  - b. No change to the current presentation of derivatives in BPM6 and 2008 SNA.

*Source: Guidance Note — SECTION I: THE ISSUE (BPM6 / 2008 SNA update).*

### SECTION II: OUTCOMES

### SECTION II: OUTCOMES

### Recommendations on breakdowns and classifications
- Proposes discontinuing the current breakdown by broad type in favor of more analytically useful classifications:
  - (a) by market risk category (standard component);
  - (b) by instrument (supplementary item);
  - (c) by trading venue (supplementary item);
  - (b) and (c) to be listed in the list of standard components and selected supplementary items/presentation tables [Appendix 9 of BPM6].
- Rejection rationale for alternatives:
  - Cross-classification (option d) is not recommended because it requires collecting granular data which could be challenging for many reporters.
  - Expanded instrument broad category (option e) was not recommended because it does not bring any new analytical information.
- GN F.5 Treatment of Credit Default Swaps recommended classifying CDS as option-type derivatives but recognized CDS dual nature and called for potential review in light of this GN.

### Currency composition and presentation of notional values (Issue 2)
- Emphasizes importance of compiling the currency composition of the notional values of derivatives linked to foreign currencies in the updated BPM and SNA.
- Recommends presenting Tables A9-I-1b and A9-I-2b of BPM6 Appendix 9 more prominently in the updated BPM and SNA.
- If compilation is too burdensome, proposes a simplified table (see Annex II).
- Tables A9-II and A9-III of BPM6 Appendix 9 should remain as supplementary reporting tables.

### Revaluation conventions for FX components (Issue 3)
- Proposes to change the convention in BPM6, paragraph 9.31, and 2008 SNA Chapter 17 so that for derivatives with an FX component where it may not be practical to separate exchange rate changes from other revaluations, all revaluations are attributed to other price revaluations rather than exchange rate revaluations.
- Rationale: enhances analytical clarity of exchange rate revaluations and complies with BPM6, paragraph 9.28.

### Recording novation and portfolio compression as transactions (Issue 4)
- Proposes expanding BPM6 Chapter 8 (Financial Account) and 2008 SNA Chapter 11 to provide methodological guidance for recording novation and portfolio compression as financial transactions.
- Recording novation and portfolio compression does not change methodology, but calls for additional guidance within existing methodology.
- Notes the market infrastructure changes since 2008 were not included in BPM6 and 2008 SNA and that methodological guidance is needed to ensure symmetric recording across countries.
- Annex III presents one possible solution and illustrative examples.

### Gross vs net recording of transactions (Issue 5)
- Proposes expanding BPM6, paragraph 8.34, and 2008 SNA Chapter 17 by clarifying cases where net recording is acceptable (i.e., where separate data on transactions in assets and liabilities are not available and the position may change between assets and liabilities, e.g., forwards, swaps).
- Reaffirms that gross recording should remain the generic recommendation, but permits net recording when gross recording is impractical.
- Option b was rejected to avoid discrepant interpretations of the manuals.
- Change enhances clarity and consistency and complies with BPM6, paragraphs 8.34 and 3.118.

### FITT, BOPCOM, and AEG outcomes and endorsements
- Majority of FITT members strongly supported the GN proposals.
- Most members of the IMF Committee on Balance of Payments Statistics (BOPCOM) and the Advisory Expert Group on National Accounts (AEG) expressed support for:
  - introducing breakdowns by (i) market risk category (standard component), (ii) instrument (supplementary item), and (iii) trading venue and clearing type (supplementary item);
  - discontinuing the current breakdown by broad type in the updated BPM and SNA.
- Endorsements included:
  - emphasizing compilation of notional values of foreign currency derivatives by currency in the main text of the updated BPM and SNA;
  - changing BPM6 (paragraph 9.31) convention to attribute all revaluations to other price revaluations when separation from exchange rate changes is impractical;
  - introducing methodological guidance (BPM Compilation Guide or a Box in BPM6, Chapter 8 and 2008 SNA, Chapter 11) for recording novation and portfolio compression as financial transactions;
  - recommending gross recording where possible, while permitting net recording when gross recording is impractical (e.g., derivatives that can be either an asset or a liability depending on valuation).

### Annex II: Model table for foreign currency derivatives notional amounts (summary)
- Proposes a simplified table to replace Tables A9-I-2a and A9-I-2b that separately covers:
  - Currencies to be received at maturity:
    - Chinese yuan
    - Euro
    - Pound sterling
    - US dollar
    - Yen
    - Other currencies
  - Currencies to be provided at maturity:
    - Chinese yuan
    - Euro
    - Pound sterling
    - US dollar
    - Yen
    - Other currencies
- Proposes replacing current list of currencies (euro, US dollar, Yen, other) with currencies from a basket that determines the value of the SDR, or those used in COFER, or another set of major currencies.

### Annex III: Recording of post-trade activities — novation and portfolio compression (summary and examples)
- Context: Post-2008 regulatory changes (e.g., EMIR, Dodd-Frank Act) introduced post-trade processes including novation, clearing, portfolio compression, and collateral management; central clearing is required in the European Union for certain classes of financial derivatives.
- Novation:
  - Novation replaces a bilateral OTC contract between two market participants with two bilateral contracts between each participant and a CCP.
  - Timing matters:
    - If novation occurs immediately after the initial contract (within reporting time frame), only the novated contracts vis-à-vis the CCP need reporting.
    - If novation is delayed, both counterparts should report two offsetting transactions for the relevant reference period(s): one terminating the initial contract and one creating the asset position vis-à-vis the CCP.
  - If initial parties are not clearing members, each side of the bilateral contract may be replaced by two contracts (entity to clearing member and clearing member to CCP), giving rise to four transactions/positions.
  - Residency of market participants and CCP determines whether novation is recorded in cross-border statistics and how treated in national accounts.
- Portfolio compression:
  - Compression wholly or partially terminates derivatives submitted for inclusion and replaces them with new derivative(s) whose combined notional value is less than the terminated derivatives.
  - All counterparties involved must report offsetting transactions: (i) terminating initial contracts and (ii) creating new positions.
  - Overall net positions should remain unchanged, but post-compression gross positions and bilateral counterparts may differ substantially.
- Example 1 (novation) highlights:
  - Two clearing members A and B resident in Country X sign an OTC contract with assets and liabilities of 100 each (domestic, no external positions).
  - Novation to CCP resident in Country Y creates cross-border assets/liabilities: A records Vis-à-vis non-residents Assets 100; B records Vis-à-vis non-residents Liabilities 100; domestic positions of 100 disappear.
  - Globally, positions double compared to before novation; net IIPs of countries X and Y remain unchanged at 0.
  - Table 1 (before/after novation) records these position changes.
- Example 2 (portfolio compression) highlights:
  - Three entities (A and B resident in country X, and non-resident C in country Y) compress positions outstanding at end of previous reporting period.
  - Before compression: Vis-à-vis non-residents Assets 10 (A), 20 (B), Liabilities 20 (A), 10 (B); Vis-à-vis domestic sectors Assets 30 (A), Liabilities 30 (A); Net assets position -20 (A), 10 (B), 10 (C).
  - After compression: Vis-à-vis non-residents Assets 10 (C); Liabilities 10 (A and B as applicable); Vis-à-vis domestic sectors Assets 10; Liabilities 10.
  - Compression reduces outstanding notional amounts and may change net IIP in cross-border deals; net positions on combined domestic and cross-border segments do not change for each entity in the compression process.

---


_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/f4-financial-derivatives-by-type.pdf_