## SECTION I: THE ISSUE

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---

### Background
- BPM6 and 2008 SNA identified Reverse transactions (RTs) (including short positions and investment income that is receivable/payable while a security is on-sold) as a topic for possible future research (BPM6 paragraph 1.43 (d); 2008 SNA paragraph A4.46).
- RTs: arrangements involving a change in legal ownership but no change in economic ownership of an asset and a commitment to reverse legal ownership in the future (BPM6 paragraphs 3.41, 4.159, and 7.58; 2008 SNA paragraphs 11.59, 11.74–11.76, 17.254, and A3.94).
- No transaction in the underlying asset is recorded in balance of payments; ownership in the IIP remains unchanged (BPM6 paragraph 7.58).
- Major types of RTs: securities repurchase agreements (repos), securities lending, and gold swaps (BPM6 paragraph 5.55; 2008 SNA paragraph 11.77).
- Repos, securities lending with cash collateral, and sale-buybacks have the same economic effect: provision of securities as collateral for a loan/deposit (BPM6 paragraphs 3.41 and 5.52; 2008 SNA paragraphs 11.59 and 11.75).
- If a repo does not involve supply of cash (e.g., exchange of one security for another or supply of a security without collateral), there is no loan/deposit and no financial-account transaction should be recorded (BPM6 paragraph 5.53; 2008 SNA paragraph 11.75; BPM6 paragraph 6.90).
- Fees for securities lending without cash collateral and gold loans are treated as interest (BPM6 paragraph 11.68; 2008 SNA paragraph A3.121).
- The GN examines areas needing further methodological guidance and clarifications while noting the BPM6/2008 SNA economic-ownership framework remains broadly relevant.

### Issues for discussion — key methodological questions
- Issue 1 — Methodological framework for recording RTs
  - Current framework: change in legal but not economic ownership; underlying asset not recorded in balance sheets; fees treated as interest (BPM6 paragraph 11.68; 2008 SNA paragraph A3.121).
  - Concerns: recording of negative assets in on-selling; income flows between parties without claims; potential accounting artefacts.
  - Alternative considered: recognize a liability of the security borrower to the security lender (would need to reflect lessons from the 2008 global financial crisis).
  - Options:
    - a. Revisit methodological framework to develop an alternative recording.
    - b. Maintain current methodological framework in BPM6 and 2008 SNA.

- Issue 2 — Clarification for recording of short (negative) positions
  - On-selling by the party that acquires securities in a repo or securities lending can create short selling recorded as a negative asset (BPM6 paragraphs 7.28 and 7.61); BPM6 lacks clear explanation of the purpose of negative positions and implications for who-to-whom presentations; 2008 SNA does not mention short-selling.
  - RTs can form long chains; BPM6 lacks guidance on recording chains and associated income streams.
  - Options:
    - a. No changes in updated BPM and SNA; explain in other documents.
    - b. Introduce further clarifications (possibly a Box) for recording short positions (including income streams and from-whom-to-whom implications) in updated BPM and SNA.

- Issue 3 — Classification of income for security lender, borrower, and short-seller
  - Economic owner continues recording dividends and interest even when legal ownership changes under RT; security taker usually compensates security provider when RT covers dividend/interest periods (manufactured dividends) (BPM6 paragraph 11.69).
  - Options for clarifications:
    - a. No changes in updated BPM and SNA; explain elsewhere.
    - b. Incorporate Annex II recordings in updated BPM and SNA, with manufactured interest/dividends treated as either:
      - b.1. Credit/debit entries in interest for 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 payments
  - The security borrower (payer) may be in a different economy than the security issuer; identifying partner economy/sector for manufactured payments is an issue.
  - Options:
    - a. Identify partner economy/sector by the security issuer (consistent with Issue 3 option b.2).
    - b. Identify partner economy/sector by the security borrower (actual payer) (consistent with Issue 3 option b.1).

- Issue 5 — Clarification on commodities under RTs
  - Commodities are used for RTs in some jurisdictions (ESMA SFTR paragraph 506) but are not mentioned in BPM6/2008 SNA despite applying same principles.
  - Options:
    - a. No changes in updated BPM and SNA; explain elsewhere.
    - b. Include commodities in the discussion on RTs in updated BPM and SNA.

- Issue 6 — Supplementary information on RTs
  - RTs are not separately identified in current ESS and NA presentations; provision of cash is recorded under loans/deposits; other instruments are not recorded.
  - Proposal: introduce a table to show loans/deposits, securities, and other items under RTs to identify assets provided/lent and received/borrowed under RTs; alignment with FSBDS Standards and Processes suggested.
  - Model table columns/types (illustrative in GN): Type of asset under RTs — Role of asset in RTs — Provided/lent — Received/borrowed (rows: Cash, Securities, Other).
  - Options:
    - a. No changes in updated BPM and SNA.
    - b. Introduce a table as a memorandum or supplementary item.
    - c. Discuss usefulness of separate presentation of RTs without introducing a table.

### SECTION II: Outcomes — Recommendations (summarized)
- Issue 1 — Recommendation: Option B
  - Maintain BPM6/2008 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 framework; framework was extensively discussed and agreed in 2005 and widely supported by compilers and users.
  - An alternative creating new financial asset/liability was not favored because it would inflate balance sheets and deviate from the risks-and-rewards principle.
  - A supplementary table (Issue 6) could identify RTs separately without changing the methodological framework, capturing securities lent and borrowed and potentially income streams.

- Issue 2 — Recommendation: Option B
  - Monetary and Financial Statistics Manual and Compilation Guide (paragraphs 4.73–4.78) clarifies some questions on short positions.
  - New data initiatives since BPM6 target RTs and details on RT aggregates; re-use of collateral is of special interest.
  - Next generation of international standards should pay closer attention to RT developments to provide adequate guidance to compilers.
  - Introducing tables clarifying recording of different RT types including income streams (along Annex II lines) would aid compilers.

- Issue 3 — Recommendation: Option B.1
  - Dividends/interest from the security issuer do not belong to the security borrower (no economic ownership); those receipts should not be recorded in the income account (see Tables 2 and 3 in Annex II).
  - Where the borrower on-sells and pays manufactured dividends/interest without receiving issuer payments, GN authors view manufactured payments as fees recorded in interest with offsetting financial-account transactions (see Tables 5 and 6 in Annex II) to prevent double-counting.
  - Some FITT members prefer option b.2 (record negative credit interest/dividend for the borrower) as consistent with negative asset recording.
  - Practical data asymmetry: security lender may not distinguish issuer payments from manufactured payments; where significant, compilers are encouraged to survey main reporters/custodians. If differentiation is not possible, compilers of the security lender may consider recording both as fees (interest) receivable from RTs.

- Issue 4 — Recommendation: Option B (conditional)
  - If Issue 3 option b.1 is chosen (manufactured payments recorded as interest/fees), identify partner economy/sector by the economy and sector of the security borrower (actual payer).
  - If Issue 3 option b.2 is chosen, partner economy/sector in concept would be that of the issuer (consistent for debt securities with the position held by the lender against the issuer).

- Issue 5 — Recommendation: Option B
  - Include commodities in the discussion on RTs in the updated BPM and 2008 SNA to close the gap given commodities are used in RTs in some jurisdictions.

- Issue 6 — Recommendation (implied)
  - Use of a supplementary table/memorandum item to identify assets provided/lent and received/borrowed under RTs is recommended as a practical means to improve identification without altering the core methodological framework.

### Questions for discussion (as posed)
- Do you agree with the proposals to:
  - (i) maintain the methodological framework in BPM6 and 2008 SNA as described in Issue 1;
  - (ii) introduce further clarifications for recording short positions in the IIP and related entries in the income and financial accounts in updated BPM and SNA (Issue 2);
  - (iii) record income for security lenders, borrowers, and on-sellers as described in Issue 3, including recording interest debits for the security borrower for manufactured interests or dividends (b.1);
  - (iv) identify the partner economy and sector for manufactured dividends and interest as described in Issue 4; and
  - (v) include commodities in items used in RTs as described in Issue 5?
- Do you agree with discussing the usefulness of separate identification of RTs in the updated BPM and SNA without introducing a table as described in Issue 6?

### Additional note
- Authors of the GN on F.1 (more disaggregated institutional sector and instrument breakdowns) may consider introducing new items related to RTs (e.g., a “of which” item under loans).

### Annex I — Alternative Recording of Securities Lending (summary)
- Alternative: record securities lending as separate transactions/positions coded AF.39 (‘debt securities lent’) or AF.59 (‘equity lent’) as an economic asset of the lender and liability of the borrower in the SNA.
- Mechanics for a clean securities lending example (long-term debt securities):
  - (i) Reclassify the instrument lent from AF.32 to AF.39 in the lender’s balance sheet (total portfolio AF.3 unchanged) by way of transactions.
  - (ii) Borrower’s balance sheet shows the debt security borrowed as an asset (AF.32) with matching liability in ‘debt securities lent’ (AF.39).
- Repos/similar transactions would be recorded as two back-to-back transactions: a cash loan and a securities loan.
- Effects/trade-offs:
  - Inflates balance sheets of security borrowers/cash takers relative to current 2008 SNA recording.
  - Advantage: explicitly reflects borrower’s present obligation to return a specific non-cash asset and lender’s exposure to borrower risk.
  - Short-selling is straightforward under this approach; negative asset recording is avoided.
  - AF.39 link would share valuation with the underlying security; property income would reflect passed-on/manufactured interest/dividends plus fees.
  - Eliminates conceptual difficulty of a property income flow from borrower to lender upon short-selling and related from-whom-to-whom/accounting anomalies.
  - Disadvantage: deviates from current IFRS/IPSAS recording and from the risks-and-rewards principle.
- Prepared by Philippe de Rougemont (Eurostat). Codes used follow 2008 SNA classification hierarchies.

### Annex II — Recording RTs and Related Transactions in BOP and IIP (high-level summaries)
- Recording of dividends and accrued interest (lender, borrower, issuer)
  - Income account: credit entry in dividends/interest accrued for the security lender; debit entry in dividends/interest accrued for the security issuer.
  - Financial account: issuer increases accounts payable for dividends (credit) and security liabilities for accrued interest (credit); security lender increases accounts receivable for dividends (debit) and security assets for accrued interest (debit).
  - Security borrower: No recording.

- Recording of dividend/interest cash payments
  - Income account: No recording for lender, borrower, or issuer.
  - Financial account:
    - Security lender: decrease in accounts receivable for dividend receipts (credit) and decrease in security assets for interest receipts (credit).
    - Security issuer: decrease in accounts payable for dividend payments (debit) and decrease in security liabilities for interest payments (debit).
    - Security borrower: initial increase in currency and deposits (receipt) followed by decrease (payment) in the financial account; if cash not transferred immediately, borrower records accounts payable.
  - Note: currency and deposits entries excluded for simplicity.

- On-selling of securities acquired under repo or security lending
  - Financial account:
    - On-seller (security borrower): decrease in security assets (credit).
    - Purchaser: increase in security assets (debit).
  - Balance sheets/IIP:
    - On-seller: records a negative position in security assets (assuming opening position zero).
    - Purchaser: records a positive position in security assets.

- Manufactured dividends and manufactured interest for on-sold securities
  - When on-sold, borrower must pay manufactured dividends/interest to lender.
  - Accrued manufactured dividends/interest — Income account alternatives:
    - (1) Credit/debit entries in interest for manufactured dividends/accrued manufactured interest for lender (credit) and borrower (debit).
    - (2) Credit entries in interest/dividend for lender and a negative credit entry in interest/dividend for borrower (consistent with negative asset).
  - Financial account:
    - Security lender: accounts receivable and security assets increase (debit) for manufactured amounts.
    - Security borrower: accounts payable increase and security assets decrease (credit) for manufactured amounts.
  - Footnotes:
    - Negative asset position of borrower becomes more negative by amount of accrued manufactured interest.
    - In detailed from-whom-to-whom accounts, borrower’s accounts payable counterpart is the security lender; decrease in debt-security borrower assets has the security issuer as counterpart.

  - When manufactured amounts are paid:
    - Income account: No entries for lender or borrower.
    - Financial account:
      - Security lender: accounts receivable and security assets decrease (credit).
      - Security borrower: accounts payable decrease and security assets increase (debit).
      - Borrower’s negative asset position becomes less negative by the paid manufactured interest amount.
    - Fees on securities lending and gold loans accrue to the security owner and are treated as interest (BPM6 paragraph 11.68).
    - Note: currency and deposits entries excluded for simplicity.

- Tables summarized in the GN (high-level)
  - Table 1: RTs — Recording of transactions related to repos and security lending (high-level entries covering repo/security lending with cash collateral and with security collateral; security lending fees recorded as interest).
  - Table 2–6: Detailed illustrations for:
    - Recording of (1) dividends and (2) accrued interest for securities acquired under repo and security lending.
    - Recording of actual (1) dividend and (2) interest payments.
    - Recording of on-selling of securities acquired under repo and security lending (BOP and IIP effects).
    - Recording of (1) manufactured dividends and (2) accrued manufactured interest for on-sold securities.
    - Recording of manufactured dividends and manufactured interest payments for on-sold securities.

*International Monetary Fund — Guidance Note (extracts on reverse transactions, Annex I and Annex II).*

### 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) (including short positions and investment income that is receivable/payable while a security is on-sold) as a topic for possible future research work (BPM6 paragraph 1.43 (d); 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; 2008 SNA paragraphs 11.59, 11.74–11.76, 17.254, and A3.94). No transaction in that asset is recorded in balance of payments, and ownership of the asset as shown in the international investment position (IIP) is unchanged (BPM6 paragraph 7.58).
- Major types of RTs: securities repurchase agreements (repos), securities lending, and gold swaps. A gold swap involves an exchange of gold for foreign exchange deposits with an agreement to reverse at an agreed future date and price (BPM6 paragraph 5.55; 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; 2008 SNA paragraphs 11.76–11.77).
- Repos, securities lending with cash collateral, and sale-buybacks are different terms for arrangements with the same economic effect as a securities repurchase agreement; all involve provision of securities as collateral for a loan/deposit (BPM6 paragraphs 3.41 and 5.52; 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; 2008 SNA paragraph 11.75; BPM6 paragraph 6.90).
- The methodological framework of RTs in BPM6 and 2008 SNA based on economic ownership remains broadly relevant; the Guidance Note (GN) examines areas needing further methodological guidance and clarifications.

### Issues for discussion — summary of key methodological questions
- Issue 1 — Methodological framework for recording RTs
  - BPM6 and 2008 SNA: change in legal ownership but no change in economic ownership; no recording of the underlying asset in balance sheets; fees for securities lending without cash collateral and gold loans are treated as interest (BPM6 paragraph 11.68; 2008 SNA paragraph A3.121), implying recording of interest without recognizing the underlying financial instrument/debt in the IIP/SNA balance sheets.
  - Concerns identified: recording of negative assets in on-selling; recording of income flows between parties that do not have a claim on each other; potential accounting artefacts.
  - Alternative to consider: recognize a liability of the security borrower to the security lender (would need to account for 2008 global financial crisis lessons, e.g., security lending liquidity squeezes).
  - Options presented:
    - a. Revisit the methodological framework on RTs to develop an alternative recording.
    - b. Maintain the current methodological framework on recording RTs in BPM6 and 2008 SNA.

- Issue 2 — Clarification for recording of short (negative) positions
  - On-selling by the party that acquires securities in a repo or securities lending can create short selling recorded as a negative asset (BPM6 paragraphs 7.28 and 7.61); BPM6 does not clearly explain the purpose of negative positions to address double-counting, nor the implications for who-to-whom presentations by counterpart sector and geography; SNA does not mention short-selling.
  - RTs can be sequenced in long chains; BPM6 lacks guidance on recording chains and associated income streams.
  - Options presented:
    - a. No changes in updated BPM and SNA; explain issues in other documents (e.g., compilation guide, clarification notes).
    - 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
  - Economic owner continues recording dividends and interest even when legal ownership changes under RT. When RT covers dividend/interest payable periods, the security taker (borrower) typically compensates the security provider (lender). Payments to compensate are called “manufactured dividends” (BPM6 paragraph 11.69).
  - Options for methodological clarifications:
    - a. No changes in updated BPM and SNA; explain in other documents.
    - b. Incorporate recordings from Annex II of the GN in updated BPM and SNA, with 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”
  - The security borrower (payer of manufactured dividends/interest) may not be in the same economy as the security issuer; identification of partner economy/sector for manufactured payments is therefore an issue.
  - 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 sector counterpart by the security borrower (actual payer) (consistent with option b.1 of Issue 3).

- Issue 5 — Clarification on commodities under RTs
  - Commodities are used for RTs in some jurisdictions (ESMA SFTR paragraph 506); RTs using commodities are not mentioned in BPM6 and 2008 SNA despite applying the same principles.
  - Options:
    - a. No changes in updated BPM and SNA; explain in other documents.
    - b. Include commodities in the discussion on RTs in updated BPM and SNA.

- Issue 6 — Supplementary information on RTs
  - RTs are not separately identified in current presentations of ESS and NA; provision of cash is recorded under loans/deposits, other instruments are not recorded because no change in economic ownership.
  - Proposal: introduce a table to show loans/deposits, securities, and other items under RTs to identify assets provided/lent and received/borrowed under RTs; table could align with Standards and Processes for Global Securities Financing Data Collection and Aggregation of the Financial Stability Board (FSBDS).
  - Model Table on Assets Under RTs (illustrative columns/types presented in the GN):
    - Type of asset under RTs — Role of asset in RTs — Provided/lent — Received/borrowed
    - Cash — — —
    - Securities — — —
    - Other — — —
  - Options:
    - a. No changes in updated BPM and SNA.
    - b. Introduce a table as a memorandum or supplementary item.
    - c. Discuss usefulness of separate presentation of RTs in updated BPM and SNA without introducing a table.

### SECTION II: Outcomes — Recommendations (summarized)
- Recommendation for Issue 1 — Option B:
  - Maintain current recording of RTs as recommended in BPM6 and 2008 SNA: no change in economic ownership of the underlying assets; record securities (equity and debt securities)/gold lending fees as interest; record short positions generated by on-selling as negative assets.
  - Rationale: No strong case to change the recording framework; framework extensively discussed and agreed in 2005 and widely supported by compilers and users.
  - Alternative proposed by one member (create new financial asset/liability) is not favored by the authors because it would inflate balance sheets and deviate from the risks-and-rewards principle.
  - Supplementary table (Issue 6) could meet needs for separate identification of RTs without changing the methodological framework; table could capture securities lent (asset side) and borrowed/acquired as collateral, and could be expanded to record income streams related to RTs.

- Recommendation for Issue 2 — Option B:
  - Monetary and Financial Statistics Manual and Compilation Guide (paragraphs 4.73–4.78) clarifies some questions on short positions.
  - New data initiatives since BPM6 target RTs and provide details on RT aggregates; re-use of collateral is of special interest.
  - The next generation of international standards should pay closer attention to developments in RTs to provide adequate guidance to compilers.
  - Introducing tables that clarify recording of different types of RTs including income streams (along lines of Annex II) would provide useful guidance for compilers.

- Recommendation for Issue 3 — Option B.1:
  - Dividends/interest from the security issuer do not belong to the security borrower (no economic ownership); therefore, those receipts should not be recorded in the income account (detailed in Tables 2 and 3 in Annex II).
  - When the security borrower has on-sold the security and pays “manufactured dividends/interest” to the lender without receiving dividends/interest from the issuer, the GN’s authors view manufactured dividend/interest as fees, recorded in interest with offsetting transactions in the financial account (see Table 5 and 6 in Annex II). This prevents double-counting.
  - Some FITT members prefer option b.2 (record negative credit interest/dividend for the borrower) arguing the interest flow between borrower and lender when no claim is recorded constitutes an artefact; the negative credit would be consistent with the negative asset recorded by the borrower.
  - Practical data asymmetry: security lender may not distinguish whether dividends/interest come from the issuer or are manufactured; where asymmetries become significant, compilers are encouraged to survey main reporters and custodians to address it. If no differentiation is possible, compilers of the security lender may consider recording both as fees (interest) receivable from RTs.

- Recommendation for Issue 4 — Option B:
  - If option b.1 for Issue 3 is chosen (manufactured payments recorded as interest/fees), identify the partner economy and sector counterpart by the economy and sector of the security borrower (actual payer).
  - If option b.2 for Issue 3 is chosen, the appropriate economy and sector counterpart for manufactured interest would, in concept, be that of the issuer and not of the borrower (consistent, for debt securities, with the position held by the lender against the issuer).

- Recommendation for Issue 5 — Option B:
  - Include commodities in the discussion on RTs in the updated BPM and 2008 SNA (to close the gap given commodities are used in RTs in some jurisdictions).

- Recommendation for Issue 6 (implied in Outcomes for Issues 1–3):
  - Use of a supplementary table/memorandum item to identify assets provided/lent and received/borrowed under RTs is recommended as a practical means to improve identification without altering the core methodological framework.

*Guidance Note prepared by Patrick McGuire and Branimir Gruic (Bank of International Settlements, BIS) and Artak Harutyunyan, Joji Ishikawa, and Rita Mesias (International Monetary Fund, IMF) with input from Perry Francis (Bank of England), Esti Kemp (Financial Stability Board, FSB), and Barend de Beer (South African Reserve Bank).*

### 29.      The recording principles of RTs that involve commodities are the same as those for

### 29. The recording principles of RTs that involve commodities

### Recording principles and recommendation for Issue 6 — Option C
- The recording principles of RTs that involve commodities are the same as those for securities and gold.
- Current market practices and national standards (e.g., SFTR) already provide reporting basis for RTs that involve commodities.
- The recommended expansion in asset classes (option b) would enable seamless coverage of RTs in ESS and NA and improve the consistency among international standards.
- RECOMMENDATION FOR ISSUE 6—OPTION C:
  - Separate identification of RTs with the information on the underlying assets that are lent/collateralized but not recorded in ESS and NA would have high analytical value, particularly for economies that are actively involved in RTs.
  - Given that related data are already available from other international initiatives, and that RTs may be limited in some countries, this GN does not recommend introducing a specific table to separately identify RTs in the updated BPM and SNA.
  - Instead, this GN recommends that the updated BPM and SNA discuss the usefulness of separate identification of repo-related transactions and positions and encourage economies engaged in RTs to prepare supplementary information on RTs similar to the table in this GN.

### Questions for discussion (as posed)
- Do you agree with the proposals to:
  - (i) maintain the methodological framework in BPM6 and 2008 SNA as described in Issue 1;
  - (ii) introduce further clarifications for recording short positions in the IIP and the related entries (including income streams) in the income and financial accounts in the updated BPM and SNA (as described in Issue 2);
  - (iii) record income for security lenders, borrowers, and on-sellers as described in Issue 3, including the recording of interest debits for the security borrower for manufactured interests or dividends (b.1);
  - (iv) identify the partner economy and sector for “manufactured dividends and interest” as described in Issue 4; and
  - (v) include commodities in the items used in RTs as described in Issue 5?
- Do you agree with the proposal to discuss the usefulness of separate identification RTs in the updated BPM and SNA without introducing a table as described in Issue 6? This proposal would be forwarded to the authors of F.1 who are looking at the overall classification of financial sectors and instruments.

### Additional note
- Apart from this GN, the authors of the GN on F.1 topic (more disaggregated institutional sector and financial instrument breakdowns) may consider introducing new items related to RTs (e.g., a “of which” item under loans).

---

### Annex I. Alternative Recording of Securities Lending in the SNA

### Summary of alternative recording
- An alternative recording for RT transactions would consist in recording securities lending as separate transactions and positions that would be 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.
- Instead of not being recorded, as in 2008 SNA, a clean security lending operation (illustrated for long-term debt securities) would entail:
  - (i) reclassifying 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) changing 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).
- 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 trade-offs:
  - The proposed alternative inflates the balance sheets of security borrowers/cash takers, compared to the current 2008 SNA recording.
  - Advantage: explicitly reflecting that the security borrower has a present obligation to return a specific asset (which is not cash) and that the security lender is exposed to risks towards the security borrower.
  - Short-selling becomes straightforward because the security borrower would already hold in its balance sheet the security to be on-sold, avoiding the need to record a negative asset.
  - The AF.39 link would have the same valuation as the underlying security lent.
  - Property income under AF.39/AF.59 would reflect the interest/dividend passed on to the lender or otherwise manufactured, plus fees paid if any.
  - This approach eliminates the appearance of a property income flow from the security borrower to the security lender upon short-selling, which the GN regards as difficult to defend conceptually and as producing inaccurate from-whom-to-whom accounts and consolidation anomalies.
  - Disadvantage: deviates from the current recording of IFRS/IPSAS and, presumably, from the risks and rewards principle.

- Prepared by Philippe de Rougemont (Eurostat).
- The codes used in the tables are those within the classification hierarchies of the 2008 SNA.

---

### Annex II. Recording RTs and Related Transactions in Balance of Payments and IIP

### Recording of dividends and accrued interest (securities lender, security borrower, security issuer)
- For dividends (as shares go ex-dividend)/accrued interest:
  - 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 (credit) and in security liabilities for accrued interest (credit).
    - Security lender: increase in accounts receivable for dividends (debit) and in security assets for accrued interest (debit).
  - Security borrower: No recording.

### Recording of dividend/interest cash payments
- For 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 (credit) and decrease in security assets for interest receipts (credit).
    - Security issuer: decrease in accounts payable for dividend payments (debit) and decrease in security liabilities for interest payments (debit).
  - 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.

### On-selling of securities acquired under repo or security lending
- When securities acquired under repo or security lending are on-sold to third parties:
  - Financial account:
    - On-seller (security borrower): decrease in security assets (credit).
    - Purchaser of the security: increase in security assets (debit).
  - Balance-sheets and IIP:
    - On-seller: a negative position in security assets, assuming the opening position is zero.
    - Purchaser: a positive position in security assets.

### Manufactured dividends and manufactured interest for on-sold securities
- When securities acquired under repos or security lending are on-sold, the securities borrower must pay “manufactured dividends” and “manufactured interest” to the security lender.
- Recordings for accrued manufactured dividends/manufactured interest:
  - Income account: two alternatives are considered:
    - Credit/debit entries in interest for “manufactured dividends”/accrued “manufactured interest” for the security lender (credit) and the security borrower (debit).
    - Or: credit entries in interest or dividend for the securities lender, and a negative credit entry in interest or dividend for the securities borrower (consistent with the negative asset and to match, for debt securities, the corresponding further decrease in negative asset position reflecting the accrual of interest on the underlying instrument).
  - Financial account:
    - Security lender: accounts receivable and security assets increase (debit) for “manufactured dividends” and “manufactured interest”.
    - Security borrower: accounts payable increase and security assets decrease (credit) for “manufactured dividends” and “manufactured interest”.
  - Footnotes and mechanics:
    - The negative asset position increases further (more negative) by the amount of accrued “manufactured interest.”
    - In detailed from-whom-to-whom accounts, while the increase in accounts payable observed in the equity security borrower’s accounts has for counterpart the security lender, the decrease in assets in the debt security borrower’s accounts balance sheet has for counterpart the security issuer.

- When manufactured dividends/interest are paid:
  - Income account: No entries for both the security lender and the security borrower.
  - Financial account:
    - Security lender: accounts receivable and security assets decrease (credit).
    - Security borrower: accounts payable decrease and security assets increase (debit).
    - The negative asset position decreases (becomes less negative) by the amount of paid “manufactured interest.”
  - Fees on securities lending and gold loans accrue to the security owner and are treated as interest (BPM6 paragraph 11.68).
  - Note: For simplicity, corresponding entries in currency and deposits are excluded.

### Tables summarized in the GN (high-level)
- Table 1: RTs — Recording of transactions related to repos and security lending (high-level entries for repo/security lending with cash collateral and with security collateral; security lending fees recorded as interest).
- Table 2–6: Detailed illustrations of:
  - Recording of (1) dividends and (2) accrued interest for securities acquired under repo and security lending.
  - Recording of actual (1) dividend and (2) interest payments.
  - Recording of on-selling of securities acquired under repo and security lending (balance of payments and IIP effects).
  - Recording of (1) manufactured dividends and (2) accrued manufactured interest for on-sold securities.
  - Recording of manufactured dividends and manufactured interest payments for on-sold securities.

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