## COMPLEMENTARY NOTE NO 2 (CN 2) ON THE REPORTING TEMPLATES — CLASSIFICATION OF DEBT SECURITIES BY INTEREST RATE TYPE

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### Context and scope
- Recommendation 7 of the G20 Data Gaps Initiative Phase 2 (DGI-2) is based on the methodology contained in the Handbook on Securities Statistics (HSS), in particular Chapter 7, paragraphs 7.36 to 7.44.
- This Complementary Note No 2 (CN 2) provides further explanations on the classification of debt securities by interest rate type in the reporting templates on Recommendation 7 of the DGI-2.
- Reporting templates 1 and 2 of Recommendation 7 request securities statistics classified by currency, maturity, interest rate, and, where relevant, market of issuance; each classification criterion groups securities into non-overlapping sub-sets that add up to the total.

### Classification of debt securities under fixed or variable interest rate
- HSS definitions:
  - Fixed interest rate debt securities: at date of issue (a) contractual nominal coupon payments are fixed and constant in terms of the currency of denomination for the life of the debt security, or for a certain number of years, and (b) principal repayment is fixed in terms of the currency of denomination and time.
  - Variable interest rate debt securities: coupon or principal payments (or both) linked to a general price index for goods and services (such as the consumer price index (CPI)), to a benchmark interest rate (such as the London interbank offered rate (LIBOR) or a bond yield), or to an asset price (such as gold); the reference value fluctuates in response to market conditions.
  - Mixed interest rate debt securities: have both a fixed and variable coupon over their life (examples include fixed coupon and variable coupon at the same time; fixed (or variable) coupon until a reference point and then variable (or fixed) coupon thereafter; coupon payments prefixed over the life but not constant over time).
- Examples classified as fixed interest rate (when definition is met): securities issued at par (value) or at a discount or premium, deep discounted and zero coupon bonds, strips, perpetuals, convertible and exchangeable bonds, subordinated bonds, equity warrants.
- Reporting requirement and allocation rule:
  - Reporting templates 1 and 2 request two categories only: fixed and variable interest rate; the two categories must add up to the total.
  - Mixed interest rate securities must be allocated to one of the two categories for reporting.
  - Allocation guidance:
    - All securities that contain a variable coupon combined with a fixed coupon should be classified under the category variable interest rate for the purpose of the templates of Recommendation 7.
    - Securities with prefixed different coupons along the life of the security (stepped interest rate) should be classified under the category fixed interest rate for the purposes of the templates on Recommendation 7.
    - Once allocated to a category, securities should remain in the same item and not be reclassified on the basis of the current or future type of coupon.

### Classification of variable interest debt securities in subcategories
- HSS subcategories for variable interest debt securities: inflation-linked, asset price-linked, and interest rate-linked. Inflation-linked and asset price-linked are grouped under index-linked.
- Reporting template 1 of Recommendation 7 requests variable interest rate securities to be split into these three subcategories; the three must add up to the total variable interest rate securities.
- Subcategory scope and allocation rules:
  - Inflation-linked: restricted to securities linked to price indices.
  - Interest rate-linked: limited to securities linked to interest rate indices or bond yields.
  - Asset price-linked: broader coverage; understood to refer not only to financial assets and commodities but, by extension, to any other link different from interest rates or inflation (examples include coupons linked to baskets of securities, indices different from prices or interest rates, currencies, business or other types of links).
  - Mixed interest rate securities that have been classified under variable rates for Recommendation 7 reporting will be allocated to one of these subcategories depending on the type of interest rate link.

### Conclusion
- All debt securities to be reported in templates 1 and 2 of Recommendation 7 must be classified either as fixed or variable interest rate.
- Those classified as variable interest rate must additionally be split into one of the three subcategories indicated in reporting template 1.

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_Source: https://www.imf.org/-/media/files/news/seminars/dgi/documents/complementary-note-2-securities-statistics.pdf_