Fees on Securities Lending and Reversible Gold Transactions

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Fees on Securities Lending and Reversible Gold
Transactions

• Not covered in 1993 SNA

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Securities Lending

• Delivery of securities, to be returned after a
  given time period.
• A type of reverse transaction.
• Provider of securities receives a fee.
• Often used by pension funds etc. to boost
  returns.
• Receiver of securities is typically a dealer who
  has a short position so the securities are
  on-sold.
• Receiver of securities often will provide other
  securities as collateral.
• Same can be done with monetary and nonmonetary
  gold (subject of a later paper).

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Concerns

• No specific guidelines in 1993 SNA on the nature
  of the fee.
• Seems to be property income because financial
  asset put at the disposal of another entity.
• It is the legal title to the security, rather
  than funds, that is provided.

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Concerns

• Does not fit into existing property income
  categories
• Property incomes accrue when the owners of
  financial assets put financial resources at the
  disposal of other institutional units, but
• interest is the return of the creditor from the
  debtor and
• dividends is the return from the share issuer to
  the party that supplies equity funds.

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• Could create new property income category.
• but minor.
• Could classify by lent instrument (dividends for
  shares interest for debt instrument)
• but different to interest and dividends.
• Could treat as all interest
• but different to interest simple to implement.

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Reversible Gold Transactions

• Similar arrangement involving gold.
• Gold can be financial asset (monetary gold) or
  nonfinancial asset.
• Fee on financial asset is property income fee on
  produced asset is a service.
• Paper on classification of nonmonetary gold will
  be submitted to the January 2006 AEG meeting
• Proposed treatment
• Allocated gold accounts are ownership of specific
  gold and are nonfinancial assets.
• Unallocated gold accounts are financial assets
  (an obligation of the dealer) rather than
  ownership of gold.

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Question 1

• What are the views of AEG members concerning the
  three alternatives considered by the TG-RT for
  the treatment of the fees associated to
  securities lending and reversible gold
  transactions, namely
• (i) Treatment as investment (property) income
• (ii) Treatment as financial service
• (iii) Blended approach whereby it would be
  treated as financial services if the lender
  were a financial intermediary, and as investment
  (property) income in all other cases?
• The Committee decided to treat the fee on
  securities lending as property income.
• The Committee decided to treat the fee on gold
  lending as a service if the gold were lent from
  allocated gold, and as property income if lent
  from a financial asset (unallocated gold or
  monetary gold).
• The Committee also noted that the payment of the
  fee may be made to the custodian. This payment
  represents a short-circuiting of the payment of
  the property income to the security owner, who
  would pay the custodian for the provision of a
  financial service. The Committee asked the IMF
  and the OECD to do further work to determine
  which type of service (financial intermediation
  or other financial services).

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Question 2

• If treated as investment (property) income, under
  which category should securities and gold lending
  fees be includedinterest, dividends, or some
  other category?

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