Classification of Financial Instruments

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Classification of Financial Instruments

• 1993 SNA Chapter 11
• MFSM Chapter 4

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Background

• Review undertaken for BPM update.
• Decisions are the result of consultation with
  compilers and users
• Requests for additional detail.
• Developments in financial markets and analysis.
• Desire to bring BPM5 more fully into line with
  other manuals on detail and terminology.
• Compatible with existing SNA (changes only in
  presentation and detail).
• but wish to advise AEG some could be taken up in
  SNA.

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1993 SNA/MFSM Classification

• F.1 Monetary gold and SDRs
• F.2 Currency and deposits
• Currency
• Deposits
• Transferable deposits
• Other deposits
• F.3 Securities other than shares
• F.4 Loans
• F.5 Shares and other equity
• F.6 Insurance technical reserves
• Net equity of households in life insurance
• reserves
• Net equity of households in pension funds
• Prepayment of premiums and reserves
• against outstanding claims
• F.7 Financial derivatives ADDED IN 2000
• F.8 Other accounts receivable/payable
• Trade credit and advances
• Other

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Question 1 Broad Outline of Classification

• Interest in DEBT INSTRUMENTS as a grouping.
• Major and growing area of economic analysis (debt
  has different implications for financial
  soundness and vulnerability balance sheet
  approach).
• BPM5 already uses equity/debt/other grouping.
• Strong and increasing analytical interest in debt
  as an grouping.
• Publication of External Debt Guide in 2003 link
  to total and domestic debt would be useful.
• Possibility to introduce debt concept explicitly
  in the SNA?
• Already implicit.
• Include definition? Show as an of which item
  under Total Financial Assets/Liabilities in the
  SNA instruments classification?
• If so, any comments on specific instruments to be
  included under debt and other headings?

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Question 1 Broad Outline of Classification

• Securities other than shares (1993 SNA term)
• Debt securities (BPM5 term)
• Some financial derivatives are securities, so the
  1993 term became inaccurate after the exclusion
  of financial derivatives in 2000.
• Other is not informative.
• No mention of debt, although these instruments
  all involve debt.

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Question 1 Broad Outline of Classification

• Links between instrument and corresponding type
  of income
• Useful for rate of return analysis.
• Shows link between balance sheets and income
  parts of accounts.
• See table in issues paper.
• Note SNA version would be different.
• Presentational, no change in substance.
• Possibly useful in SNA?
• Just a suggestion.

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Question 2 Shares and other equityPossible
additional components

• Mutual funds as a standard or supplementary item
  under shares and other equity or separately?
• Different role in financial process to the rest
  of equity because they have an intermediary role.
• More like other collective investment schemes
  (pensions and life insurance) which are already
  shown as separate instruments.
• Rapid growth in recent years.
• A supplementary item is used here to cover an
  item that is defined and discussed in the manual,
  but that is voluntary, to be included, or not,
  according to national circumstances.

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Question 2 Shares and other equityPossible
additional components

• Money market mutual funds (MMMF) as standard or
  supplementary item?
• Role in monetary statistics
• Although equity, highly liquid and included in
  money supply.

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Question 2 Shares and other equityPossible
additional components

• Any other issues?

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Question 3 Financial derivatives Possible
additional components

• Interest in additional information on a
  supplementary basis.
• Possibly classified by instrument type
• Forwards (including, e.g., futures and swaps)
• Options
• Possibly classified by underlying risk category
• Interest-generating (deposits, loans, debt
  securities)
• Equities
• Money market and other investment funds
  shares/units
• Other financial units
• Commodities

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Question 4 Other

• Trade-related credit as supplementary item
• trade credit (credit from the seller) is already
  identified separately.
• trade-related credit (credit from an associated
  entity or government) is not.
• Any other changes?

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Additional issues

• There are additional papers on some specific
  financial instrument classification issues, which
  are dealt with in separate papers
• Reverse transactions
• Traded loans - whether and when they should be
  reclassified as securities
• Loans and deposits the borderline between them
  and
• Nonmonetary gold and/or gold accounts whether
  and when these are financial assets.

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