Proposal for a European Parliament and Council Regulation amending Council Regulation (EC) No 2223/96 on the reclassification of settlements under swaps arrangements and under forward rate agreements
Date: 2000-01-10
Institutions: European Commission
Subjects: EU statistics, European accounting system, capital movement, insurance contract, interest

26.4.2000

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Official Journal of the European Communities

C 116 E/63

Proposal for a European Parliament and Council Regulation amending Council Regulation (EC) No
2223/96 on the reclassification of settlements under swaps arrangements and under forward rate
agreements

(2000/C 116 E/14)

COM(1999) 749 final (cid:151) 2000/0019(COD)

(Submitted by the Commission on 10 January 2000)

THE EUROPEAN PARLIAMENT AND THE COUNCIL
OF THE EUROPEAN UNION,

considered as non-financial
property income, under the item interest.

transactions,

recorded in

Having regard to the Treaty establishing the European
Community, and in particular Article 285 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Central Bank,

Acting in accordance with the procedure laid down in Article
251 of the Treaty,

Whereas:

(1) Council Regulation (EC) No 2223/96 of 25 June 1996 on
the European System of National and Regional Accounts in
the Community (1) contains the reference framework of
and
common
definitions,
the
accounting rules for drawing up the accounts of
Member States
the
requirements of
European Community,
to obtain comparable
results between Member States.

the statistical
in order

classifications

standards,

for

(4) Problems

raised by this

the
Commission considers
these
interest flows from property income, similarly to revised
SNA 93.

statement are such that

it necessary

excluding

(5) It is thus appropriate recording these flows in financial
transactions under the item financial derivatives, included
in ESA 95 in F3 (cid:145)Securities other than shares(cid:146).

(6) The Committee on the statistical programmes of

Communities,
Euratom (2),

the
Decision
European
89/382/EEC,
on
Monetary, Financial and Balance of Payments Statistics,
established
been
respectively consulted in accordance with Article 3 of
each of the aforesaid Decisions,

established
the
and

91/115/EEC (3),

by Decision

Committee

have

by

HAVE ADOPTED THIS REGULATION:

Article 1

(2) In ESA 95, as in SNA 93, swaps are defined (5.67) as
(cid:145)contractual arrangements between two parties who agree
to exchange, over time and according to predetermined
rules,
if
indebtedness(cid:146), being specified that (cid:145)the two most prevalent
varieties are interest swaps and currency swaps(cid:146).

streams of payments on the same amounts

Annex A of Council Regulation (EC) No 2223/96 is modified
in accordance with the Annex of the present regulation.

Article 2

This regulation shall enter into force on the day of its publi-
cation in the Official Journal of the European Communities.

(3) In original versions of ESA 95 and of SNA, interest flows
exchanged between two counterparts under any kinds of
forward rate agreements have been
swaps and under

This Regulation shall be binding in its entirety and directly
applicable to all Member States.

(1) OJ L 310, 30.1.1996, p. 1.

(2) OJ L 181, 28.6.1989, p. 47.
(3) OJ L 59, 6.3.1991, p. 19. Decision as amended by decision

96/174/EC (OJ L 51, 1.3.1996, p. 48).

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Official Journal of the European Communities

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ANNEX

Annex A of Council Regulation (EC) No 2223/96 shall be amended as follows:

1. In Chapter 4, paragraph 4.47. shall be replaced by the following:

(cid:145)4.47. No payment resulting from any kind of swap arrangement is to be considered as interest and recorded under

property income. (See paragraphs 5.67. (d) and 5.139. (c) relative to financial derivatives).

Similarly, transactions under forward rate agreements are not to be recorded as property income.
paragraph 5.67. (e)).(cid:146)

(See

2. In Chapter 5:

(a) paragraph 5.67. (d) and (e) shall be replaced by the following:

(cid:145)(d) swaps, but only if they have a market value because they are tradable or can be offset. Swaps are contractual
arrangements between two parties who agree to exchange, over time and according to predetermined rules,
streams of payment of the same amount of indebtedness. The most prevalent varieties are interest rate swaps,
foreign exchange swaps and currency swaps (also named cross-currency interest swaps). Interest rate swaps
involve an exchange of interest payments of different character, such as fixed rate for floating rate, two
different floating rates, fixed rate in one currency and floating rate in another, etc. Foreign exchange swaps
(including all forward contracts) are transactions in foreign currencies at a rate of exchange stated in advance.
Currency swaps involve an exchange of specified amounts of two different currencies with subsequent
repayment flows, over time according to predetermined rules. None of the resulting payments is considered
as property income in the system and all settlements are to be recorded in the financial account;

(e) forward rate agreements (FRAs), but only if they have a market value because they are tradable or can be
in order to protect themselves against
offset. FRAs are contractual arrangements in which two parties,
interest rate changes, agree on an interest to be paid, at a settlement date, based on a notional amount of
principal that is never exchanged. The payments are related to the difference between the agreement rate and
the prevailing market rate at the time of settlement. These payments are not considered as property income
in the system but are to be recorded under the item financial derivatives.(cid:146)

(b) paragraph 5.139. (c) and (d) shall be replaced by the following:

(cid:145)(c) any explicit commissions paid or received from brokers or intermediaries for arranging options, futures,
swaps, and other derivatives contracts are treated as payments for services in the appropriate accounts. The
parties to a swap are not considered to be providing a service to each other, but any payment to a third party
for arranging the swap should be treated as payment for a service. Under a swap arrangement, where
principal amounts are exchanged the corresponding flows are to be recorded as transactions in the underlying
instrument; streams of other payments (excluding commissions) are to be recorded under the item financial
derivatives (F.34). While the premium paid to the seller of an option can conceptually be considered to
include a service charge, in practice it is usually not possible to distinguish the service element. Therefore, the
full price is to be recorded as acquisition of a financial asset by the buyer and as incidence of a liability by the
seller;

(d) where swap contracts involve an exchange of principal amounts, for example as occurs with currency swaps,
the initial exchange is to be recorded as a transaction in the underlying instrument exchanged and not a
transaction in financial derivatives (F.34). Where contracts do not involve an exchange of principal, no
transaction is recorded at inception. In both cases, implicitly, a financial derivative with zero initial value
is created at that point. Subsequently, the value of a swap will be equal to:

1. for principal amounts, the current market value of the difference between the expected future market

values of the amounts to be re-exchanged and the amounts specified in the contract;

2. for other payments, the current market value of the future streams specified in the contract.

Changes in the value of the derivative over time should be recorded in the revaluation account.

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Subsequent re-exchanges of principal will be governed by the terms and conditions of the swap contract and
may imply financial assets being exchanged at a price different from the prevailing market price of such
assets. The counterpart payment between the parties to the swap contract will be that specified within the
contract. The difference between the market price and the contract price is then equal to the liquidation value
of the asset/liability as it applies on the due date and should be recorded as a transaction in financial
derivatives (F.34). On the contrary, other flows under a swap arrangement are recorded as a transaction
in financial derivatives for the amounts effectively exchanged. All transactions in financial derivatives must
match the total revaluation gain or loss throughout the duration of the swap contract. This treatment is
analogous to that set out with respect to options, which proceed to delivery (see (a) above).

For an institutional unit, a swap or a forward rate agreement is recorded under the item financial derivatives
on the assets side where it has a net asset value, positive net payments increasing the net value (and
conversely). Where the swap has a net liability value,
it is recorded on the liabilities side, negative net
payments increasing the net value (and conversely).(cid:146)