Amended proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 2223/96 on the reclassification of settlements under swaps arrangements and under forward rate agreements (Text with EEA relevance) (presented by the Commission pursuant to Article 250 (2) of the EC-Treaty)
Date: 2001-06-15
Institutions: European Commission
Subjects: balance sheet, financial institution, interest, swap arrangement

C 270 E/82

EN

Official Journal of the European Communities

25.9.2001

Amended proposal for a regulation of the European Parliament and of the Council amending
Council Regulation (EC) No 2223/96 on the reclassification of settlements under swaps
arrangements and under forward rate agreements (1)

(2001/C 270 E/09)

(Text with EEA relevance)

COM(2001) 328 final (cid:151) 2000/0019(COD)

(Submitted by the Commission pursuant to Article 250(2) of the EC Treaty on 15 June 2001)

(1) OJ C 116 E, 26.4.2000, p. 63.

INITIAL PROPOSAL

AMENDED PROPOSAL

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Unchanged

Having regard to the Treaty establishing the European
Community, and in particular Article 285(1) thereof,

Having regard to the modified 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

(2) That 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
streams of payments on the same amounts of
rules,
indebtedness(cid:146), being specified that (cid:145)the two most prevalent
varieties are interest rate swaps and currency swaps(cid:146).

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

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INITIAL PROPOSAL

AMENDED PROPOSAL

(3) That in original versions of ESA 95 and of SNA, interest
flows exchanged between two counterparts under any
kinds of swaps and under forward rate agreements have
been considered as non-financial transactions, recorded in
property income, under the item interest.

(4) Problems raised by this statement and that the Commission
considers thus as necessary excluding these interest flows
from property income, similarly to revised SNA 93.

(5) Thus

it

that

is 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) A specific treatment of these flows is defined for the data

transmitted under the excessive deficit procedure.

Unchanged

(7) The Committee on the statistical programmes of

Communities,
Euratom (1),

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

established
the
and

91/115/EEC (2),

Committee

decision

have

by

by

HAVE ADOPTED THIS REGULATION:

Article 1

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

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

___________
(1) OJ L 181, 28.6.1989, p. 47.
(2) 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

25.9.2001

INITIAL PROPOSAL

AMENDED PROPOSAL

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

Unchanged

ANNEX

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. (See paragraph 5.67. (e)).(cid:146)

2. In Chapter 5:

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

or

be

are

can

Swaps

(cid:145)(d) swaps, but only if they have a market value because they are
tradable
contractual
offset.
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 offset.
FRAs are contractual arrangements in which two parties,
in order to protect themselves against 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
considered as
property income in the system but are to be recorded
under the item financial derivatives.(cid:146)

settlement. These payments are not

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INITIAL PROPOSAL

AMENDED PROPOSAL

(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
futures, swaps, and
intermediaries for arranging options,
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 (F34). 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.
implicitly, a financial derivative
with zero initial value is created at that point. Subsequently,
the value of a swap will be equal to:

In both cases,

1. for principal amounts, the current market value of the
difference between the expected future market values of
to be re-exchanged and the amounts
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.

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
such assets. The
from the prevailing market price of
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
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
to options, which proceed to
that set out with respect
delivery (see (a) above).

derivatives

the

for

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
(and
conversely).(cid:146)

increasing the net value

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INITIAL PROPOSAL

AMENDED PROPOSAL

3. In Annex A of Council Regulation (EC) No 2223/96, the following

Annex V is added:

ANNEX V

DEFINITION OF GOVERNMENT DEFICIT FOR THE PURPOSE
OF THE EXCESSIVE DEFICIT PROCEDURE

For the purpose of the Member States’ reports to the Commission
under the excessive deficit procedure laid down in Regulation (EC)
No 3605/93, as amended (1), (cid:145)Government deficit(cid:146) is the balancing
item net (cid:145)borrowing/net lending(cid:146) of General Government, including
streams of interest payments resulting from swaps arrangements
and forward rate agreements. This balancing item is codified as
includes the above-mentioned
EDPB9. For this purpose,
flows and is codified as EDPD41.

interest

___________

(1) OJ L 332, 31.12.1993, p. 7. Regulation amended by Regulation

(EC) No 475/2000 (OJ L 58, 3.3.2000, p. 1).