Regulation (EC) No 2558/2001 of the European Parliament and of the Council of 3 December 2001 amending Council Regulation (EC) No 2223/96 as regards the reclassification of settlements under swaps arrangements and under forward rate agreements (Text with EEA relevance)
Date: 2001-12-03
Institutions: Council of the European Union, European Parliament
Subjects: European accounting system, contract, data transmission, interest, swap arrangement

28.12.2001

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Official Journal of the European Communities

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I

(Acts whose publication is obligatory)

REGULATION (EC) No 2558/2001 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 3 December 2001

amending Council Regulation (EC) No 2223/96 as regards the reclassification of settlements under
swaps arrangements and under forward rate agreements

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

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

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Central Bank (2),

Acting in accordance with the procedure laid down in Article
251 of the Treaty (3),

Whereas:

(1)

(2)

Council Regulation (EC) No 2223/96 of 25 June 1996
on the European System of national and regional
accounts in the Community (4) contains the reference
framework of common standards, definitions, classifica-
tions and accounting rules for drawing up the accounts
of the Member States for the statistical requirements of
the European Community, in order to obtain compar-
able results between Member States.

In ESA 95, as in SNA 93, swaps are defined (5.67) as
‘contractual arrangements between two parties who
agree to exchange, over time and according to predeter-
mined rules, streams of payments on the same amounts
of indebtedness’ and it is specified that ‘the two most
prevalent varieties are interest rate swaps and currency
swaps’.

(3)

(4)

(5)

(6)

(7)

In original versions of ESA 95 and SNA 93,
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.

Problems have been raised by this statement and the
Commission thus considers
is necessary to
exclude these interest flows from property income, in a
manner similar to revised SNA 93.

that

it

It is therefore appropriate to record these flows in finan-
cial transactions under the item financial derivatives,
included in ESA 95 in F3 entitled ‘Securities other than
shares’.

A specific treatment of these flows should be defined for
the data transmitted under the excessive deficit proce-
dure.

The Committee on the statistical programmes of the
European Communities, established by Decision 89/
382/EEC, Euratom (5), and the Committee on Monetary,
Financial and Balance of Payments Statistics, established
by Decision 91/115/EEC (6), have each been consulted in
accordance with Article 3 of the said Decisions,

HAVE ADOPTED THIS REGULATION:

Article 1

(1) OJ C 116 E, 26.4.2000, p. 63.
(2) OJ C 103, 3.4.2001, p. 8.
(3) Opinion of the European Parliament of 15 March 2001 (not yet
published in the Official Journal) and Decision of the Council of 8
November 2001.

(4) OJ L 310, 30.11.1996, p. 1. Regulation as

last amended by
Commission Regulation (EC) No 995/2001 (OJ L 139, 23.5.2001,
p. 3).

Annex A of Council Regulation (EC) No 2223/96 shall be
amended in accordance with the Annex to this Regulation.

(5) OJ L 181, 28.6.1989, p. 47.
(6) 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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This Regulation shall enter into force on the day of its publication in the Official Journal of the European
Communities.

Article 2

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

Done at Brussels, 3 December 2001.

For the European Parliament

The President

N. FONTAINE

For the Council

The President

F. VANDENBROUCKE

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ANNEX

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

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

‘4.47.
property income. (See paragraphs 5.67(d) and 5.139(c) relative to financial derivatives).

No payment resulting from any kind of swap arrangement is to be considered as interest and recorded under

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

2. In Chapter 5:

(a) in paragraph 5.67, points (d) and (e) are replaced by the following:

‘(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
repayments, which include both interest and 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 settlement. These payments are not considered as property income in the system but
are to be recorded under the item financial derivatives.’

(b) in paragraph 5.139, points (c) and (d) are replaced by the following:

‘(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.

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 point (a)).

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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).’

3. The following Annex 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
Council Regulation (EC) No 3605/93 (1), “Government deficit” is the balancing item “net borrowing/net lending” of
General Government, including streams of interest payments resulting from swaps arrangements and forward rate
agreements. This balancing item is codified as EDPB9. For this purpose, interest includes the abovementioned flows
and is codified as EDPD41.

(1) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 475/2000 (OJ L 58, 3.3.2000,

p. 1).’