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1. Reverse transactions

 The issue

Work on a complex group of transactions known as reverse transactions has been pursued for several years. These transactions take their name from two common characteristics: (i) a commitment to reverse the transaction on a specified future date (or on demand), and (ii) that, although legal ownership is transferred to the purchaser, the risks and benefits of ownership remain with the original owner. Reversible transactions include repurchase agreements, securities lending without cash collateral, gold swaps, and gold loans/deposits.

Repurchase agreements and securities lending

A securities repurchase agreement (repo) is an arrangement involving the sale of securities at a specified price with a commitment to repurchase the same or similar securities at a fixed price on a specified future date. (A repo viewed from the perspective of the “cash provider” is called a reverse repo.) When the funds are repaid (along with an interest payment), the securities are returned to the “cash taker”. The provision of the funds earns the “cash provider” interest that is related to the current interbank rate, not the property income earned on the security "repoed". Full, unfettered ownership passes to the "cash provider" but the market risk–the benefits (and risks) of ownership, such as the right to holding gains (and losses), and receipt of the property/investment income attached to the security–are retained by the “cash taker” as if no change of ownership had occurred, in the same manner as when collateral is usually provided. Repos are usually undertaken as a liquidity management tool, and they are often used by central banks as part of their monetary policy. In some countries the repo market is large, amounting to a sizable portion of the total outstanding government bonds.

The1993 SNA and BPM5 recommend that repos/reverse repos be treated as collateralized loans. One rationale given at the time was that the “cash provider” did not often have the right to on-sell a security acquired under a reverse repo. However, the right to on-sell has become almost universal. It is this development that has caused one difficulty in the measurement of repos, in that, if the recipient of the security that has been repoed (or lent) on-sells the security, it will be double counted as owned by both the original owner and the purchaser. The solution to the double counting is that the recipient of the security which on¬sells should show its "short position" as a negative asset in the instrument involved being recorded.

Securities lending without cash collateral is similar to a repo, except that no cash changes hands. The borrower obtains full and unfettered ownership in the same way, and instead of cash provides the lender with collateral, usually securities. The lender of the securities does not acquire full and unfettered ownership of the securities received as collateral. The lender of the securities receives a payment from the borrower, called a "fee".

Gold Swaps and gold loans

Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. Gold loans or deposits are undertaken by monetary authorities to obtain a non-holding gain return on gold which otherwise earns none. The nature of gold swaps and gold loans/deposits is similar to that of repos and securities lending, in that the market risk toward the underlying asset remains with the original holder. The statistical implications of gold swaps and gold loans/deposits are complex and have not been fully worked through. Work is still being undertaken by the IMF BOPCOM to address the implications.

 Reasons for inclusion in the Research Agenda

Repurchase agreements and securities lending

In view of the problems that repos and securities lending both pose for statistical measurement–that the ownership change is not recognized, and the two parties can claim ownership to the same security at the same time–the IMF Committee on Balance of Payments Statistics (BOPCOM) gave extensive consideration to the issue in between 1998 and 2001. The BOPCOM reached the conclusion that repos should be recorded as collateralized loans, and that if the security acquired under a repo were on-sold outright, it should be recorded as a negative asset in the instrument being on-sold. For securities lending no transaction should be recognized; if the security borrowed is on-sold, it should be recorded as a negative asset, in that instrument, by the party that borrowed the security. Following the work of the BOPCOM, the Intersecretariat Working Group on National Accounts reached the same conclusion in 2002.

As part of the BOPCOM's consideration, several countries participated in a survey of financial institutions, to find out more about their internal recording practices for repos and securities lending. The survey showed, among other things, that a significant minority of respondents record repos in what has come to be known as the "four-way-approach", that is, they record them as both collateralized loans and as transactions in the underlying security.

In July 2005, the AEG concluded that, while progress has been made, especially with regard to possibility of recommending the so-called “four entry approach”, there is insufficient time to resolve the remaining issues for inclusion in the updated SNA. Similar considerations apply to the timetable for the revision of the Balance of Payments Manual, fifth edition. Moreover, as reverse transactions also affect monetary and financial statistics, the involvement of statisticians from this area is an essential part of the process, and, to date, their involvement has not been extensive. Accordingly, the statistical treatment of reverse transactions was placed on the research agenda, with a view to seeking to obtain a resolution in two or three years.


Repurchase agreements, securities lending, gold swaps and gold loans: An update (SNA/M2.04/26) at

Reverse Transactions (SNA/M1.05/25.1) at

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