William Griever Sarit Kessel Debra Kuntz William Carlucci William Hunter May 1, 2002.

William GrieverSarit KesselDebra Kuntz

William CarlucciWilliam Hunter

May 1, 2002

William Griever

Surveys of Foreign Portfolio Investment in the United States

Surveys of Foreign Portfolio Investment in the United States

Survey Perspective

• Part of an integrated system

• Used in conjunction with monthly flow data

• Surveys are detailed, accurate, but not timely

• Monthly data very timely, but less accurate

• Used together to create ongoing estimates

Survey History

• First survey in 1974

• Measured foreign investment in US securities

• Congressional concern over growing foreign

influence

• Existing data lacked detail

Survey History

• Liability surveys continued at 5-year intervals

• Last survey as of March 31, 2000

• This will be the 7th liabilities survey

• Have been large, benchmark surveys with hundreds of reporters

• Also 3 asset surveys starting in 1994

Survey Uses

• Correct geography

• Monthly reports measure versus location of purchase/sale

• Results in heavy bias towards financial centers such as UK

Survey Uses

• Correct amounts foreign held

• Security-level collection allows for greater data editing

• Last survey decreased estimated level of foreign holdings by $300 billion

• Shows investment by Industry

Data Users

• Financial industry analysts

• International organizations

• USG

• Academic research

Data Uses

• USG - BoP, IIP, country exposure

• Reduced net debtor position

• Current account sustainability

• Help to explain $US strength?

Increasingly Important

• Foreign ownership increasing– 1974 - 4.8%– 2000 - 10.2%

• Securities flows now much greater than bank lending

Increasingly Important

• Crisis of 1997-1998 caught most by surprise

• Lack of key data helped mask the problem

• Led to recognition that greater financial

transparency was required

• Implies better/faster data needed

Changes Required

• Lack of detailed, timely data on Reserve

Assets and External Debt positions

identified as major gaps

• Improved Reserve Asset reporting

operational

• External Debt reporting starts in 2003

Result

• IMF’s External Debt Reporting System (EDRS)

• Countries will expand collection and accelerate

publication of external debt data

• USG strongly supports the system

• Greater transparency required in an integrated

world financial system

EDRS

• Hopefully an Early Warning system

• Requires many changes to the US reporting

system

• Annual portfolio liabilities surveys with shorter

submission periods part of the changes

• Most surveys will include large reporters only

EDRS

• Quarterly reporting of external debt with a one

quarter lag by sector (gov’t, bank, other) and type

debt (bond, loan, etc.) required

• Forward debt repayment schedules strongly

encouraged

• Currency composition of debt also encouraged

EDRS

• US will combine estimates with measurements

• Measurement would require quarterly surveys

• Survey results will be combined with monthly

transactions data

• Result = credible estimates

IIF Recommendations

• IIF strongly urged changes

• IIF recommended a more rigorous system than will

be implemented

• “…private sector participants in these markets

bear a responsibility for full and timely disclosure

of information on their activities.”

Summary

• Changes will increase the burden on both reporters

and compilers

• By combining estimates with measurement we’re

attempting to minimize the work load

• Timely, accurate data from reporters is the key

Sarit Kessel

Who Must Report?Who Must Report?

Who Must Report

• Large U.S.- Resident Custodians

• Large U.S.- Resident Issuers

U.S. Residency

• U.S. Resident

– Any individual, corporation or other organization

located in the United States.

* This includes: branches, subsidiaries and affiliates of

foreign entities located in the United States.

* Corporations located in the United States

– Exclude: International and regional organizations

even if they are located in the United States.

U.S. Residency

• How to determine residency – Tax forms– W-9 forms are filed by U.S. residents– W-8 forms are filed by non-U.S.

residents– If not available use the mailing address

U.S. Residency

• Examples of U.S. residents– Bayerische Landesbank NY Branch– BP America Inc

• Examples of non-U.S. residents– Bank of New York Tokyo Branch– GMAC Canada– International Bank for Reconstruction and

Development (IBRD)

U.S.- Resident Custodian

Organizations that manage the safekeeping of

U.S. securities for:

• The account of other entities located

outside the United States

U.S.- Resident Custodians

• Each U.S. resident custodian should file one consolidated report for:– The custody accounts for which safekeeping

services are provided – Their own securities held directly by

foreigners

U.S.- Resident Custodians

• U.S.-resident custodians should exclude custody accounts held by their foreign affiliates or subsidiaries.

• U.S. affiliates or subsidiaries of foreign custodians should exclude custody accounts held by their foreign parents.

U.S.-Resident Custodians

• Schedule 2 Reporting:– U.S.-resident custodians should report all U.S.

securities held in custody for foreign-residents.– U.S.-resident custodians, that use foreign

subcustodians to directly manage their foreign clients’ U.S. securities should report these U.S. securities.

– U.S.-resident custodians should report all U.S. securities that are settled and cleared through foreign securities depositories (e.g., Euroclear)

U.S.-Resident Issuers

• Organizations whose securities are held directly by foreign residents, with no U.S. - resident custodian involved.


• Each U.S.-resident issuer should file one consolidated report for:– Their custody holdings for foreign-residents– Securities issued by the reporters

subsidiaries, branches, and affiliates in the United States


• U.S.-resident issuers should exclude securities issued by foreign affiliates or subsidiaries.

• U.S. affiliates or subsidiaries of foreign investors should exclude any direct investment with their foreign parent.


• Schedule 2 reporting:– Report securities held directly by foreign

residents– Report securities settled and cleared through

a foreign central securities depository (Euroclear)

Who Must Report

A U.S.-resident issuer clears and settles through foreign depository

U.S.-residentissuer

U.S.-residentissuer

Foreign Depository

Foreign Depository

Files Schedules 1 and 2 Does not report

Who Must Report

A foreign investor employs a foreign custodian

U.S.-Resident Issuer

U.S.-Resident Issuer

Foreign CustodianForeign

Custodian

Files Schedules 1 and 2 Does not report

Who Must Report

A U.S.-resident custodian holding securities for foreigner

ForeignerForeignerU.S.-resident

custodianU.S.-resident

custodian

Files Schedules 1 and 2

Who Must Report

Flow Chart for Bearer Bonds

ForeignerForeigner

U.S.-resident custodian

U.S.-resident custodian

U.S. residentIssuer

U.S. residentIssuer

Files Schedules 1 and 2 Files Schedules 1 and 2

FRBNY will eliminate double reporting.

1 2

Debra Kuntz

What Must Be Reported on the

Annual Report of Foreign Holdings of U.S. Securities, Including Selected Money Market

Instruments (SHLA)

What Must Be Reported on the

Annual Report of Foreign Holdings of U.S. Securities, Including Selected Money Market

Instruments (SHLA)

U.S. Securities

• Securities issued by U.S. entities, including:– U.S.-resident organizations– U.S. subsidiaries of foreign organizations– U.S. branches of foreign banks

• Exclude securities issued by International and Regional Organizations.– Although located in the United States, these

organizations are considered foreign entities.

U.S. Securities

• Information that does not contribute to determining if a U.S. security:– nationality of parent organization– nationality of guarantor– place of issue or trading– currency of issue

U.S. SecurityExample 1

• Euro denominated 2-year note issued by a Daimler Chrysler affiliate incorporated in the United States.

• Is this security reportable?

U.S. SecuritiesExample 1 Answer

• Euro denominated 2-year note issued by a Daimler Chrysler affiliate incorporated in the United States.


• Yes. The security was issued by a U.S.-resident entity.

U.S. SecuritiesExample 2

• U.S. dollar-denominated 30-year Yankee note issued by the Inter-American Development Bank.


U.S. SecuritiesExample 2 Answer

• U.S. dollar-denominated 30-year Yankee note issued by the Inter-American Development Bank.


• No. This security was issued by a Regional Organization. This entity is classified as foreign, even though it is located in the United States.

U.S. SecuritiesExample 3

• U.S. dollar-denominated asset-backed security issued by Company B incorporated in the United States and guaranteed by the parent, Company A, incorporated in Hong Kong.


Foreign SecuritiesExample 3 Answer

• U.S. dollar-denominated asset-backed security issued by Company B incorporated in the United States and guaranteed by the parent, Company A, incorporated in Hong Kong.


• Yes. This security was issued by a U.S.-resident entity. The location of the guarantor does not factor into the decision of whether the security is U.S. or not.

Type of Reportable U.S. Securities

• Equity

• Short-Term Debt

• Long-Term Debt

• Asset-Backed Securities

Equity

• All instruments representing an ownership interest in U.S.-resident organizations.

• However, ownership interests representing direct investment are not reported.

EquityDirect Investment

• Direct investment is defined as ownership or control of 10% or more of an organization’s voting stock.

• Direct investment positions should be reported to the Commerce Department and excluded from this report.

EquityDirect Investment

• If one of the companies is a bank or bank holding company, direct investment is limited to “permanent” debt or equity.

• Positions with foreign affiliates that arise out of normal banking business are not direct investment and should be reported.

Equity

• Reportable equity securities include:– common stock– restricted stock– preferred stock– shares/units in U.S. mutual funds– shares/units in unincorporated business

enterprises, such as limited partnerships

Equity

• Exclude from equity:– convertible debt– nonparticipating preference shares– depositary receipts where the underlying

security is foreign

• Convertible debt and nonparticipating preference shares are reported, but should be classified as debt on this report.

Type of Issuer

• United States Department of the Treasury

• Other Federal agencies or federally sponsored enterprises– Appendix H of the instructions contains a list of

these institutions.

• State or local governments, including their subdivisions

• Other

Type of Issuer

• Classify as Federal agency those securities guaranteed by the Government National Mortgage Association (GNMA).

• Privately-issued mortgage-backed securities should be classified as Other, even if the underlying collateral is GNMA guaranteed.

Term

• Determine term, (short-term or long-term), based on the original maturity of the security.

• Original maturities of one year or less are short-term.

• Original maturities of greater than one year are long-term.

Term of Callable Debt

• Debt with multiple call options (multiple maturity dates) is long-term if any of the maturity dates is greater than one year from the date of issue.

Term Examples

• A U.S. Treasury bill issued on June 13, 2002 that matures on July 11, 2002 is short-term.

• A 30-year U.S.-issued bond that matures on July 31, 2002 is long-term.

Short-Term Debt

• Reportable short-term debt includes the following instruments where the original maturity is one year or less:– U.S. government securities (e.g., Treasury bills)– U.S. agency securities– bankers’ and trade acceptances– commercial paper– negotiable certificates of deposit– STRIPs

Short-Term DebtSTRIPs

• Reportable STRIPs are those where the issuer of the STRIP is a U.S.-resident entity.

• Residency of the STRIP is not determined by the issuer of the underlying security.

Short-Term DebtSTRIPs

• U.S. securities that are the underlying securities for STRIPs, should be reported by the issuer or U.S.-resident custodian if the beneficial owner is foreign.

• STRIPs issued by a foreign-resident entity should not be reported, even if the underlying security is U.S.

Short-Term DebtSTRIPs Example

• U.S. Company A owns $100 million of German bonds. U.S. Company A issues $50 million of STRIPs where these German bonds are the underlying securities. A foreign company purchases these STRIPs.

• What should Company A report?

Short-Term DebtSTRIPs Example Answer

• U.S. Company A owns $100 million of German bonds. U.S. Company A issues $50 million of STRIPs where these German bonds are the underlying securities. A foreign company purchases these STRIPs.

• What should Company A report?

• Either Company A or the U.S.-resident custodian (if one is used) reports the $50 million of STRIPs. The German bonds are not reported.

Long-Term Debt

• Reportable long-term debt includes the following instruments where the original maturity is greater than one year:– bonds– notes– debentures– convertible debt– nonparticipating preference shares– negotiable certificates of deposit

Debt Exclusions

• Exclude from short-term and long-term debt:– shares/units in U.S. mutual funds, even if the

U.S. fund invests in debt.– Investments in U.S. mutual funds are reported,

but should be classified as equity on this report.

Debt Exclusions

• Exclude from short-term and long-term debt:– loans– trade credits– accounts receivable– derivatives– non-negotiable certificates of deposit

Embedded Derivatives

• If the embedded derivative is bifurcated from its host contract, then only report the value of the host contact. Exclude the derivative.

• If the embedded derivative is not bifurcated from the host contract, then the security should be reported without separating the embedded derivative.

Debt Exclusions

• Exclude from short-term and long-term debt:– asset-backed securities– These securities are reported, but should be

classified as asset-backed securities on this report.

Asset-Backed Securities

• Securitized interest in a pool of assets, which give the purchaser a claim against the cash flows generated by the underlying assets.


• Reportable asset-backed securities (ABS) are those where the issuer securitizing the assets is a U.S. entity.

• The underlying asset is not a factor in determining whether the ABS is a U.S. security.


• Reportable asset-backed securities include:– collateralized mortgage obligations (CMOs)– collateralized bond obligations (CBOs)– collateralized loan obligations (CLOs)– collateralized debt obligations (CDOs)


• Reportable asset-backed securities include:– other securities backed by:

* mortgages

* credit card receivables

* automobile loans

* consumer and personal loans

* commercial and industrial loans

* commercial paper

* other assets

Repurchase AgreementsSecurity Lending Arrangements

• Repos and securities lending arrangements both involve the temporary transfer of a security for cash or another security. The transaction is reversed on a specified future date.

• Reverse repurchase agreements and securities borrowing arrangements are the reverse.

Repurchase AgreementsSecurity Lending Arrangements

• The security lender should report the U.S. security as if no repo or security lending arrangement occurred.

• The security borrower should exclude the U.S. security.

Accounting Rules

• Securities should be reported using settlement date accounting.

• Report gross long positions.– Do not net any short positions from long

positions.

• Round data to the nearest unit (e.g., dollar).– Do not report decimals.

Valuation of Securities

• Follow the definition of FAS 115.

• Fair (market) value is the amount at which an asset could be bought or sold in a current transaction between willing parties, other than in a forced liquidation or sale.

• For securities that do not regularly trade, estimate the value based on information available.


• If the fair (market) value is zero, indicate the reason.– Firm that issued the security is in receivership.– Stock impaired or security in default.– Price unknown because security is thinly or

never traded.


• Report the fair (market) value for each security as of the close of business on the last day of June.

Foreign Currency Conversion

• Report the following information in the currency of denomination:– Fair (market) value (line 16a)– Face value for non-ABS debt (line 19)– Original face value for ABS debt (line 22)– Remaining face value for ABS debt (line 23)


• Report the US$ converted market value (line 16) using the spot exchange rate as of the last business day of June.

• FRBNY will calculate the exchange rate used from the US$ and foreign currency market values reported.

• FRBNY will convert the face value, original face value, and remaining face value based on the currency code reported.


• If exchange rate quoted in units of foreign currency per US$:– divide the foreign currency market value (line

16a) by the exchange rate to determine the US$ market value (line 16).


• If exchange rate quoted in units of US$ per foreign currency:– multiply the foreign currency market value

(line 16a) by the exchange rate to determine the US$ market value (line 16).

Break

William Carlucci

Review of SchedulesReview of Schedules

Review of Schedules Schedule 1

• Schedule 1: Respondent Contact Identification and Summary Financial Information

• Required to be filed by all organizations who received the report

• Contains basic information about the institution

• Contains summary financial information reported on Schedule 2

Review of SchedulesSchedule 1

• Changes from 2000 – Identification Number changed from 7 digits

to 10 digits– Industrial Classification Code was

streamlined– Financial Information streamlined. No longer

broken out between priced and unpriced totals.


• Respondent Identification Number

– 10 digit number issued by FRBNY. – Contact FRBNY staff at 212-720-6300 if you

do not know your identification number.


• Industrial Classification Code– Bank: Depository Institution (i.e., an institution that

takes deposits) or a bank holding company.

– Other Financial Firm: Firm that acts as a financial intermediary, such as a finance company or broker/dealer, which is operated separately from an organization in one of the other categories listed.

– Non-Financial Firm: An organization that conducts commercial, industrial or trade activities.

– Other: Use this code if none of the categories listed describe your firm.


• Name of Service Provider or Vendor Used– Service Provider/Vendor: Is an institution

which provides your data or prepared the electronic submission of your report.

– Examples of service providers or vendors are:* DST Systems

* ADP

* Beta Systems


• Technical Contact– Provide the name of the person who can be

contacted for technical issues regarding the electronic submission of your report.

– This person should be familiar with the file formats used and how the data is extracted from your databases or applications.


• Schedule 2: Details of Securities

• Filed by U.S.-Resident Custodians and Issuers of U.S. Securities owned directly by foreigners.

• Provides details of the U.S. securities

• Total of all Schedule 2s should equal the summary financial information reported on Schedule 1


• Changes from 2000– First time collecting short-term securities.– Changed overall layout of the forms– New items introduced to collect information on reporting units– Introduced Type of Issuer Field– Changed security type descriptions and codes– Use of ISO standard codes for currency information. Changed

from a 5-digit numeric value to a 3-digit alpha character. (Note, country information continues to be 5-digit numeric values.)

– Introduced new item to explain zero fair market value.– Some items are in US dollars and foreign currency units


• Sequence Number– Generally sequence numbers should be

sequential (i.e., 1,2,3) for each Schedule 2 record submitted.

– If multiple divisions of an organization are preparing Schedule 2 records and it is a large burden to create sequential sequence numbers for the consolidated report then each reporting unit should have unique sequence numbers.


• Reporting Unit Code and Name– If data is being collected from multiple

databases or reporting systems, report the internal code used in your organization to identify the database or system.

– This will help identify if a particular database or reporting system has generated invalid data.

– Enter a description or name of the reporting unit or division that is reporting the information.


• Type of Issuer• United States Department of the Treasury• Other federal agency or federally sponsored

enterprise.• State or local government, including their

subdivisions.• Other


• Type of Issuer– Choose the Type of Issuer that coincides with

the name of issuer.– If type of issuer cannot be clearly identified,

report as “Other”.


• Security Type– Equity Securities are broken out into the

following categories:• Common Stock• Preferred Stock• All Mutual Funds (including shares or unit trusts)• Other: any other type of equity security not listed

above


• Security Type– Debt (excluding ABS) is broken out into seven

categories:* Commercial Paper

* Negotiable CD

* Convertible Security

* Zero-Coupon

* Bond or Note, unstripped

* Bond or Note, stripped

* All Other Debt


• Security Type– Asset-Backed Securities have been broken out

into their own separate code.


• Registered/Bearer Indicator– If a security is a registered instrument, it should

be reported with a registered indicator (code 1).– If a security is a bearer instrument, (i.e.,

possession of the bond certificate is the only proof of ownership), it should be reported with a bearer indicator (code 2).


• Country of Foreign Holder– Important field. Identifies the location of the

beneficial owner of the security.

• Type of Foreign Holder – An abbreviate list of Foreign Official

Institutions can be found in Appendix D of the instructions. A complete list can be found on the Treasury website at - www.treas.gov/tic/forms.htm

William Carlucci

Key Issues for ReportersKey Issues for Reporters

Key Issues to Reporters

• Reporting Criteria– A reporter that is both an issuer and custodian

should report in both of these capacities.


• Securities To Be Included– Report all securities issued by U.S. residents and held

by foreign residents.– Bearer Bonds - All bearer bonds are assumed to be

held by foreign residents and should be reported. Both issuers and custodians of these securities should report (FRBNY will eliminate double counting).

– Custodians must report all foreign-held securities entrusted to central securities depositories (DTC, FRBNY, Euroclear, Cedel, etc.)


• Securities to be Excluded– All securities issued by foreign residents.– Depositary Receipts– Securities issued by U.S. -resident international

and regional organizations (e.g., World Bank, Inter-American Development Bank, International Monetary Fund).

– Loans, non-negotiable CDs, and derivatives


• Identify Securities– Whenever possible, report securities using the

CUSIP ID.– If unavailable, use appropriate ISIN, CINS,

Common or other exchange-assigned code.– Use internal codes only id no other code exists

for the security.


• Distinguishing Long-Term Debt from Short-Term Debt– Original maturities of one year or less are short-

term.– Original maturities of one year or more are long-

term.– Perpetual debt is classified as long-term.


• Common Reporting Errors– Excessive reporting of “Country Unknown” for

securities other than Bearer Bonds.– Securities reported with a quantity held equal to

zero.– Inaccurate security type codes reported

(common stock reported with a zero coupon bond security type code).

– Reporting securities that represent direct investment.


• Common Reporting Errors– Use of prior codes from previous surveys.– Failure to report remaining principal outstanding

for asset-backed securities.– Failure to report holdings of Canadian residents.– Failure to report securities issued by U.S.-

resident subsidiaries or branches of foreign companies.

William Hunter

Technical Topics

Preparing a Computer File of Your Data

Technical Topics

Preparing a Computer File of Your Data

Technical Topics:How To File

• Schedule 1

• Schedule 2

• On paper

• Electronically (Diskette or CD) - Mandatory if submitting more than 200 records.

• On paper - An option only if submitting 200 or less.

Technical Topics:Acceptable Media

• High Density IBM Compatible Diskette

• CD - Standard 650 MB

• Standard Windows PC ASCII Text Files

• Legibly Labeled With Respondent Name & ID

Technical Topics:Unacceptable Media

• No Compressed Files

• No Zip Files

• No IBM Mainframe Tapes/Cartridges - 3480/3490, Round (Reel) Tapes

• No EBCDIC Files

Technical Topics:File Formats

• Use Either of Two File Formats:

• Positional

• Semi-colon Delimited

Technical Topics:Positional File Example

1.Respondent ID Filler (space)

2.Sequence Number Filler (space)

3.Reporting Unit Filler (space)3a.Name of Reporting Unit

Technical Topics:Positional File Example

16a. Fair (Market)Value in Currency of DenominationFiller (space)17. Zero Market Value Reason (Null)Filler (space)

18. Number of Shares HeldFiller (space)

19. Face Value

1.Respondent ID Delimiter

2.Sequence Number Delimiter

3.Reporting Unit

Technical Topics:Sample Delimited File

Delimiter3a.Name of Reporting Unit

Technical Topics:Sample Delimited File

16a. Fair (Market) Value in Currency of Denomination

17. Zero Market Value Reason (NULL)

18. Number of Shares Held

Delimiters for 7NULL Debt& ABS Items

Technical TopicsTips & Traps

• New Report Form & File Format This Year

• Files Must Be ASCII

• Diskette Or CD Only

• File Names Should:

– Have “.txt” Suffix

– Be No Longer Than 25 Characters

– Not Include Any Spaces

– Use Underscore “_” In Lieu Of Spaces

Technical TopicsTips & Traps (Cont’d)

• BigBank2002SHLA • No Good - Missing “.txt” Suffix

• BiggerBanks 2002 SHLA.txt • No Good - Contains Blanks

• Good

• Good

• HugeFirm_2002SHLA.txt

• BigFirmWithLotsofSHLADataID0000567890.txt

• SHLA.txt

• No Good - Too Long (More than 25 characters)

Examples -


• Files Must Be Plain Text - Uncompressed

– No “.xls” (Excel) Files

– No Zip Files

– No COBOL Packed Decimal Fields

• All Semi-colon Delimited File Records Must Have 28 Semi-colons

• Include Nulls For Items That Do Not Apply


• All Records Must End With A Carriage Control/Line Feed

• Your Respondent ID Number Must Be Exactly 10 Digits With Leading Zeros

• Dates Must Be 8 Digits (MMDDYYYY) Months and Days Must Have Leading Zeros Where Appropriate (e.g., January 1, 2002 Entered as 01012002)


• Fed Will Check Test Files For Format (Send To: SHLA.help@ ny.frb.org)

• Be Sure To Provide A Technical Contact

Technical TopicsContacts

• Susan Ma - Team Leader

Automation Support

(212) 720-1989

• Bill Hunter - Staff Director

Automation Support

(212) 720-8250

The End

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William Griever Sarit Kessel Debra Kuntz William Carlucci William Hunter May 1, 2002.

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