Chapter

8. Issuance and Holdings of Securities in a “From-Whom-to-Whom” Framework

Author(s):
Jose Cartas, and Qi He
Published Date:
June 2015
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The “From-Whom-to-Whom” Framework

8.1 A “from-whom-to-whom” framework allows a detailed presentation of financing and financial investment via securities (debt and equity securities), which has a number of benefits. From a broader perspective, it allows the analysis not only of relationships between institutional sectors and subsectors within an economy, but also of relationships between these sectors/subsectors and nonresidents (which can, in turn, be broken down by country or sector). Such an analysis sheds light on the sectoral composition of assets and liabilities, potential strengths and vulnerabilities in portfolios, interconnectedness, and potential spillovers.

8.2 A “from-whom-to-whom” framework allows users to see who is financing whom, to what extent, with what type of security, and so on. It may also indicate, for example, the resident sectors on which the securities held by households or nonresidents represent claims.

  • From the perspective of issuers of debt securities, the framework may allow users to see the amount of securities issued by general government and held by households, financial corporations (and their subsectors), or nonresidents.

  • From the perspective of issuers of equity securities, the framework may allow users to see the amount of equity securities issued by nonfinancial corporations and held by households or financial corporations (and their subsectors), as well as of equity securities issued by resident corporations and held by nonresidents.

8.3 The presentation of debt or equity securities holdings in a “from-whom-to-whom” framework, or broken down by debtor/creditor,1 extends the presentation of unconsolidated securities issuance or holdings without any counterpart sector or residence information, as outlined in Chapter 1.

8.4Table 1.5 in Chapter 1 shows breakdowns by issuing sector of positions (or, in the case of transactions, net issuance) in respect to debt and equity securities (i.e., showing the sectors on which these financial instruments represent claims) and a breakdown by holding sector of positions or transactions in respect to debt and equity securities (i.e., showing the sectors acquiring securities). This presentation provides information on the relationships between issuers and holders and is, therefore, consistent with a “from-whom-to-whom” framework.

8.5 For each type of debt or equity security (whether in terms of positions or flows), a “from-whom-to-whom” framework has two dimensions:

  • Residence, sector, or subsector of the issuer

  • Residence, sector, or subsector of the holder.

8.6 A “from-whom-to-whom” framework requires three-dimensional tables providing breakdowns for the security, the issuer, and the holder.2 Such tables show positions, transactions, revaluations and other changes in the volume of assets and liabilities, broken down by the sector of the issuer and of the holder, respectively.

“From-Whom-to-Whom” Transactions in Debt Securities

8.7Table 8.1 is a “from-whom-to-whom” presentation for transactions in debt securities. It is the same type of table as Table 1.5 in Chapter 1. It shows, for example, in its fourth column that households and nonprofit institutions serving households (NPISHs) acquired (net of disposals) debt securities for 275; this acquisition reflects an increase in their claims on nonfinancial corporations (65), financial corporations (43), general government (124), and the rest of the world (43).

Table 8.1“From-Whom-to-Whom” Financial Transactions in Debt Securities, Unconsolidated
Holder by residence and by resident sectorResidents
Issuer

by residence

and by

resident sector
NFCsFCsGGHHs and

NPISHs
All

residents
NonresidentsAll holders
ResidentsNonfinancial corporations302356512324147
Financial corporations11222437828106
General government6725612422254276
Households and NPISHs
All residents1087013232423106529
Nonresidents34121943108
All issuers1428232275531
Note: NFCs = nonfinancial corporations; FCs = financial corporations; GG = general government; HHs = households; NPISHs = nonprofit institutions serving households.

8.8Table 8.1 indicates that, for example, as a result of transactions in the reference period, nonfinancial corporations issued (net of redemptions) debt securities for 147, as reflected in the first row. Their liabilities in this form to other nonfinancial corporations increased by 30, to financial corporations by 23, to general government by 5, to households and NPISHs by 65, and to the rest of the world by 24. Conversely, households and NPISHs issued no debt securities.

8.9Table 8.1 also presents intra sectoral transactions of resident sectors in debt securities (the diagonal cells). For example, nonfinancial corporations issued debt securities for 30 that are being held by other institutional units of the same sector. These transactions are not included when intra sectoral transactions are consolidated. If the transactions are consolidated for each resident sector, the table would then show only the transactions between the various resident sectors and between those sectors and the rest of the world, but not the transactions within the same resident sectors.3

8.10 Transactions in debt securities held by residents and issued by nonresidents are reflected in the “nonresidents” row (108). Transactions in debt securities held by nonresidents and issued by residents are shown in the “nonresidents” column (106). Transactions in debt securities held by nonresidents and issued by nonresidents are not covered (black cell).

8.11Table 8.1 also shows that, by definition, the sum of transactions in debt securities held by residents (vis-à-vis resident and nonresident issuers) (531) and by nonresidents (vis-à-vis resident issuers) (106) is equal to the sum of transactions in debt securities issued by residents (vis-à-vis resident and nonresident holders) (529) and by nonresidents (vis-à-vis resident holders) (108). The total amount is 637. Table 8.2 presents Table 8.1 in a time series format.

Table 8.2“From-Whom-to-Whom” Financial Transactions in Debt Securities, in a Time Series Format
Transactiontt + 1t + n
Net acquisition of debt securities by
Nonfinancial corporations
Issued by
Nonfinancial corporations30
Financial corporations11
General government67
Households and NPISHs
All residents108
Nonresidents34
All issuers142
Financial corporations
Issued by
Nonfinancial corporations23
Financial corporations22
General government25
Households and NPISHs
All residents70
Nonresidents12
All issuers82
General government
Issued by
Nonfinancial corporations5
Financial corporations2
General government6
Households and NPISHs
All residents13
Nonresidents19
All issuers32
Households and NPISHs
Issued by
Nonfinancial corporations65
Financial corporations43
General government124
Households and NPISHs
All residents232
Nonresidents43
All issuers275
All residents
Issued by
Nonfinancial corporations123
Financial corporations78
General government222
Households and NPISHs
All residents423
Nonresidents108
All issuers531
Nonresidents
Issued by
Nonfinancial corporations24
Financial corporations28
General government54
Households and NPISHs
All residents (=all issuers)106
All holders
Issued by
Nonfinancial corporations147
Financial corporations106
General government276
Households and NPISHs
All residents529

8.12 Similar tables can be compiled for positions, revaluations, and other changes in the volume of assets and liabilities.

8.13 The complexity of “from-whom-to-whom” tables for debt securities is determined by the detail of the breakdowns chosen for debt securities (i.e., whether they are broken down by subcategory, position, or subposition) and for the creditors and debtors (i.e., whether they are broken down by residence, sector, or subsector).

8.14 Combining these breakdowns leads to a substantial number of “from-whom-to-whom” relationships, especially as the data may need to be shown as both positions and flows. Accordingly, a selection by debt security subcategory, sector, or subsector is essential.

“From-Whom-to-Whom” Transactions in Equity Securities

8.15Table 8.3 is a “from-whom-to-whom” presentation for transactions in equity securities. It is the same type of table as Table 1.5 in Chapter 1. It shows, for example, in its fourth column that households and NPISHs acquired (net of disposals) 151 units of equity securities. This acquisition reflects increases in their claims on nonfinancial corporations (65 units), financial corporations (43 units), and the rest of the world (43 units). Net acquisition refers to the acquisition of newly issued securities (net of redemptions) plus acquisitions (net of disposals) on secondary markets.

Table 8.3“From-Whom-to-Whom” Financial Transactions in Equity Securities, Unconsolidated
HoldersResidentsNonresidentsAll holders
IssuersNFCsFCsGGHH and NPISHsAll residents
ResidentsNonfinancial corporations302356512324147
Financial corporations11222437828106
General government
All residents4145710820152253
Nonresidents341224391
All issuers75579151292
Note: NFCs = nonfinancial corporations; FCs = financial corporations; GG = general government; HH = households; NPISHs = nonprofit institutions serving households.

8.16Table 8.3 indicates, for example, that transactions in the reference period resulted in nonfinancial corporations issuing (net of redemptions) 147 units of equity securities, as reflected in the first row. Their liabilities to other nonfinancial corporations increased by 30, while liabilities to financial corporations increased by 23, liabilities to general government increased by 5, liabilities to households and NPISHs increased by 65, and liabilities to the rest of the world increased by 24. Conversely, households and NPISHs issued no equity securities.

8.17Table 8.3 also presents intra sectoral transactions in equity securities holdings for resident sectors (the diagonal cells with borders). For instance, nonfinancial corporations issued 30 of equity securities that are being held by other institutional units in the same sector. These transactions are not included when intra sectoral transactions are consolidated. If the transactions were consolidated for each resident sector, the table would then show only the transactions between the various resident sectors and between those sectors and the rest of the world, but not the transactions within a given resident sector.

8.18 Transactions in equity securities held by residents and issued by nonresidents are reflected in the “nonresidents” row (91). Transactions in equity securities held by nonresidents and issued by residents are shown in the “nonresidents” column (52). Transactions in equity securities held by nonresidents and issued by nonresidents are not covered (black cell).

8.19Table 8.3 also shows that, by definition, the sum of transactions in equity securities held by residents (and issued by residents and nonresidents) (292) and by nonresidents (and issued by residents) (52) is equal to the sum of transactions in equity securities issued by residents (and held by residents and nonresidents) (253) and by nonresidents (and held by residents (91). In both cases, the total amount is 344. Table 8.4 presents Table 8.3 in a time series format.

Table 8.4“From-Whom-to-Whom” Financial Transactions in Equity Securities, in a Time Series Format
Transactiontt + 1t + n
Net acquisition of equity securities by
Nonfinancial corporations
Issued by
Nonfinancial corporations30
Financial corporations11
General government
All residents41
Nonresidents34
All issuers75
Financial corporations
Issued by
Nonfinancial corporations23
Financial corporations22
General government
All residents45
Nonresidents12
All issuers57
General government
Issued by
Nonfinancial corporations5
Financial corporations2
General government
All residents7
Nonresidents2
All issuers9
Households and NPISHs
Issued by
Nonfinancial corporations65
Financial corporations43
General government
All residents108
Nonresidents43
All issuers151
All residents
Issued by
Nonfinancial corporations123
Financial corporations78
General government
All residents201
Nonresidents91
All issuers292
Nonresidents
Issued by
Nonfinancial corporations24
Financial corporations28
General government
All residents (= all issuers)52
All holders
Issued by
Nonfinancial corporations147
Financial corporations106
General government
All residents253

8.20 Similar tables can be compiled for positions, revaluations, and other changes in the volume of assets and liabilities.

8.21 The complexity of “from-whom-to-whom” tables for equity securities is determined by the breakdowns chosen for the financial instruments (i.e., whether they are broken down by category, position, or subposition) and for the issuers and holders (i.e., whether they are broken down by residence, sector, or subsector).

8.22 Combining these breakdowns leads to a substantial number of “from-whom-to-whom” relationships, especially as the data may need to be shown as both positions and flows. Accordingly, a selection by equity security category, position, or subposition is essential.

The Transactor Principle Versus the Issuer/Holder Principle

8.23 A distinction can be drawn between two types of transactions in securities. The first type, the issuance and redemption of securities, involves only the issuer and one holder. The second type, transactions on secondary markets, involves three institutional units: the two holders exchanging the equity security (i.e., the original, or “old,” holder and the ultimate, or “new,” holder) and the institutional unit that issued it. Sometimes, as in the case of the assumption of a debt, the three institutional units may be two debtors and a creditor.

8.24 The fact that three parties are involved needs to be reflected in the recording of secondary market transactions in a “from-whom-to-whom” approach, because the position between the issuer and the seller (the “old” holder) and the position between the issuer and the buyer (the “new” holder) change.

8.25 A financial transaction between two institutional units—involving, for example, the transfer of ownership of a security from institutional unit A (the “old” holder) to institutional unit B (the “new” holder), where B is in a different sector/subsector from A—may therefore be recorded in two different ways.

  • It could be recorded by means of a reclassification entry in the issuer’s “other changes in the volume of assets” account, reflecting the fact that the holder is now in a different sector. With this approach, the secondary market transaction is recorded in the accounts as a single transaction, accompanied by a reclassification adjustment.

  • However, it could also be recorded as the extinguishing of holder A’s claim against the issuer and the creation of holder B’s claim against the issuer. With this approach, the secondary market transaction is recorded as two transactions.

8.26 The first approach focuses on the contract between the holders (the “transactor principle”), while the second approach focuses on the contract between the issuer and the holder (the “issuer/holder,” or “debtor/creditor,” principle”).

The Transactor Principle

8.27 The transactor principle captures the change in ownership of a financial asset (or the change of debtors in the case of the assumption of a debt) in the accounts of the transactors involved, but not in the accounts of the debtor (or of the creditor where one institutional unit takes on the liability of another).

8.28 Thus, under the transactor principle, a change in the ownership of a security is recorded without taking the involvement of the issuer into consideration. For example, when a household buys, from a financial corporation, a share issued by a nonfinancial corporation, the transactor principle results in a single transaction being recorded, as shown in Table 8.5 (i.e., the transaction between the financial corporation and the household), without the change of ownership being reflected in the accounts of the nonfinancial corporation that issued the share.

Table 8.5Recording a Household’s Acquisition of Shares from a Financial Corporation in Accordance with the Transactor Principle
Financial assetsLiabilitiesFinancial assetsLiabilities
HouseholdsNonfinancial corporations
− Currency+ Other changes in liabilities vis-à-vis households
+ Shares
Financial corporations
+ Currency− Other changes in liabilities vis-à-vis financial corporations
− Shares

8.29 To reflect the change in the holder’s counterpart sector in the accounts of the issuing nonfinancial corporation, the reclassification of the holder is recorded in the issuer’s “other changes in the volume of assets” account. The numerous secondary market transactions in shares would necessitate many such reclassifications.

8.30 Applying the transactor principle requires data on individual transactions, including information on the:

  • Transactors (i.e., holders A and B)

  • Type and value of the security concerned

  • Issuer.

8.31 The collection of data on individual transactions leads to a large amount of detailed statistical information, in view of the fairly frequent trading of securities on any given day. Information on both transactors is available to custodians or stock exchanges.4 If no transaction data are available, only the positions of holders of securities can be identified. Accordingly, statistical collection systems do not usually provide detailed information on transactions, instead relying on position data.5

The Issuer/Holder or Debtor/Creditor Principle

8.32 The issuer/holder, or debtor/creditor, principle captures a transaction between two institutional units in the accounts of the two transactors, as well as allowing the change of holder to be recorded in the financial account of the issuer.

8.33 Thus, when the owner of a security changes, the issuer/holder principle records the two stages of the process as financial transactions. When a financial corporation sells a security issued by a nonfinancial corporation to a household, the financial account of the nonfinancial corporation records the issuance of a security to a household and a corresponding repayment to a financial corporation. Financial transactions involving the three institutional units are recorded as shown in Table 8.6.

Table 8.6Recording a Household’s Acquisition of Shares from a Financial Corporation in Accordance with the Issuer/Holder Principle
Financial assetsLiabilitiesFinancial assetsLiabilities
HouseholdsNonfinancial corporations
− Currency+ Currency
+ Shares vis-à-vis nonfinancial corporations+ Shares vis-à-vis households
Financial corporations
+ Currency− Currency
− Shares vis-à-vis nonfinancial corporations− Shares vis-à-vis financial corporations

Figure 8.1The Transactor Principle and the Debtor/Creditor Principle

8.34 The sale of a security issued by a resident or nonresident institutional unit (the issuer) to another resident or nonresident institutional unit (the two holders) clearly meets the 2008 SNA’s definition of a transaction (i.e., the exchange of economic value between willing participants). It cannot be construed as a reclassification, from either the buyer’s or the seller’s point of view.

8.35 Symmetry of treatment between holders of assets and issuers of liabilities would require that the issuer treat the event as a transaction (i.e., a redemption and, simultaneously, the issuance of a new security, netting to zero net issuance).

8.36 The issuer/holder, or debtor/creditor, approach is further justified by the implicit or explicit conditions accepted by the issuer when creating a security. Where issuance requires the issuer to record the owners of securities in the issuer’s liability register, the two holders will inform the issuer of the change in ownership and, by recording the event, the issuer acknowledges the secondary market transaction.

Box 8.1Detailed Recording of Debt Securities Following the Debtor/Creditor Principle

Position data are usually available on the holder of debt securities (Creditor B) and on the debtor at a specific point in time, but not on the transactor from whom the debt securities were bought (Creditor A).

Transactions may then be derived, residually, as the difference in positions between the beginning and the end of a period, minus any other flows:

Based on the information available on positions, this approach follows the debtor/creditor principle. This is demonstrated in the following table. It shows that Creditor B has positionst − 1 in debt securities vis-à-vis Debtor 1 of 10 and vis-à-vis Debtor 2 of 20. These positions change to 12, vis-à-vis Debtor 1, and to 10, vis-à-vis Debtor 2, in t. It is assumed that no revaluations or other changes in volume have taken place in the period. Based on this assumption, the net acquisition of debt securities by Creditor B is +2 vis-à-vis Debtor 1 and -10 vis-à-vis Debtor 2.

Following the debtor/creditor principle, the net acquisition by Creditor B of debt securities vis-à-vis Debtor 1 (+2) is recorded as an acquisition of debt securities newly issued by Debtor 1. Symmetrically, Debtor 1 is deemed to have redeemed 2 of debt securities held by Creditor A.

In parallel, the net acquisition of -10 must be recorded by Creditor B as a disposal, and as a redemption of debt securities by Debtor 2. A corresponding new issue of debt securities of 10 by Debtor 2 is deemed to have been bought by Creditor A. Note that in reality there are no transactions in the period between the debtor and the two creditors. Rather, four transactions (one between each debtor and each of the two creditors) are imputed—replacing the actual secondary market transactions in debt securities by the two holders. The effect is to preserve the link between the transaction data and the change in the “from-whom-to-whom” positions data.

The transactions to be recorded for this example following the debtor/creditor principle are illustrated in the following figure.

Table 8.1.1Detailed Recording of Debt Securities Following the Debtor/Creditor Principle
Creditor (holder)

Debtor (issuer)
Creditor

A
Creditor

B
Total
Debtor 11. Position at end of previous period51015
2. Net acquisition during current period−220
3. Revaluation during current period
4. Other change in volume during current period
5. Position at end of current period31215
Debtor 21. Position at end of previous period152035
2. Net acquisition during current period10−100
3. Revaluation during current period
4. Other change in volume during current period
5. Position at end of current period251035
Total1. Position at end of previous period203050
2. Net acquisition during current period8−80
3. Revaluation during current period
4. Other change in volume during current period
5. Position at end of current period282250

Figure 8.1.1Transactions According to the Debtor/Creditor Principle

The set of information required to apply the debtor/creditor principle consists of: (1) a SBS database enabling each issuance of a debt security to be identified (information on the debtor and the initial creditor); and (2) a link between the SBS database and the appropriate securities holdings statistics, which keeps track of changes in the debt securities positions of creditors and includes information on the individual debtors.

The 2008 SNA uses the term “flow of funds” (see Chapter 27 of the 2008 SNA).

The time series aspect of the “from-whom-to-whom” framework may be seen as a fourth dimension.

Totals by issuer refer to issues and redemptions only; totals by holder refer to issues, redemptions, and transactions, in the secondary market.

However, in many cases, the transactor approach results in data on transactions with brokers and other intermediaries, not transactions with the ultimate (or “new”) owners of the securities.

Some economies do capture transaction data directly, usually on a net assets or liabilities basis, as requested in the BPM6 for portfolio transactions. Capturing these data presents a challenge from a practical perspective.

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