Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

5.20.	The classification of financial transactions and of financial assets and liabilities is based primarily on the liquidity and the legal characteristics of the financial assets. The classification does not contain functional categories with the exception of a memorandum item related to direct foreign investment. The definitions of the categories, sub-categories and sub-positions are in general independent of the classification of institutional units. As the need arises, however, the classification of financial assets and liabilities can be further detailed by a cross-classification with the classification of institutional units. The class deposits between monetary financial institutions would be an example. The detail in which the classification of financial assets and liabilities may be employed depends on the institutional sector to be analysed. Table 5.1 — Classification of financial transactions Classification of financial transactions Code Monetary gold and special drawing rights (SDRs) F.1 Monetary gold F.11 Special drawing rights (SDRs) F.12 Currency and deposits F.2 Currency F.21 Transferable deposits F.22 Other deposits F.29 Securities other than shares F.3 Securities other than shares, excluding financial derivatives F.33 Short-term F.331 Long-term F.332 Financial derivatives F.34 Loans F.4 Short-term F.41 Long-term F.42 Shares and other equity F.5 Shares and other equity, excluding mutual funds shares F.51 Quoted shares F.511 Unquoted shares F.512 Other equity F.513 Mutual funds shares F.52 Insurance technical reserves F.6 Net equity of households in life insurance reserves and in pension funds reserves F.61 Net equity of households in life insurance reserves F.611 Net equity of households in pension funds reserves F.612 Prepayments of insurance premiums and reserves for outstanding claims F.62 Other accounts receivable/payable F.7 Trade credits and advances F.71 Other F.79 Memorandum item: Direct investment F.m
Classification of financial transactions	Code
Monetary gold and special drawing rights (SDRs)	F.1
Monetary gold		F.11
Special drawing rights (SDRs)		F.12
Currency and deposits	F.2
Currency		F.21
Transferable deposits		F.22
Other deposits		F.29
Securities other than shares	F.3
Securities other than shares, excluding financial derivatives		F.33
Short-term			F.331
Long-term			F.332
Financial derivatives		F.34
Loans	F.4
Short-term		F.41
Long-term		F.42
Shares and other equity	F.5
Shares and other equity, excluding mutual funds shares		F.51
Quoted shares			F.511
Unquoted shares			F.512
Other equity			F.513
Mutual funds shares		F.52
Insurance technical reserves	F.6
Net equity of households in life insurance reserves and in pension funds reserves		F.61
Net equity of households in life insurance reserves			F.611
Net equity of households in pension funds reserves			F.612
Prepayments of insurance premiums and reserves for outstanding claims		F.62
Other accounts receivable/payable	F.7
Trade credits and advances		F.71
Other		F.79
Memorandum item: Direct investment	F.m

5.21. Analyses of the monetary policy transmission channels may require to identify measures of money in the balance sheets and also in the financial accounts of the sectors and the rest of the world. However, the definitions of the measures of money applied vary among countries and in time. In addition, they are composed of components which in most of the cases do not correspond with the categories, sub-categories or sub-positions of financial assets and liabilities as defined in the system. Moreover, the money-creating, money-holding and money-neutral sectors depend on the definition of the monetary aggregate under consideration. Therefore, measures of money are not defined in the system. Nevertheless, a method is provided in the Annex 5.1 to this chapter which allows any measure of money in the balance sheets and the financial accounts to be shown.

5.23.

Many of the categories, sub-categories and sub-positions of the financial assets and liabilities may be broken down by the units in which they are denominated. Definition: Financial assets (liabilities) in national currency are financial assets (liabilities) which are denominated in the currency unit(s) of the country's legal tender. Financial assets (liabilities) in foreign currency are financial assets (liabilities) which are not denominated in the currency unit(s) of the country's legal tender. Financial assets in foreign currency include financial assets denominated in a currency basket, for example ecus or SDRs, and financial assets denominated in gold. A distinction between national and foreign currency is particularly useful for the category currency and deposits (AF.2).

Definition:

Financial assets (liabilities) in national currency are financial assets (liabilities) which are denominated in the currency unit(s) of the country's legal tender. Financial assets (liabilities) in foreign currency are financial assets (liabilities) which are not denominated in the currency unit(s) of the country's legal tender.

5.24. Category F.1 consists of two sub-categories of financial transactions:

5.25. The financial assets classified in the category monetary gold and SDRs (AF.1) are the only financial assets for which there are no counterpart liabilities in the system. Therefore, transactions in monetary gold and SDRs (F.1) always involve changes in ownership of financial assets (see paragraph 5.02).

5.26.	Definition: The sub-category monetary gold (F.11) consists of all transactions in monetary gold (AF.11) that is gold held as a component of foreign reserves by monetary authorities or by others who are subject to the effective control of the authorities.
Definition:	The sub-category monetary gold (F.11) consists of all transactions in monetary gold (AF.11) that is gold held as a component of foreign reserves by monetary authorities or by others who are subject to the effective control of the authorities.

5.27. The monetary authorities sector, which is based on a functional concept, consists of the subsector the central bank (S.121) and central government institutions which carry out operations usually attributed to the central bank. Such operations include the issue of currency, maintenance and management of international reserves and the operation of exchange stabilization funds. Therefore, gold can normally be a financial asset only for the central bank or central government. However, in some circumstances, other financial corporations may hold title to gold that can only be sold with the specific consent of the monetary authorities. In such restricted circumstances, the concept of effective control can be applied to the gold holdings of financial corporations other than the central bank.

5.28. Monetary gold normally takes the form of bars with a purity of at least 995/1000.

5.29. Transactions in monetary gold consist predominantly of sales and purchases of monetary gold among monetary authorities. Purchases of monetary gold are recorded in the financial accounts of the domestic monetary authorities as increases in financial assets. The counterpart entries are decreases in financial assets of the rest of the world.

5.30. Transactions in non-monetary gold, that is in gold other than monetary gold, are treated as acquisitions less disposals of valuables (if the sole purpose is to provide a store of wealth) and otherwise as final or intermediate consumption and/or change in inventories. Transactions in non-monetary gold include transactions by the monetary authorities in gold that is not a component of their foreign reserves.

5.31. If monetary authorities add non-monetary gold to their holdings of monetary gold or release monetary gold from their holdings for non-monetary purposes, they are deemed to have monetized or demonetized gold, respectively. Monetization or demonetization of gold does not give rise to entries in the financial accounts; instead, the change in balance sheet positions is accounted for by entries in the other changes in the volume of assets account as a reclassification, i.e. the reclassification of gold as valuables (AN.13) to monetary gold (AF.11) (see paragraph 6.32). Demonetization of gold is recorded symmetrically.

5.32. Deposits, securities and loans denominated in gold are treated as financial assets other than monetary gold and are classified along with similar financial assets in foreign currency in the appropriate category. Non-monetary gold swaps, that is arrangements involving the temporary exchange of non-monetary gold for deposits, are treated as collateralized loans (see paragraph 5.81. e).

5.33.	Definition: The sub-category special drawing rights (SDRs) (F.12) consists of all transactions in SDRs (AF.12) that is international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.
Definition:	The sub-category special drawing rights (SDRs) (F.12) consists of all transactions in SDRs (AF.12) that is international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.

5.34. SDRs are not considered liabilities of the IMF, and IMF members to whom SDRs are allocated do not have an actual (unconditional) liability to repay their SDRs allocations. SDRs are held exclusively by official holders, which are normally central banks, and are transferable among participants in the IMF's Special Drawing Rights Department and other holders designated by the IMF (other central banks and certain international agencies). SDRs represent each holder's assured and unconditional right to obtain other reserve assets, especially foreign exchange.

5.35. Changes in SDRs held by a monetary authority can arise through transactions in SDRs involving SDR payments to or receipts from the IMF, other participants in the IMF's Special Drawing Rights Department, or other holders. They are recorded in the financial accounts of the monetary authorities and the rest of the world, respectively. Changes in SDRs can also arise from changes in the value of SDRs to be recorded in the revaluation account, or from allocations and cancellations of SDRs to be recorded in the other changes in the volume of assets account (see paragraph 6.27. a).

5.36.	Definition: The category currency and deposits (F.2) consists of all transactions in currency and deposits (AF.2) that is currency in circulation and all types of deposits in national and in foreign currency.
Definition:	The category currency and deposits (F.2) consists of all transactions in currency and deposits (AF.2) that is currency in circulation and all types of deposits in national and in foreign currency.

5.37. Category F.2 is divided into three sub-categories of financial transactions: The distinction between transferable and non-transferable deposits may be difficult and not very useful analytically in some countries (for the distinction between deposits and loans see paragraphs 5.74 to 5.76).

5.38.	Definition: The sub-category currency (F.21) consists of all transactions in currency (AF.21) that is notes and coins in circulation that are commonly used to make payments.
Definition:	The sub-category currency (F.21) consists of all transactions in currency (AF.21) that is notes and coins in circulation that are commonly used to make payments.

5.39. Sub-category AF.21 includes:

5.40. Sub-category AF.21 does not include:

5.41. All sectors and the rest of the world may hold currency. It is issued by the central bank, central government, the rest of the world, and in exceptional cases other monetary financial institutions. Currency is deemed to be a liability of the issuing institutional unit.

5.42.	Definition: The sub-category transferable deposits (F.22) consists of all transactions in transferable deposits (AF.22) that is deposits (in national or in foreign currency) which are immediately convertible into currency or which are transferable by cheque, banker's order, debit entry or the like, both without any kind of significant restriction or penalty.
Definition:	The sub-category transferable deposits (F.22) consists of all transactions in transferable deposits (AF.22) that is deposits (in national or in foreign currency) which are immediately convertible into currency or which are transferable by cheque, banker's order, debit entry or the like, both without any kind of significant restriction or penalty.

5.43. Sub-category AF.22 includes transferable deposits with resident and non-resident monetary financial institutions. They cover transferable deposits between monetary financial institutions, such as deposits which other monetary financial institutions hold with the central bank to satisfy compulsory reserve requirements, insofar as such deposits remain transferable, or working balances and foreign exchange deposits under swap arrangements or between other monetary financial institutions.

5.44. All sectors and the rest of the world may hold transferable deposits. They are liabilities predominantly of monetary financial institutions and the rest of the world, and sometimes of general government.

5.45.	Definition: The sub-category other deposits (F.29) consists of all transactions in other deposits (AF.29) that is deposits (in national or in foreign currency) other than transferable deposits. Other deposits cannot be used to make payments at any time and they are not convertible into currency or transferable deposits without any kind of significant restriction or penalty.
Definition:	The sub-category other deposits (F.29) consists of all transactions in other deposits (AF.29) that is deposits (in national or in foreign currency) other than transferable deposits. Other deposits cannot be used to make payments at any time and they are not convertible into currency or transferable deposits without any kind of significant restriction or penalty.

5.46. Sub-category AF.29 includes:

5.47. Sub-category AF.29 does not include negotiable certificates of deposit and negotiable savings certificates. They are classified in category securities other than shares, excluding financial derivatives (AF.33).

5.48. Sub-category AF.29 includes further:

5.49. All sectors and the rest of the world may hold other deposits. They are liabilities predominantly of monetary financial institutions and the rest of the world, but also of other sectors, for example, general government (see paragraphs 5.74 to 5.76).

5.50.	Definition: The category securities other than shares (F.3) consists of all transactions in securities other than shares (AF.3) that is financial assets which are bearer instruments, are usually negotiable and traded on secondary markets or can be offset on the market, and do not grant the holder any ownership rights in the institutional unit issuing them.
Definition:	The category securities other than shares (F.3) consists of all transactions in securities other than shares (AF.3) that is financial assets which are bearer instruments, are usually negotiable and traded on secondary markets or can be offset on the market, and do not grant the holder any ownership rights in the institutional unit issuing them.

5.51. Category AF.3 covers financial assets which are typically represented by documents intended to circulate, and whose nominal value is determined on issue. It includes bills, bonds, certificates of deposit, commercial paper, debentures, financial derivatives, and similar instruments normally traded in the financial markets (for the distinction between securities other than shares and loans see paragraphs 5.77 to 5.80).

5.52. All sectors and the rest of the world may hold securities other than shares as financial assets. They are liabilities predominantly of financial and non-financial corporations, central, state and local government, and the rest of the world.

5.53. Category F.3 is divided into two sub-categories of financial transaction (⁷⁶):

5.54.

Definition: The sub-category securities other than shares excluding financial derivatives (F.33) consists of all transactions in securities other than shares excluding financial derivatives (AF.33), that is securities other than shares which give the holder the unconditional right to a fixed or contractually determined variable money income in the form of coupon payments (interest) and/or a stated fixed sum on a specified date or dates or startiung from a date fixed at the time of issue.

Definition:

The sub-category securities other than shares excluding financial derivatives (F.33) consists of all transactions in securities other than shares excluding financial derivatives (AF.33), that is securities other than shares which give the holder the unconditional right to a fixed or contractually determined variable money income in the form of coupon payments (interest) and/or a stated fixed sum on a specified date or dates or startiung from a date fixed at the time of issue.

5.55. Sub-category F.33 may be divided, when relevant, into two sub-positions of financial transactions:

5.56.	Definition: The sub-position short-term securities other than shares excluding financial derivatives (F.331) consists of all transactions in short-term securities other than shares excluding financial derivatives (AF.331) that is securities other than shares with a short-term original maturity (see paragraph 5.22) except financial derivatives.
Definition:	The sub-position short-term securities other than shares excluding financial derivatives (F.331) consists of all transactions in short-term securities other than shares excluding financial derivatives (AF.331) that is securities other than shares with a short-term original maturity (see paragraph 5.22) except financial derivatives.

5.57. Short-term securities other than financial derivatives are generally issued at a discount.

5.58. Sub-position AF.331 includes:

5.59. Sub-position AF.331 does not include securities whose negotiability, while theoretically possible, is very restricted in practice and which are therefore classified in the sub-categories other deposits (AF.29) or short-term loans (AF.41) as appropriate (see paragraphs 5.74 to 5.76).

5.60.	Definition: The sub-position long-term securities other than shares excluding financial derivatives (F.332) consists of all transactions in long-term securities other than shares excluding financial derivatives (AF.332) that is securities other than shares with a long-term original maturity (see paragraph 5.22) except financial derivatives.
Definition:	The sub-position long-term securities other than shares excluding financial derivatives (F.332) consists of all transactions in long-term securities other than shares excluding financial derivatives (AF.332) that is securities other than shares with a long-term original maturity (see paragraph 5.22) except financial derivatives.

5.61. Long-term securities are generally issued with coupons.

5.62. Sub-position AF.332 includes:

5.63. Sub-position AF.332 includes further financial assets issued as part of the securitization of loans, mortgages, credit card debt, accounts receivable and other assets. Sometimes the new security is issued as replacement for the original asset, which is effectively liquidated. Alternatively, the original asset is transferred to another institutional unit and the new securities replace the original asset on the original institutional unit's balance sheet. In this case the original asset should be recorded on the balance sheet of the new institutional unit that holds it.

5.64. Sub-position F.332 does not include:

5.65.	Definition: The sub-category financial derivatives (F.34) consists of all transactions in financial derivatives (AF.34) that is financial assets based on or derived from a different underlying instrument. The underlying instrument is usually another financial asset, but may also be a commodity or an index.
Definition:	The sub-category financial derivatives (F.34) consists of all transactions in financial derivatives (AF.34) that is financial assets based on or derived from a different underlying instrument. The underlying instrument is usually another financial asset, but may also be a commodity or an index.

5.66. Financial derivatives are also referred to as secondary instruments and since risk avoidance is frequently a motivation for their creation, they are also referred to as hedging instruments. Only those secondary instruments which have a market value because they are tradable or can be offset on the market are financial assets in the system and are classified in the sub-category AF.34 (see paragraph 5.05).

5.67. Sub-category AF.34 includes:

5.68. Sub-category AF.34 does not include:

5.69.	Definition: The category loans (F.4) consists of all transactions in loans (AF.4) that is financial assets created when creditors lend funds to debtors, either directly or through brokers, which are either evidenced by non-negotiable documents or not evidenced by documents.
Definition:	The category loans (F.4) consists of all transactions in loans (AF.4) that is financial assets created when creditors lend funds to debtors, either directly or through brokers, which are either evidenced by non-negotiable documents or not evidenced by documents.

5.70. Generally loans are characterized by the following features:

5.71. Category F.4 may be divided, when relevant, into two sub-categories of financial transactions;

5.72.	Definition: The sub-category short-term loans (F.41) consists of all transactions in short-term loans (AF.41) that is loans with a short-term original maturity (see paragraph 5.22) and loans repayable on demand.
Definition:	The sub-category short-term loans (F.41) consists of all transactions in short-term loans (AF.41) that is loans with a short-term original maturity (see paragraph 5.22) and loans repayable on demand.
5.73.	Definition: The sub-category long-term loans (F.42) consists of all transactions in long-term loans (AF.42) that is loans with a long-term original maturity (see paragraph 5.22).
---	---
Definition:	The sub-category long-term loans (F.42) consists of all transactions in long-term loans (AF.42) that is loans with a long-term original maturity (see paragraph 5.22).

5.74. The distinction between transactions in loans (F.4) and transactions in deposits (F.22, F.29) may often be based on the criterion who is taking the initiative for the transaction. In cases where the initiative is taken by a borrower, the transaction is to be classified in the category loans. In cases where the initiative is taken by a lender, the transaction is to be classified in one of the deposit sub-categories. However, the criterion of who is taking the initiative is often a matter of judgement.

5.75. By convention, short-term loans granted to monetary financial institutions, resident or non-resident, are normally classified in one of the deposit sub-categories (AF.22, AF.29), and short-term deposits accepted by institutional units other than monetary financial institutions, resident or non-resident, are normally classified in sub-category short-term loans (AF.41). Therefore, deposits are liabilities predominantly of resident and non-resident monetary financial institutions (see paragraphs 5.44 and 5.49), while monetary financial institutions normally have no short-term loan liabilities in the system.

5.76. It might be useful analytically to allow for exceptions to the above conventions. Examples are savings deposits with general government and non-monetary gold swaps between monetary financial institutions (see paragraph 5.81. e) (⁷⁷).

5.77. The distinction between transactions in loans (F.4) and transactions in securities other than shares (F.3) can be based on the degree of marketability of the financial assets and its implications.

5.78. Security issues consist of a large number of identical documents, each evidencing a round sum, which together form the total amount borrowed. Compared with this, loans are evidenced in most cases by a single document and transactions in loans are carried out between one creditor and one debtor. In the case of syndicated loans, however, the loan is granted by several creditors.

5.79. Secondary trade in loans exists. However, individual loans are only traded incidentally. In cases where a loan becomes negotiable on an organized market, it is to be classified in the category securities other than shares. An explicit conversion of the original loan is normally involved (see paragraphs 5.62. j and 5.62. k).

5.80. Standard loans are offered in most cases by financial corporations and they are often granted to households. The financial corporations determine the conditions and the households may only choose either to accept or not to accept. Compared with this, the conditions of non-standard loans are usually the result of negotiations between the creditor and the debtor. This is an important criterion which facilitates a distinction between non-standard loans and securities other than shares. In the case of public security issues, the issue conditions are determined by the borrower, possibly after consulting the bank/lead-manager. In the case of private security issues, however, the creditor and the debtor negotiate the issue conditions (see paragraph 5.62. i).

5.81. Category AF.4 includes:

5.82. Category AF.4 includes further: Liabilities to the IMF evidenced by loans under the Structural Adjustment Facility, the Enhanced Structural Adjustment Facility, and the Trust Fund.

5.83. Category AF.4 does not include:

5.84. Loans may be financial assets or liabilities of all sectors and the rest of the world. However, monetary financial institutions have normally no short-term loan liabilities in the system.

5.85. The sub-categories short-term loans and long-term loans are not divided into sub-positions in the system. Nevertheless, it may be useful analytically to divide, in particular, long-term loans into consumer credit (⁸⁰), mortgage loans (⁸¹) and other loans.

5.87. Category F.5 is divided into two sub-categories of financial transactions:

5.88.

Definition: The sub-category shares and other equity excluding mutual funds shares (F.51) consists of all transactions in shares and other equity excluding mutual funds shares (AF.51) that is financial assets except mutual fund shares which represent property rights on corporations or quasi-corporations. These financial assets generally entitle the holders to a share in the profits of the corporations or quasi-corporations and to a share in their net assets in the event of liquidation.

Definition:

The sub-category shares and other equity excluding mutual funds shares (F.51) consists of all transactions in shares and other equity excluding mutual funds shares (AF.51) that is financial assets except mutual fund shares which represent property rights on corporations or quasi-corporations. These financial assets generally entitle the holders to a share in the profits of the corporations or quasi-corporations and to a share in their net assets in the event of liquidation.

5.89. Sub-category F.51 may be divided, when relevant, into three sub-positions of financial transactions:

5.90.

Definition: The sub-position quoted shares excluding mutual funds shares (F.511) consists of all transactions in quoted shares excluding mutual funds shares (AF.511) and the sub-position unquoted shares excluding mutual funds shares (F.512) consists of all transactions in unquoted shares excluding mutual funds shares (AF.512). Shares cover beneficial interest in the capital of corporations in the form of securities which in principle are negotiable. Sub-position AF.511 covers those shares with prices quoted on a recognized stock exchange or other form of secondary market, and sub-position AF.512 covers those shares that are not quoted.

Definition:

The sub-position quoted shares excluding mutual funds shares (F.511) consists of all transactions in quoted shares excluding mutual funds shares (AF.511) and the sub-position unquoted shares excluding mutual funds shares (F.512) consists of all transactions in unquoted shares excluding mutual funds shares (AF.512). Shares cover beneficial interest in the capital of corporations in the form of securities which in principle are negotiable. Sub-position AF.511 covers those shares with prices quoted on a recognized stock exchange or other form of secondary market, and sub-position AF.512 covers those shares that are not quoted.

5.91. Sub-positions AF.511 and AF.512 include:

5.92. Sub-positions AF.511 and AF.512 do not include:

5.93. Sub-positions F.511 and F.512 do not include issues of bonus shares that is the remittance of new shares to shareholders in proportion to their holdings. Such an issue, which changes neither the liability of the corporation vis-à-vis the shareholders nor the proportion of the assets that each shareholder holds in the corporation, does not constitute a financial transaction and is not recorded in the system (see paragraph 6.56). The same applies for share split issues.

5.94.	Definition: The sub-position other equity (F.513) consists of all transactions in other equity (AF.513) that is all forms of equity other than those classified in sub-positions AF.511 and AF.512, and in sub-category AF.52.
Definition:	The sub-position other equity (F.513) consists of all transactions in other equity (AF.513) that is all forms of equity other than those classified in sub-positions AF.511 and AF.512, and in sub-category AF.52.

5.95. Sub-position AF.513 includes:

5.96.	Definition: The sub-category mutual funds shares (F.52) consists of all transactions in mutual funds shares (AF.52) that is shares issued by a specific type of financial corporation, whose exclusive purpose is to invest the funds collected on the money market, the capital market and/or in real estate.
Definition:	The sub-category mutual funds shares (F.52) consists of all transactions in mutual funds shares (AF.52) that is shares issued by a specific type of financial corporation, whose exclusive purpose is to invest the funds collected on the money market, the capital market and/or in real estate.

5.97. Sub-category AF.52 includes the shares issued by financial corporations called, according to country, mutual funds, unit trusts, investment trusts and other collective investment schemes, e.g. UCITS, whether they are open-ended, semi-open or closed-end funds. These shares may be quoted or unquoted. When they are unquoted, they are usually repayable on request, at a value corresponding to their share in the own funds of the financial corporation. These own funds are revalued regularly on the basis of the market prices of their various components.

5.98. Definition : The category insurance technical reserves (F.6) consists of all transactions in insurance technical reserves (AF.6) that is the technical provisions of insurance corporations and (autonomous and non-autonomous) pension funds against policy holders or beneficiaries as laid down in Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings (⁸⁵)

5.99. Category AF.6 covers:

5.100. Insurance technical reserves are financial assets:

5.101. Insurance technical reserves are liabilities: Provisions or similar funds constituted by employers to provide employees with pensions (non-autonomous pension funds) are only included in category AF.6 if they are calculated according to actuarial criteria similar to those used by insurance corporations and autonomous pension funds. Otherwise, these provisions are covered by the shares or other equity issued by the institutional unit that sets up the provisions.

5.102. Category AF.6 does not include provisions established by institutional units classified in the sub-sector social security funds (S.1314). In the system, these provisions are not liabilities of the social security funds sub-sector.

5.103. Category F.6 is divided into two sub-categories of financial transactions:

5.104.

Definition: The sub-category net equity of households in life insurance reserves and in pension funds reserves (F.61) consists of all transactions in net equity of households in life insurance reserves and in pension funds reserves (AF.61) that is technical provisions set aside in the corporations and quasi-corporations concerned for the purpose of satisfying, once the established conditions are met, the claims and benefits foreseen.

Definition:

The sub-category net equity of households in life insurance reserves and in pension funds reserves (F.61) consists of all transactions in net equity of households in life insurance reserves and in pension funds reserves (AF.61) that is technical provisions set aside in the corporations and quasi-corporations concerned for the purpose of satisfying, once the established conditions are met, the claims and benefits foreseen.

5.105. Sub-category F.61 is divided into two sub-positions of financial transactions:

5.106.	Definition: The sub-position net equity of households in life insurance reserves (F.611) consists of all transactions in net equity of households in life insurance reserves (AF.611) that is technical provisions against outstanding risks and technical provisions for with-profit insurance that add to the value on maturity of with-profit endowments or similar policies.
Definition:	The sub-position net equity of households in life insurance reserves (F.611) consists of all transactions in net equity of households in life insurance reserves (AF.611) that is technical provisions against outstanding risks and technical provisions for with-profit insurance that add to the value on maturity of with-profit endowments or similar policies.

5.107. Sub-position AF.611 includes life insurance provisions, provisions for bonuses and rebates and technical provisions for life insurance policies where the investment risk is borne by the policyholders as defined in Articles 27, 29 and 31 of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings.

5.108. Transactions in net equity of households in life insurance reserves consist of additions less reductions, which are to be distinguished from nominal holding gains or losses on the funds invested by insurance corporations (see paragraph 6.57). Additions consist of: Reductions consist of:

5.109. Life insurance reserves are financial assets of resident or non-resident households and liabilities of resident or non-resident insurance corporations. In the case of a group insurance taken out, for example, by a corporation on behalf of its employees, the employees, but not the employer, are deemed to be the creditors, since they are considered as the real policy holders.

5.110.	Definition: The sub-position net equity of households in pension funds reserves (F.612) consists of all transactions in net equity of households in pension funds reserves (AF.612) that is technical provisions held by autonomous and non-autonomous pension funds established by employers and/or employees or groups of self-employed to provide pensions for employees or self-employed.
Definition:	The sub-position net equity of households in pension funds reserves (F.612) consists of all transactions in net equity of households in pension funds reserves (AF.612) that is technical provisions held by autonomous and non-autonomous pension funds established by employers and/or employees or groups of self-employed to provide pensions for employees or self-employed.

5.111. Transaction in net equity of households in pension funds reserves consist of additions less reductions, which are to be distinguished from nominal holding gains or losses on the funds invested by pension funds (see paragraph 6.57). Additions consist of: Reductions consist of:

5.112. Transactions in net equity of households in pension funds reserves do not include funds transferred from non-autonomous pension funds to autonomous pension funds, classified in the subsector insurance corporations and pension funds (S.125), as a result of the conversion of one fund into another. This event is to be recorded in the category changes in sector classification and structure (K.12.1) of the other changes in the volume of assets account (see paragraph 6.30).

5.113. Pension funds reserves are financial assets of resident or non-resident households but not financial assets of the institutional units that manage them.

5.114.

Definition: The sub-category prepayments of insurance premiums and reserves for outstanding claims (F.62) consists of all transactions in prepayments of insurance premiums and reserves for outstanding claims (AF.62) that is technical provisions established by insurance corporations and (autonomous and non-autonomous) pension funds for: (a) the amount representing that part of gross premiums written which is to be allocated to the following accounting period (prepayments of insurance premiums); (b) the total estimated ultimate cost of settling all claims arising from events which have occurred up to the end of the accounting period, whether reported or not, less amounts already paid in respect of such claims (provisions for outstanding claims).

Definition:

The sub-category prepayments of insurance premiums and reserves for outstanding claims (F.62) consists of all transactions in prepayments of insurance premiums and reserves for outstanding claims (AF.62) that is technical provisions established by insurance corporations and (autonomous and non-autonomous) pension funds for: (a) the amount representing that part of gross premiums written which is to be allocated to the following accounting period (prepayments of insurance premiums); (b) the total estimated ultimate cost of settling all claims arising from events which have occurred up to the end of the accounting period, whether reported or not, less amounts already paid in respect of such claims (provisions for outstanding claims).

5.115. Prepayments of insurance premiums result from the fact that insurance premiums are, in general, due to be paid at the start of the period covered by the insurance, and this period does not normally coincide with the accounting period itself. Therefore, at the end of the accounting period when the balance sheet is drawn up, parts of the insurance premiums payable during the accounting period are intended to cover risks in the subsequent period. The prepayments of insurance premiums are determined on the basis of the proportion of the risks involved in relation to time for the period remaining to run until the contract expires. In the financial account, the prepayments of insurance premiums recorded between policy holders and insurance corporations consist of those parts of the premiums that are payable in the current accounting period and that are intended to cover risks outstanding during the following period.

5.116. The prepayments of insurance premiums are financial assets of the policy holders. If these prepayments relate to life insurance, the policy holders are resident or non-resident households. If they relate to non-life insurance, the policy holders may belong to any sector of the economy or to the rest of the world. The insurance premiums or social contributions paid by the policy holders may be taken as the criterion to distribute the prepayments of insurance premiums among the sectors of the economy and the rest of the world.

5.117. Reserves for outstanding claims are held by insurance corporations in order to cover the amounts they expect to pay out in respect of claims that are not yet settled, for example, because they are disputed. Valid claims accepted by insurance corporations are considered due for payment when the event that gives rise to the claim occurs, however long it takes to settle disputed claims.

5.118. Reserves for outstanding claims are financial assets of the beneficiaries that may belong to any sector of the economy or to the rest of the world.

5.119. Sub-category AF.62 includes provisions for unearned premiums, other technical provisions, claims outstanding and equalization provisions as defined in Articles 25, 26, 28 and 30 of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings.

5.120.	Definition: The category other accounts receivable/payable (F.7) consists of all transactions in other accounts receivable/payable (AF.7) that is financial claims which are created as a counterpart of a financial or a non-financial transaction in cases where there is a timing difference between this transaction and the corresponding payment.
Definition:	The category other accounts receivable/payable (F.7) consists of all transactions in other accounts receivable/payable (AF.7) that is financial claims which are created as a counterpart of a financial or a non-financial transaction in cases where there is a timing difference between this transaction and the corresponding payment.

5.121. Category F.7 includes transactions in financial claims which stem from the early or late payment for transactions in goods or services, distributive transactions or secondary trade in financial assets. They consist of the counterpart transactions in case payment is due and not yet paid. Debts arising from income accruing over time and arrears are also classified under this category.

5.122. Category F.7 does not include:

5.123. Category F.7 is divided into two sub-categories of financial transactions:

5.124.	Definition: The sub-category trade credits and advances (F.71) consists of all transactions in trade credits and advances (AF.71) that is financial claims arising from the direct extension of credit by suppliers and buyers for goods and services transactions and advance payments for work that is in progress or to be undertaken and associated with such transactions.
Definition:	The sub-category trade credits and advances (F.71) consists of all transactions in trade credits and advances (AF.71) that is financial claims arising from the direct extension of credit by suppliers and buyers for goods and services transactions and advance payments for work that is in progress or to be undertaken and associated with such transactions.

5.125. Sub-category AF.71 includes:

5.126. Sub-category AF.71 does not include loans to finance trade credits. They are classified in category AF.4 (see paragraph 5.81. h).

5.127. Trade credits and advances may be financial assets or liabilities of all sectors and the rest of the world.

5.128.

Definition: The sub-category other accounts receivable/payable excluding trade credits and advances (F.79) consists of all transactions in other accounts receivable/payable excluding trade credits and advances (AF.79) that is financial claims which arise from timing differences between distributive transactions or financial transactions on the secondary market and the corresponding payment. It includes also financial claims due to income accruing over time.

Definition:

The sub-category other accounts receivable/payable excluding trade credits and advances (F.79) consists of all transactions in other accounts receivable/payable excluding trade credits and advances (AF.79) that is financial claims which arise from timing differences between distributive transactions or financial transactions on the secondary market and the corresponding payment. It includes also financial claims due to income accruing over time.

5.129. Sub-category AF.79 includes financial claims created as a result of the timing difference between accrued transactions and payments made in respect of, for example: The amounts of taxes and social contributions payable to the general government to be included under AF.79 should not include the part of these taxes and social contributions which is unlikely to be collected, and which therefore represents a general government claim that has no real value.

5.130. Preferably, the counterpart financial transaction of interest accruing on financial assets (see paragraph 5.17) should be recorded as being reinvested in that financial asset. The recording of interest will, however, have to follow national practices. If the interest accrual is not recorded as being reinvested in the financial asset, it should be classified in sub-category F.79.

5.131. At the date due for payment of interest, two financial transactions are recorded (see paragraph 5.17): firstly, in the event of payment, a transaction in the financial asset used for payment, or, in the event of non-payment, an increase of interest arrears to be recorded in sub-category F.79; secondly, the counterpart financial transaction reducing the net financial claim of the creditor against the debtor.

5.132. Definition : Direct foreign in vestment (F.m) consists of all transactions in direct foreign investment (AF.m) that is investment involving a long-term relationship reflecting a lasting interest of a resident institutional unit in one economy (‘direct investor’) in an institutional unit resident in an economy other than that of the investor (‘direct investment enterprise’). The direct investor's purpose is to exert a significant degree of influence on the management of the enterprise resident in the other economy. Direct investment involves both the initial transaction between the direct investor and the direct investment enterprise and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated (⁸⁶)

5.133. Transactions in financial assets and liabilities that constitute direct foreign investment are to be recorded under the appropriate categories of financial transactions, i.e. loans (F.4), shares and other equity (F.5) and other accounts receivable/payable (F.7). However, the amounts of direct foreign investment included within each of those categories should also be recorded separately as a memorandum item.

ACCOUNTING RULES FOR FINANCIAL TRANSACTIONS

5.134. Financial transactions are recorded at the transaction values, that is, the values in national currency at which the financial assets and/or liabilities involved are created, liquidated, exchanged or assumed between institutional units, or between them and the rest of the world, on the basis of commercial considerations only.

5.135. Financial transactions and their financial or non-financial counterpart transactions are recorded at the same transaction value. Three possibilities can be envisaged:

5.136. The transaction value refers to a specific financial transaction and its counterpart transaction. In concept, the transaction value is to be clearly distinguished from a value based on a price quoted in the market, a fair market price, or any price that is intended to express the generality of prices for a class of similar or even identical financial assets and/or liabilities. However, in cases where the counterpart transaction of a financial transaction is, for example, a transfer and therefore the financial transaction is undertaken other than for purely commercial considerations, the transaction value is identified with the current market value of the financial assets and/or liabilities involved.

5.137. The transaction value does not include service charges, fees, commissions, and similar payments for services provided in carrying out the transactions; these are to be recorded as payments for services. Taxes on financial transactions are also excluded and treated as taxes on services within taxes on products. When a financial transaction involves a new issue of liabilities, the transaction value is equal to the amount of the liability incurred exclusive of any prepaid interest. Similarly, when a liability is extinguished, the transaction value for both creditor and debtor must correspond to the reduction of the liability.

(a) When securities are marketed by issuers through underwriters or other intermediaries and then sold at higher prices to final investors, the financial assets and liabilities are to be recorded at the values paid by the investors. The differences between the amounts paid by the investors and those received by the issuers should be treated as service payments paid by the issuers to the underwriters.

(b) Security issues are recorded at the issue value. When securities are issued at a discount or at a premium, the proceeds to the issuer at the time of sale, and not the face value, are recorded in the accounts as the actual issue value. The difference between the issue value and the redemption value is treated as interest that is accrued over the life of the security.

(c) Deep-discount or zero-coupon bonds should be treated as securities issued at a discount. The interest is accrued over the life of the bonds and treated as being reinvested in such bonds (see paragraph 4.46).

(d) When long-term securities are issued at a discount, which is not significant, the difference between the issue value and the redemption value can be imputed at the date of issue.

(e) In case of securities where the value of the principal is linked to a price index, the price of a commodity or an exchange rate index, the issue price of the security is recorded as the principal and the index payment paid periodically and/or at maturity is treated as interest that is accrued over the life of the security, and the counterpart is recorded as reinvestment in securities other than shares in the financial account.

(f) Investment in securities in circulation on the secondary market is recorded at the stock exchange quotation or market price.

(g) Securities which have reached maturity are recorded at redemption value, which includes redemption premiums but excludes payments by lottery and savings premiums, which are recorded as interest.

(h) The conversion of bonds into shares should be treated as a sale of bonds and a purchase of shares (see paragraph 5.62. l). The transaction value is to be derived from the market value of the bonds disposed of, possibly implying a holding gain or loss on shares to be recorded in the revaluation account (see paragraph 6.54).

(a) Secondary trade in options and closing out options prior to delivery involve financial transactions. If an option proceeds to delivery, it may be exercised or not exercised. In cases where the option is exercised, there may be a payment from the option writer to the option holder equal to the difference between the prevailing market price of the underlying asset and the strike price, or, alternatively, there may be the acquisition or sale of the underlying financial or non-financial asset recorded at the prevailing market price and a counterpart payment between the option holder and the option writer equal to the strike price. The difference between the prevailing market price of the underlying asset and the strike price is in both cases equal to the liquidation value of the option, that is the option price at delivery. In cases where the option is not exercised, no transaction takes place. However, the option writer makes a holding gain and the option holder makes a holding loss to be recorded in the revaluation account.

(b) Financial derivatives other than options typically involve contracts where two parties agree to exchange specified assets, either real or financial, at some future point or points in time. The transactions which are to be recorded against such financial derivatives include any trading in the contracts as well as the net value of settlements made. There may also be the need to record transactions associated with the establishment of derivative contracts. However, in many cases, the two parties will enter into a derivative contract without any payment by one party to the other; in these cases the value of the transaction establishing the contract is nil and no entry is actually required in the financial account.

(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:

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)). 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).

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). This final derivative transaction and any final net interest flow 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 (a) above).

(a) New shares are recorded at issue value, which normally corresponds to nominal value plus the issue premium.

(b) Transactions in shares in circulation are to be recorded at their transaction value. When it is not known, it may be approximated by the stock exchange quotation or market price for quoted shares and by the book value for unquoted shares.

(c) Scrip dividend shares are valued at the price implied by the issuer's dividend proposal.

(d) Issues of bonus shares are not recorded in the system (see paragraph 5.93). However, in cases where the issue of bonus shares involves changes in the total market value of the shares of a corporation, the changes are to be recorded in the revaluation account (see paragraph 6.56).

(e) The transaction value of other equity (F.513) is the amount of funds transferred by the owners to their corporations or quasi-corporations. In some cases, funds can be transferred by assuming liabilities of the corporation or quasi-corporation.

(a) Transactions in mutual funds shares include the value of net contributions to a fund.

(b) Property income received by mutual funds, net of a part of management costs, and assigned to shareholders, even though it is not distributed, has a counterpart entry in the financial account under mutual funds shares. The effect is that property income is reinvested.

5.142. Financial transactions and their counterpart transactions are to be recorded at the same point in time.

5.143. When the counterpart of a financial transaction is a non-financial transaction, both are recorded at the time the non-financial transaction takes place. For example, when sales of goods or services give rise to a trade credit, this financial transaction is to be recorded when the entries are made in the relevant non-financial account.

5.144. When the counterpart of a financial transaction is also a financial transaction, three possibilities can be envisaged:

5.145. In cases where basic statistics on financial transactions are not available, financial transactions may be compiled based on changes in financial balance sheets, that is changes in the amount of financial assets held and liabilities outstanding between the closing balance sheet and the opening balance sheet. The difference between the amount of financial transactions and the changes in financial balance sheets consists of entries in the revaluation account and the other changes in the volume of assets account.

Annex 5.1

Link with measures of money

5.146. This Annex explains a method which allows measures of money to be shown in the balance sheets and the financial accounts.

5.147. The definitions of the measures of money applied vary among countries and over time. In addition, these definitions are not necessarily based on the classification of financial assets and the classification of sectors as defined in the system. Therefore, measures of money are not defined in the system.

5.148. The following problems appear in integrating measures of money in the balance sheets and the financial accounts. Firstly, the measures of money may be composed of components which do not correspond with the classes, that is to say the categories, sub-categories and sub-positions, of financial assets and liabilities as defined in the system. For example, a measure of money may include only a sub-class of the category currency and deposits (AF.2). The sub-class may be defined by a reference to maturity and/or by a reference to the institutional units holding or issuing currency and deposits. Secondly, the measures of money may imply money-creating, money-holding and money-neutral sectors which cannot be composed of the sectors and subsectors as defined in the system. Thirdly, the data sources used for compiling monetary aggregates may in practice differ from the data sources used for compiling the balance sheets and the financial accounts of the sectors and the rest of the world.

5.150. The measure of money MX is equal to the sum of all sub-classes of financial assets MXi of the money-holding sectors and MX is equal to the sum of all sub-classes of liabilities MXi of the money-creating sectors.

5.151.	A main advantage of this method is its flexibility. In cases where the definition of a measure of money is changed, only the breakdowns of some classes of financial assets and liabilities into MXi and MX-i have to be adapted. Measures of money in the balance sheets or the financial accounts Financial assets of money-holding sectors Liabilities of money-creating sectors Total Breakdown by sectors Breakdown by sectors Total AF.1 AF.2 of which MX2 MX-2 AF.3 AF.33 of which MX33 MX-33 AF.34 of which MX34 MX-34 AF.4 AF.41 of which MX41 MX-41 AF.42 of which MX42 MX-42 AF.5 AF.51 of which MX51 MX-51 AF.52 of which MX52 MX-52 AF.6 AF.7 AF.71 of which MX71 MX-71 AF.79 Total of financial assets and liabilities of which MX
Financial assets of money-holding sectors		Liabilities of money-creating sectors
Total	Breakdown by sectors	Breakdown by sectors	Total
		AF.1
		AF.2
		of which	MX2
		MX-2
		AF.3
		AF.33
		of which	MX33
		MX-33
		AF.34
		of which	MX34
		MX-34
		AF.4
		AF.41
		of which	MX41
		MX-41
		AF.42
		of which	MX42
		MX-42
		AF.5
		AF.51
		of which	MX51
		MX-51
		AF.52
		of which	MX52
		MX-52
		AF.6
		AF.7
		AF.71
		of which	MX71
		MX-71
		AF.79
		Total of financial assets and liabilities of which MX

CHAPTER 6

OTHER FLOWS

6.01. Other flows cover consumption of fixed capital (K.1), acquisitions and disposals of non-financial non-produced assets (K.2) and other changes in assets (K.3 to K.12). The other changes in assets consist of different kinds of changes in assets, liabilities and net worth which are not the result of transactions being recorded in the capital and financial accounts. They cover other changes in volume (K.3 to K.10 and K.12) and also holding gains and losses (K.11).

CONSUMPTION OF FIXED CAPITAL (K.1)

6.02.	Definition: Consumption of fixed capital (K.1) represents the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.
Definition:	Consumption of fixed capital (K.1) represents the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.

6.03. Consumption of fixed capital must be calculated for all fixed assets (except animals), including both tangible fixed assets and intangible fixed assets such as mineral exploration costs and software, major improvements to non-produced assets and costs of ownership transfers associated with non-produced assets.

6.04. Consumption of fixed capital (which should be distinguished from the depreciation allowed for tax purposes or the depreciation shown in business accounts) should be estimated on the basis of the stock of fixed assets and the probable average economic life of the different categories of those goods. For the calculation of the stock of fixed assets, the perpetual inventory method (PIM) is recommended whenever direct information on the stock of fixed assets is missing. The stock of fixed assets should be valued at the purchasers' prices of the current period. Losses of fixed assets occurring as a result of accidental damage which can be insured against are taken into account in calculating the average service life of the goods in question. For the economy as a whole the actual normal accidental damage within a given accounting period may be expected to be equal, or close, to the average. However, for individual units and groupings of units actual normal and average accidental damage may differ. In this case, for sectors, any difference is recorded as other changes in volume of fixed assets. Consumption of fixed capital is calculated according to the ‘straight line’ method, by which the value of a fixed asset is written off at a constant rate over the whole lifetime of the good. However, depending on the pattern of decline in the efficiency of a fixed asset the calculation of consumption of fixed capital according to the geometric depreciation method may be required.

6.05. In the system of accounts consumption of fixed capital is recorded below each balancing item, which is shown gross and net. Recording ‘gross’ means without deducting consumption of fixed capital, while recording ‘net’ means after deducting consumption of fixed capital.

ACQUISITIONS LESS DISPOSALS OF NON-FINANCIAL NON-PRODUCED ASSETS (K.2)

6.06. Definition : Non-financial non-produced assets (⁸⁷) consist of land and other tangible non-produced assets that may be used in the production of goods and services, and intangible non-produced assets.

6.07. Land is defined as the ground itself, including soil covering and associated surface water (87) . The associated surface water includes any inland waters (reservoirs, lakes, rivers, etc.) over which ownership rights can be exercised.

6.08. The following items are not included in land: Items (a) and (b) are produced fixed assets, items (c), (d) and (e) belong to tangible non-produced assets.

6.09. Acquisitions and disposals of land are valued at current market prices prevailing at the time the acquisitions/disposals occur. Transactions in land are recorded at the same value both in the accounts of the purchaser and in those of the seller. This value excludes the costs involved in the transfer of ownership of land, which are treated as gross fixed capital formation.

6.10. Acquisitions and disposals of other tangible non-produced assets cover subsoil assets, non-cultivated biological resources and water resources. Subsoil assets include coal, oil and natural gas reserves, metallic mineral reserves and non-metallic mineral reserves (87) .

6.11. Acquisitions and disposals of other tangible non-produced assets are valued at current market prices prevailing at the time the acquisitions/diposals occur. Acquisitions and disposals exclude the associated costs of ownership transfer. The latter are recorded as gross fixed capital formation.

6.12. Intangible non-financial non-produced assets consist of patented entities, leases or other transferable contracts, purchased goodwill and other intangible non-produced assets. Such leases are on land, subsoil assets and residential and non-residential buildings (87) . Further examples include transferable contracts with athletes and authors. The value of the acquisitions or disposals of leases or other transferable contracts consists of payments made to the original or subsequent tenants or lessees when the leases or concessions are sold or transferred to other institutional units. The value of acquisitions and disposals of intangible non-produced assets excludes the associated costs of ownership transfer. The costs of ownership transfer are a component of gross fixed capital formation.

6.13. Acquisitions less disposals of non-financial non-produced assets are recorded in the capital account of the sectors, the total economy and the rest of the world.

OTHER CHANGES IN ASSETS (K.3 to K.12)

6.14.

Definition: Other changes in assets are flows which are not the result of transactions recorded in the capital and financial accounts. Two kinds of other changes are distinguished. The first kind consists of changes in the volume of assets. The second consists of changes in the value of assets, liabilities and net worth due to changes in the level and structure of prices leading to holding gains or losses.

Definition:

Other changes in assets are flows which are not the result of transactions recorded in the capital and financial accounts. Two kinds of other changes are distinguished. The first kind consists of changes in the volume of assets. The second consists of changes in the value of assets, liabilities and net worth due to changes in the level and structure of prices leading to holding gains or losses.

OTHER CHANGES IN VOLUME (K.3 to K.10 AND K.12)

6.15. Other changes in volume are flows with different functions. One important function is to allow certain assets to enter and leave the system in the normal course of events — e.g. entrances and exits of naturally occurring assets. This is important for recording the discovery, depletion and degradation of natural assets. A second function is to record the effect of exceptional, unanticipated events that affect the economic benefits derivable from assets.

6.16. The other changes in volume cover nine categories:

ECONOMIC APPEARANCE OF NON-PRODUCED ASSETS (K.3)

6.17. Economic appearance of non-financial non-produced assets (K.3) represents the increase in the volume of this kind of assets that is not the result of production. Included are:

ECONOMIC APPEARANCE OF PRODUCED ASSETS (K.4)

6.18. Economic appearance of produced assets (K.4) occurs in the case of goods that are not already recorded in the Balance Sheets. It is the recognition of a significant or special value that is considered an economic appearance to be recorded under other changes in volume. Economic appearance of produced assets includes:

NATURAL GROWTH OF NON-CULTIVATED BIOLOGICAL RESOURCES (K.5)

6.19. Natural growth of non-cultivated biological resources (K.5) is not under the direct control, responsibility and management of an institutional unit and thus is not production. The increment in these economic assets such as standing natural timber, or fish in the estuaries, must then be regarded as an economic appearance.

6.20. Natural growth should be recorded as an addition (K.5); the depletion of these resources should be recorded as an economic disappearance (K.61). In practice, however, natural growth can only be recorded net because the physical measurements that are likely to be the only basis available for the recording are, in effect, net measurements.

ECONOMIC DISAPPEARANCE OF NON-PRODUCED ASSETS (K.6)

6.21. Economic disappearance on non-financial non-produced assets (K.6) includes:

CATASTROPHIC LOSSES (K.7)

6.22. Catastrophic losses (K.7) recorded as other changes in the volume of assets are the result of large-scale, discrete and recognizable events that may destroy items within any of the categories of economic (non-financial or financial) assets.

6.23. Such events include major earthquakes, volcanic eruptions, tidal waves, exceptionally severe hurricanes, drought and other natural disasters; acts of war, riots and other political events; and technological accidents such as major toxic spills or release of radioactive particles into the air. Included here are in particular:

UNCOMPENSATED SEIZURES (K.8)

6.24. Uncompensated seizures (K.8) occur when governments or other institutional units take possession of the assets of other institutional units, including non-resident units, without full compensation, for reasons other than the payment of taxes, fines or similar levies. The uncompensated part of such unilateral seizures is not a capital transfer recorded in the capital account.

OTHER VOLUME CHANGES IN NON-FINANCIAL ASSETS N.E.C. (K.9)

6.25. Under other volume changes in non-financial assets (K.9) are recorded the effects of unexpected events on the economic benefits derivable from assets. Included are:

OTHER VOLUME CHANGES IN FINANCIAL ASSETS AND LIABILITIES N.E.C. (K.10)

6.26. Any changes in financial assets and liabilities that are not due to financial transactions recorded in the financial account, that are not attributed to holding gains and losses recorded in the revaluation account, that are not changes in classifications and structure and that are not due to catastrophic losses and uncompensated seizures are to be recorded here.

6.27. Category K.10 includes:

6.28. Category K.10 does not include:

CHANGES IN CLASSIFICATIONS AND STRUCTURE (K.12)

6.29. Changes in classifications and structure (K.12) comprise changes in sector classification and structure of institutional units (K.12.1) and changes in classification of assets and liabilities (K.12.2).

6.30. Reclassifying an institutional unit from one sector to another transfers its entire balance sheet, e.g. an institutional unit classified in the household sector becomes a quasi-corporation to be reclassified in the corporations sector. Changes in structure of institutional units cover appearance and disappearance of certain financial assets and liabilities arising from corporate restructuring. When a corporation disappears as an independent legal entity because it is absorbed by one or more corporations, all financial assets/liabilities including shares and other equity that existed between that corporation and those that absorbed it, disappear from the system. However, the purchase of shares and other equity of a corporation as part of a merger is to be recorded as a financial transaction between the purchasing corporation and the previous owner. Replacement of existing shares by shares in the take-over or new corporation are to be recorded as redemptions of shares accompanied by the issue of new shares. Financial assets/liabilities that existed between the absorbed corporation and third parties remain unchanged and pass to the absorbing corporation(s). Symmetrically, when a corporation is legally split up into two or more institutional units, new financial assets and liabilities (appearance of financial assets) are recorded in this category (K.12.1).

6.31. Category K.12.2 distinguishes monetization/demonetization of gold (K.12.21) and changes in classification of assets or liabilities other than monetization/demonetization of gold (K.12.22).

6.32. Monetization/demonetization of gold (K.12.21) is recorded in the other changes in the volume of assets account of the monetary authorities, that is to say in the subsector the central bank (S.121) or central government (S.1311). Monetization of gold occurs when the monetary authorities reclassify gold from stocks of valuables to reserve assets held by the monetary authorities. The other changes in the volume of assets account records then a decrease in their holding of valuables and an increase in their holding of monetary gold. Purchases of monetary gold directly from other monetary authorities are classified as transactions in monetary gold (F.11). All other purchases, including those from financial intermediaries or via an organized gold market must be recorded as purchase of valuables followed by a classification change. Demonetization of gold occurs when the monetary authorities transfer gold from reserve assets to valuables. Holdings of monetary gold by monetary authorities then decrease and valuables show an increase. Sales of monetary gold directly to other monetary authorities are classified as transactions in monetary gold (F.11). All other sales, including those to financial intermediaries or via an organized gold market must be recorded as sales of valuables preceded by a classification change.

6.33. Changes in classification of assets or liabilities other than monetization/demonetization of gold (K.12.22): examples are changes in land use or conversions of dwellings to commercial use or vice versa. In the case of land both entries (a negative entry for the old category, a positive one for the new category) have to be made with the same value in the category K.12.22. The change in land value resulting from this change in use is recorded in economic appearance (see paragraph 6.17 c) or disappearance of non-produced assets (see paragraph 6.21 c) considered as volume changes. K.12.22 does not include the conversion of bonds into shares. This conversion is recorded as two financial transactions (see paragraph 562. l).

6.34. Entries for other changes in volume (K.3 to K.10 and K.12) are recorded in the other changes in the volume of assets accounts of the sectors, the total economy and the rest of the world.

NOMINAL HOLDING GAINS/LOSSES (K.11)

6.35. Nominal holding gains (⁸⁸) are that category of other changes in the value of assets, liabilities and therefore net worth which reflects the changes in the level and structure of their prices. Nominal holding gains are broken down into neutral holding gains and real holding gains.

6.36.	Definition: The nominal holding gain (K.11) on a given quantity of an asset is defined as the change in value for the owner of that asset as a result of a change in its price. The nominal holding gain on a liability is defined as the change in value of that liability as a result of a change in its price, but with the sign reversed.
Definition:	The nominal holding gain (K.11) on a given quantity of an asset is defined as the change in value for the owner of that asset as a result of a change in its price. The nominal holding gain on a liability is defined as the change in value of that liability as a result of a change in its price, but with the sign reversed.

6.37. A positive holding gain is due to an increase in the value of a given asset or to a reduction in the value of a given liability. A negative holding gain, i.e. a holding loss, is due to a reduction in the value of a given asset or an increase in the value of a given liability.

6.38. The nominal holding gains recorded in the revaluation account are those accruing on assets or liabilities, whether realized or not. A holding gain is said to be realized when the asset in question is sold, redeemed, used or otherwise disposed of, or the liability repaid. An unrealised gain is therefore one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period. A realized gain is usually understood as the gain realized over the entire period over which the asset is owned or liability outstanding whether this period coincides with the accounting period or not. However, as holding gains are recorded on an accruals basis in the system, the distinction between realized and unrealized gains, although useful for some purposes, does not appear in the classifications and accounts.

6.39. Holding gains include gains on all kinds of assets: non-financial produced and non-produced assets, and financial assets. Thus, holding gains on inventories of all kinds of goods held by producers, including work in progress, are also covered.

6.40. Nominal holding gains may accrue on assets held for any length of time during the accounting period and not merely on assets that appear in the opening and/or closing balance sheets. The nominal holding gain accruing to the owner of a particular asset, or given quantity of a specific type of asset, between two points of time is defined as: assuming that the asset itself does not change, qualitatively or quantitatively, in the meanwhile. The nominal holding gain (G) accruing on a given quantity q of some asset between times o and t can be expressed as follows: where po and pt are the prices of the asset at times o and t respectively. For financial assets and liabilities with fixed current values for which both po and pt are unity by definition, nominal holding gains are always zero.

6.41. For purposes of calculating nominal holding gains, acquisitions and disposals of assets must be valued in the same way as in the capital and financial accounts and stocks of assets must be valued in the same way as in the balance sheets. In the case of fixed assets the value of an acquisition is the amount paid by the purchaser to the producer, or seller, plus the associated costs of ownership transfer incurred by the purchaser. The value of a disposal of an existing fixed asset is the amount received by the seller from the purchaser minus the costs of ownership transfer incurred by the seller. Four different situations giving rise to nominal holding gains may be distinguished:

6.42. The nominal holding gains included are those accruing on assets and liabilities, whether realized or not. They are recorded in the revaluation account of the sectors, the total economy and the rest of the world.

6.43.	Definition: The neutral holding gain (K.11.1) on an asset is defined as the value of the holding gain that would accrue if the price of the asset changed over time in the same proportion as the general price level. Neutral holding gains are identified to facilitate the derivation of real holding gains which redistribute real purchasing power between sectors.
Definition:	The neutral holding gain (K.11.1) on an asset is defined as the value of the holding gain that would accrue if the price of the asset changed over time in the same proportion as the general price level.

6.44. Let the general price index be denoted by r. The neutral holding gain (NG) on a given quantity q of an asset between times o and t is then given by the following expression: where po × q is the current value of the asset at time o and rt/ro the factor of the change in the general price index between times o and t. The same term rt/ro is applied to all assets and liabilities.

6.45. There is no ideal general price index appropriate to calculate neutral holding gains. By convention, the general price index to be applied for the calculation of neutral holding gains is the price index for final national uses excluding changes in inventories.

6.46. Neutral holding gains are recorded in the neutral holding gains/losses account, which is a sub-account of the revaluation account of the sectors, the total economy and the rest of the world.

6.47.

Definition: The real holding gain (K.11.2) on an asset is defined as the difference between the nominal and the neutral holding gain on that asset. The real holding gain (RG) on a given quantity q of an asset between times o and t is given by: or The values of the real holding gains on assets thus depend on the movements of their prices over the period in question, relative to movements of other prices, on average, as measured by the general price index.

Definition:

The real holding gain (K.11.2) on an asset is defined as the difference between the nominal and the neutral holding gain on that asset.

6.48. Real holding gains are recorded in the real holding gains/losses account, which is a sub-account of the revaluation account of the sectors, the total economy and the rest of the world.

6.49. The current values of currency and deposits denominated in national currency remain constant over time. The ‘price’ of such an asset is always unity while the quantity is given by the number of units of the currency in which they are denominated. The nominal holding gains on such assets are always zero. For this reason, the difference between the values of the opening and closing stocks of such assets is, with the exception of the other changes in the volume of assets, entirely accounted for by the values of the transactions in the assets. This being one case in which it is normally possible to deduce the latter from the balance sheet figures.

6.50. In order to calculate the neutral and real holding gains on assets of fixed current value, however, data on the times and values of transactions are needed as well as the opening and closing balance sheet values. Suppose, for example, a loan is made and repaid within the accounting period while the general price level is rising. The neutral gain on the loan is positive and the real gain negative from the creditor's point of view, the amount depending upon the length of time the loan is outstanding and the rate of inflation. It is impossible to record such real losses without data on the value of the loans made and repaid during the accounting period and the times at which they are made and repaid. In general, it may be inferred that if the total absolute value of the positive and negative transactions is large in relation to the opening and closing balance sheet levels, approximate estimates of the neutral and real holding gains on financial assets and liabilities with fixed current values derived from balance sheet data alone may not be very satisfactory. Even recording the values of financial transactions on a gross basis, i.e. recording loans made and repaid separately as distinct from the total value of loans minus repayments, may not be sufficient without information on the timing of the loans.

6.51. The same as for currency and deposits applies for loans and other accounts receivable/payable, which are not traded. However, when an existing loan or trade credit is sold to another institutional unit the difference between the redemption price and the transaction price should be recorded under the revaluation account of the seller and the purchaser at the time of transaction.

6.52. When a bond is issued at premium or discount, including deep discounted and zero coupon bonds, the difference between its issue price and its face or redemption value when it matures measures interest that the issuer is obliged to pay over the life of the bond. Such interest is recorded as property income payable by the issuer of the bond and receivable by the holder of the bond in addition to any coupon interest actually paid by the issuer at specified intervals over the life of the bond. The interest accruing is recorded in the financial account as being simultaneously reinvested in the bond by the holder of the bond (see paragraph 5.17). It is, therefore, recorded in the financial account as the acquisition of an asset which is added to the existing asset (⁸⁹). Thus the gradual increase in the market value of a bond that is attributable to the accumulation of accrued, reinvested interest reflects a growth in the principal outstanding — that is, in the size of the asset. It is essentially a quantum or volume increase and not a price increase. It does not generate any holding gain for the holder of the bond or holding loss for the issuer of the bond. The situation is analogous to that of a good, such as wine, that matures while it is being stored. Any increase in the price of the wine that is attributable to an improvement in its quality reflects an increase in volume and not price. Bonds change qualitatively over time as they approach maturity and it is essential to recognize that increases in their values due to the accumulation of accrued interest are not price changes and do not generate holding gains.

6.53. The prices of fixed-interest bonds also change, however, when the market rates of interest change, the prices varying inversely with the interest rate movements. The impact of a given interest rate change on the price of an individual bond is less, the closer the bond is to maturity. Changes in bond prices that are attributable to changes in market rates of interest constitute price and not quantum changes. They therefore generate nominal holding gains or losses for both the issuers and the holders of the bonds. An increase in interest rates generates a nominal holding gain for the issuer of the bond and an equal nominal holding loss for the holder of the bond, and vice versa in the case of a fall in interest rates. Nominal holding gains or losses may accrue on bills in the same way as for bonds. However, as bills are short-term securities with much shorter times to maturity, the holding gains generated by interest rate changes are generally much smaller than on bonds with the same face values.

6.54. The conversion of bonds into shares is recorded as two financial transactions (see paragraph 5.62.1). It will usually take place at a price below the market price of the shares and the resulting holding gains are to be recorded as a price change under the revaluation account.

6.55. The value of financial derivatives (AF.34) may change as a result of changes in the value of the underlying instrument, changes in the volatility of the price of the underlying instrument, or approaching the date of execution or maturity. All such changes in value should be regarded as price changes and recorded under K.11.

6.56. Bonus shares (see paragraph 5.93) increase the number of shares and the nominal value of the shares issued but do not in theory alter the market value of the totality of shares. By convention, they do not enter the accounts at all. However, these issues are designed to improve the liquidity of the shares on the market and hence the total market value of shares issued may rise as a result: any such change should be recorded as a revaluation effect.

6.57. Changes in the net equity of households in life insurance reserves and in pension funds reserves (AF.61) that occur between the beginning and the end of the accounting period and that result from nominal holding gains or losses on the reserves invested by insurance corporations and pension funds are recorded in the revaluation account, as well as changes in prepayments of insurance premiums and reserves for outstanding claims (AF.62) resulting from holding gains or losses.