Quality of Derivatives Statistics: the Australian Experience

Quality of Derivatives Statistics: the Australian Experience OECD Working Party on Financial Statistics, October 2007

What are derivatives? • A contract whose value depends on other asset(s) or index values • Swaps • payments streams in $A for $US • fixed interest for floating • Options to buy or sell • shares, physical assets, etc • Futures, forward rate agreements • Can be exchange traded or OTC • Settled in cash or kind

SNA/BPM on derivatives • tradeable or offsetable • net value, not notional principal • assets positions, liability positions, change over time • most transactions are settlements • revaluations is main item in stock reconciliation

Intertemporal reconciliation e.g a swap Opening Transaction Reval Closing Comment t1 (asset) 0 0 10 10 created t2 (asset) 10 0 -5 5 reval t3 (asset>liab) 5 0 -5 0 }reval -6 t3 (liab) 0 0 1 1 t4 (liab) 1 -1 0 0 settled

Implementation in BoP, 1997 • Direct collection attempted via IIS form 90 • Info paper • "the information reported to the ABS .... represents a degree of netting in both the positions and transactions flows" • expect improvement "as accounting standards develop and reporting systems are upgraded" • Subsequent improvement • provider coaching, IFRS

Implementation in ANA, 1998 • Modelling from direct collection data • Info paper: • "the quality of reporting of transactions in surveys is lower than for other data items" • "there is a significant amount of imputation in the estimates" • Reporting burden causes subsequent (2001) abandonment of bank (APRA) data collection to meet SNA (draft form ARF 320.6)

Summary of issues for direct collection • identification of net asset position and net liability position; • moving from a net asset to net liability; • identification of new and settled contracts; • partitioning changes in value into transactions, value changes and volume; • summarising by sector of counterparty; • separation of derivatives from assets/liabilities being hedged; • data by type of derivative contract

Modelling derivatives • conservative market practices • Non-Fin corp and Govt: hedging not trading • use of relationship banker, foreign parent • market research and regulatory data • AFMA turnover by type of contract • APRA gross positions • RBA report to BIS, infer counterparties • BoP/IIP data taken as a given

Model boundaries

Possible ways forward • IFRS/IAS39 • commercial accounting is moving in SNA direction, improved direct collection? • Stock/price modelling • model trans and revals wrt asset prices • needs "type of derivative" position classn • Leverage market research/regulatory data • not much enthusiasm • Security by security reporting • privacy, computing power

Future directions • Not much net lending in derivatives (outside fin corps) • what are the costs/benefits of increased data collection? • What are the policy questions? • foreign currency exposures and hedging surveys not addressed by SNA • Aim to develop collection options which populate SNA framework suitably and allow analytical views

Quality of Derivatives Statistics: the Australian Experience