Abstract

This chapter summarizes various economies’ experience in conducting the Coordinated Portfolio Investment Survey (CPIS). This information could be useful particularly for economies preparing to participate in the CPIS for the first time, or for those wishing to extend or improve the scope of their present CPIS reporting. The experience of economies on the following practical issues are addressed: (i) coverage (choice of collection method and limitations in approaches to coverage), (ii) separating direct investment from portfolio investment, (iii) market price valuation, (iv) treatment of accrued interest, (v) treatment of collective investment schemes, (vi) direct holdings abroad, (vii) quality control, and (viii) steps taken to address low coverage or low response rates. In addition, given the growing importance of data collected for the CPIS encouraged categories, the experience of some countries in implementing the CPIS for these data elements is presented.

This chapter summarizes various economies’ experience in conducting the Coordinated Portfolio Investment Survey (CPIS). This information could be useful particularly for economies preparing to participate in the CPIS for the first time, or for those wishing to extend or improve the scope of their present CPIS reporting. The experience of economies on the following practical issues are addressed: (i) coverage (choice of collection method and limitations in approaches to coverage), (ii) separating direct investment from portfolio investment, (iii) market price valuation, (iv) treatment of accrued interest, (v) treatment of collective investment schemes, (vi) direct holdings abroad, (vii) quality control, and (viii) steps taken to address low coverage or low response rates. In addition, given the growing importance of data collected for the CPIS encouraged categories, the experience of some countries in implementing the CPIS for these data elements is presented.

Coverage

Choice of Collection Method

6.1 Portfolio investment data collection methods are determined by several factors, such as availability of the data, ease of collection, respondent burden, availability of resources, existing surveys, national circumstances, and the institutional and legal framework for data collection (i.e., statistics law). It is important that the choice of the collection method maximizes the data coverage (without double counting), while minimizing the costs to the respondents and bearing in mind the compiler’s resources.

6.2 Either an aggregate/end-investor approach or a security-by-security (SBS)/end-investor approach1 is mostly used by Coordinated Portfolio Investment Survey (CPIS)-reporting economies for deposit-taking corporations, except the central bank and other financial corporations (OFCs). Given the difficulties in collecting data for the household sector, around a quarter of reporting economies exclude this sector from their CPIS data coverage, while others mostly use indirect approaches (i.e., either aggregate/custodian approach or SBS/custodian approach or a combination of both). Table 6.1 summarizes the choices of approaches used for CPIS data collection for different institutional sectors/subsectors by the 73 economies that participated in the end-June 2015 CPIS. Selected country-specific cases are discussed below.

Table 6.1

Summary of Choice of Collection Method for CPIS Data Collection

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Source: CPIS metadata (as of December 2015).Notes: CPIS, Coordinated Portfolio Investment Survey; NA, not applicable; and OFCs, other financial corporations.

Austria

6.3 The Austrian Central Bank (Oesterreichische Nationalbank, OeNB) uses an SBS approach for both direct (end-investors) and indirect (custodians) reporters to collect monthly data on portfolio investment. An SBS/end-investor approach is used for deposit-taking corporations, including the central bank, money market funds (MMFs), and investment funds. Portfolio investment of nonfinancial corporations (NFCs), households, nonprofit institutions serving households (NPISHs), OFCs, and general government are obtained through an SBS/custodian approach. The information from banks are supplemented by compulsory reports by non-banks (corporations and households) on securities which are not deposited with resident custodians, which means securities either deposited with non-resident custodians or in own custody. The reporting thresholds are annually for stocks above of 5 million euros and quarterly for stocks above 30 million euros. However, reporting gaps exist for the holdings of resident individuals that are undertaken via custodians abroad, except for some extremely wealthy households and family trusts who directly report to the OeNB. To close the gap, additional estimations for residents’ holdings abroad are undertaken based on mirror data and information on tax agreements with certain countries like Switzerland as well as some third-party-reporting data from the Securities Holdings Statistics Database (SHSDB) of the European Central Bank (ECB).

Bermuda

6.4 The bulk of Bermuda’s cross-border portfolio investments are held by the financial sector. The financial sector is broken down into two broad segments: the domestic sector and the international sector. The international sector provides financial services to clients worldwide, and the size and relevance of this sector makes Bermuda an international financial center. Most of the international sector’s holdings are placed with nonresident custodians. From discussions with the relevant industry associations, it was considered more appropriate and efficient for the financial sector to provide the required information as aggregates. For these reasons, an aggregate/end-investor approach was selected. In addition, the data on government’s portfolio holdings are collected directly using an aggregate/end-investor approach.

Israel

6.5 In its preliminary investigations, the Bank of Israel concluded that because residents are required to report their cross-border portfolio investment under exchange control regulations, data sources based on these regulations ensure complete coverage of cross-border portfolio investment and can also be compiled with a high frequency. Stock exchange registers are the main source for building a register of resident entities holding portfolio investment assets. An SBS/end-investor approach is used for data on deposit-taking corporations, whereas data for households are based on an aggregate/custodian approach, and data for other sectors are compiled via an aggregated/end-investor approach. Data are reported by resident custodians (using an SBS approach to facilitate quality control and checking on an instrument basis against other data sources) and by end-investors (on an aggregate basis). Reporting by end-investors comprises those residents who use the services of nonresident custodians or hold securities in self-custody, and includes businesses and households.

6.6 As this approach was developed to support the compilation of an international investment position (IIP) statement for portfolio investment assets and liabilities, the resulting database compiled by the Bank of Israel’s Foreign Exchange Control Department covers residents’ holdings of cross-border portfolio assets and nonresidents’ holdings of securities issued by residents. Resident custodians report the value of securities traded in Israel that are held by nonresidents. Residents’ holdings of shares issued by Israeli companies abroad are compiled from information supplied by the issuers. This information was used to derive estimates of nonresidents’ holdings of shares issued by Israeli entities abroad.

Japan

6.7 Figure 6.1 illustrates the framework of data collection in Japan. In its preliminary investigations, the Bank of Japan (BOJ) concluded that institutional investors are the only sector likely to use the services of nonresident custodians. Both the NFC sector and households were believed to prefer the services of domestic custodians. For this reason, reporting by resident custodians and institutional investors was concluded to be sufficient to provide complete coverage for the CPIS and IIP. For deposit-taking corporations except the central bank and OFCs, data are obtained from aggregate approach (end-investors and custodians). An aggregate/custodian approach is the primary source for NFCs, households, and NPISHs.

Figure 6.1
Figure 6.1

Framework of Data Collection in Japan1

1 To avoid double counting, only the data in the shaded areas are aggregated to produce total Japanese portfolio investments.2 Disaggregated into public sector, banking sector, and other sectors.

6.8 The BOJ collects and disseminates the data on portfolio investment under the legal authority of Ministry of Finance. The Foreign Exchange and Foreign Trade Act and related ordinances provide the legal framework for collecting portfolio investment assets and liabilities as part of the IIP. This legal framework required that a summary breakdown of portfolio investment assets, by the country of residence of the issuer, be reported and specified that data be reported on an aggregate basis. Deposit-taking corporations (mainly banks) were required to report both in their capacity as end-investors and custodians. Hence, the legal framework met the requirements of the CPIS.

6.9 For the IIP and CPIS, the BOJ relied mainly on reports submitted by deposit-taking corporations (as end-investors and custodians), securities companies, and institutional investors under the framework prescribed by the Foreign Exchange and Foreign Trade Act. This authority to collect statistics has remained in place notwithstanding financial deregulation.

6.10 The most important reason for choosing an aggregate approach was to build on the existing reporting system for IIP purposes and to avoid any additional burden on reporters (as would be seen to result from any change of the reporting basis) at a time of financial deregulation. CPIS data for each reporting period are compared with data for the previous period and plausibility checks are carried out to detect/address any outliers that may represent errors. In aggregate, year-on-year changes are checked if they are reconciled with the combination of the following: transactions, relevant exchange rate, and price changes.

Malaysia

6.11 The CPIS data are collected as part of an integrated framework for compiling quarterly balance of payments, external debt, and IIP statistics. Malaysia is one of the earliest countries to develop an SBS portfolio investment data collection system. The custodian agencies record information about transactions and positions of the securities using the International Securities Identification Number (ISIN) codes and additional details from the database.

6.12 To ensure comprehensive coverage, the compilation guidelines clearly define the reporting methods for the different types of reporting entities. Listed below are the data sources for CPIS:

  • Data on holdings of securities issued in domestic currency and sold in Malaysia are obtained from custodian agencies.

  • Data on holdings of securities issued by nonresidents in the international market are obtained from both the end-investors and custodian agencies, with some form of declaration to eliminate double counting.

  • Data on debt securities (bonds) issued in foreign currency and sold abroad are obtained from the end-investors.

Netherlands

6.13 The Netherlands was one of the 29 economies that participated in the first CPIS at the end of 1997. The Netherlands Central Bank (De Nederlandsche Bank, or DNB) has long years of experience in conducting surveys of portfolio investment. At present, the data are collected every month, mostly following an SBS approach for both balance of payments and IIP. An SBS/end-investor approach is used for deposit-taking corporations except the central bank, OFCs (excluding MMFs), and NFCs. Data for households and NPISHs are obtained from an SBS/custodian approach, while the data for MMFs are based on an aggregate/end-investor approach. Given the relatively small size of MMFs sector, data on their holdings are collected annually. However, there are plans to introduce monthly reporting for MMFs in the near future.

6.14 For SBS reports, information is based on the residence of the issuer available in the Centralized Securities Database (CSDB) of the ECB. For aggregated reports, clear instructions in the guidelines ensure that residence of the issuer is properly reported. From its experience over the years, the DNB concluded that, except institutional investors, residents generally use the services of domestic custodians. From discussions with custodians, it was concluded that custodians could be relied upon to provide accurately the required information on an aggregate basis. Hence, a combined custodian/end-investor reporting system was selected, with the latter confined to institutional investors and a few important investment companies. For pension funds and insurance companies, total holdings as reported in the CPIS end-investor survey could be checked against data reported in their annual balance sheets. Any differences between these totals and those reported to be held by resident custodians on behalf of pension funds and insurance companies are taken to be securities held with nonresident custodians.

Russian Federation

6.15 Data on resident holdings of securities are collected quarterly and used not only for compiling the CPIS data, but also for compiling the balance of payments and the IIP data. The Central Bank of the Russian Federation (CBR) uses an SBS approach for both direct (end-investors) and indirect (custodians) reporters. Deposit-taking corporations and OFCs report on a mandatory basis with penalties for non-reporting. There are census for deposit-taking corporations and sample surveys for OFCs. The current legislation allows the CBR to conduct mandatory surveys of NFCs and individuals; however, there is no penalty for nonreporting. The CBR requests information on portfolio investment in securities issued by nonresidents from a sample of nonfinancial enterprises, which is built on the basis of data obtained from financial statements and the International Transactions Reporting System (ITRS). Moreover, portfolio investment of NFCs, households, NPISHs, and general government are obtained through an SBS/custodian approach. In order to avoid double counting in nonfinancial enterprises data, the end-investor report form contains a question on the location of custody of securities so that securities held in resident custodians could be excluded. The CPIS data include CBR’s holdings of foreign securities which are not held as reserve assets.

Thailand

6.16 The Bank of Thailand uses data from multiple sources. The following explains the data sources for portfolio investment assets and liabilities separately:

  • a) Portfolio investment assets: Data on holdings of securities issued abroad by nonresidents are submitted by banks (as end-investors and custodians), securities companies, and institutional investors under the framework prescribed by the Exchange Control Act to an SBS database. Data cover all types of equity and debt securities invested by all resident sectors, including private funds. For debt securities issued in Thailand by nonresidents (e.g., foreign government, international organizations, etc.), data are obtained from The Thai Bond Market Association and custodians on an SBS basis.

  • b) Portfolio investment liabilities: For securities issued in Thailand and held by nonresidents, data are mainly obtained from administrative sources (The Thai Securities Depository, The Thai Bond Market Association, and custodians)—also on an SBS basis. Data cover all types of equity and debt securities, both traded in the securities exchange and over-the-counter. For debt securities issued abroad by Thai residents and held by nonresident investors, data are mainly obtained from the Ministry of Finance (for government offshore bonds and notes) and the quarterly external debt survey (for bonds and notes issued abroad by private enterprises).

United States

6.17 The United States is the largest CPIS reporter in terms of market value of portfolio holdings of securities. The CPIS data are collected and disseminated by the Federal Reserve System (FRS) under legal authority of the U.S. Department of Treasury. From its experience of conducting a survey similar to the CPIS, the U.S. Treasury concluded that the bulk of residents’ holdings of cross-border portfolio investment assets were entrusted with resident custodians. Reporting by custodians was preferred because there are comparatively a small number of custodians as against the very large number of enterprises that are likely to hold cross-border portfolio investment, and because reporting by custodians made it possible to include the household sector and small businesses. Sampling enterprises was considered but eventually not thought practical, given the prospect of complete reporting by custodians. For institutional investors likely to use the services of nonresident custodians, an end-investor survey was used. An SBS approach was chosen for custodians because experience had shown that initial data received from custodians were frequently inaccurate as regards the country of residence of the issue and the price of securities. It was found that errors could most readily be detected and resolved only by collecting security-level data. Also, by collecting security-level data, more detailed information would be available for analysis.

6.18 Primary custodians who employ the services of domestic global custodians are required only to report the custodian’s name and the amount entrusted, and these data are used in the same manner as those of end-investors employing domestic custodians. End-investors are required to report their foreign holdings SBS only when they do not utilize a resident custodian. If they used a resident custodian, they are required to report only the custodian’s name and the amount entrusted. These amounts are not added to the survey totals since this would cause double counting, but they are used to verify the accuracy of the data reported by custodians.

Limitations in Approaches to Coverage

6.19 Each of the systems faces potential problems of coverage. In the primarily custodian-based systems, there are two potential challenges. First, holdings may be missed if residents do not use the services of resident custodians. In the Netherlands, compilers address this issue by using published annual accounts of the major investing institutions, although they acknowledge potential gaps among NFCs and the household sector. Austria and the United States require large investors who entrust securities directly with foreign-based financial institutions to report their holdings directly to the compiler. Both these countries consider that the aggregate holdings of small investors (including the household sector) that are in self-custody or entrusted to nonresident custodians are relatively small. Second, securities on repos, securities lending, and similar arrangements are not necessarily identified by the custodian and may only be able to report what is held in custody at any one time. In such cases, a security on repo and other similar arrangements may not be identifiable and will be excluded from the custodian’s (and, consequently, the repo party’s) holdings. Similarly, a security acquired under reverse repo may not be identifiable on the books of custodian and may, therefore, be recorded incorrectly as part of the custodian’s holdings on behalf of clients (and hence the reverse-repo party’s holdings). See paragraphs 3.53–3.69 of this Guide for additional discussion on this issue.

6.20 For these collection approaches, the risk of missing direct holdings abroad (especially of households) increases as more residents engage in online trading of securities issued by nonresidents directly with nonresident brokers. This remains a compilation challenge, and mechanisms for self-disclosure by households (including through household surveys) have not been successful.

Separating Direct Investment from Portfolio Investment

6.21 A key statistical challenge for compiling balance of payments and IIP data is the separation of financial investment into functional categories. Specifically, in the context of CPIS, direct investment should be separated from portfolio investment; and if the underlying source data do not support this distinction, compilers need to implement mechanisms that will ensure that the data remain as cleanly separate as possible.

6.22 As resident custodians are unlikely to be able to identify whether securities are issued by parties (direct investment enterprises) related to the issuer (direct investor), other sources of data will be needed to determine such holdings of securities, which should be included under direct investment abroad. Sometimes direct investors keep such securities in self-custody, but practices differ across countries. Most countries conduct end-investor direct investment surveys in conjunction with portfolio investment surveys and usually provide clear instructions to respondents for distinguishing direct and portfolio investment.

Australia

6.23 Australia has an ongoing, integrated collection system—the Survey of International Investment (SII)—that collects, among other things, portfolio and direct investment and integrates flows and balances. Throughout the SII survey forms, respondents are asked to record separately their liabilities to and claims on (i) nonresident direct investors, (ii) direct investment groups abroad, and (iii) other nonresident investors. Only data collected for the third of these categories are relevant to the CPIS. The definition of direct investment is in line with Balance of Payments and International Investment Position Manual (BPM6). For each instrument, respondents are generally required to record separately particulars for nonresident direct investors, direct investment groups abroad, fellow enterprises abroad, and other nonresident investors on the same page of the survey forms. This helps to prevent misreporting among these three categories.

Malaysia

6.24 The integrated compilation framework classifies the reporting of external financial assets and liabilities by direct investment, portfolio investment, financial derivatives, and other investment, which are being reported under one survey. Guidance notes, aligned to BPM6, provide clear instructions on method of reporting to prevent misreporting between direct and portfolio investment by the reporting entities. In addition, the information obtained from the direct investment reported by the end-investors are used as a basis for reconciliation to avoid double counting.

Netherlands

6.25 The Netherlands mainly uses an SBS/end-investor approach for the CPIS. The end-investor surveys provide guidelines for distinguishing portfolio from direct investment holdings.

Portugal

6.26 The exclusion of direct investment securities was accomplished by the following procedure. First, the guidance notes to the CPIS clearly define direct and portfolio investment, and provide precise instructions to respondents on how to exclude direct investment positions. Second, information were taken from results of the direct investment survey that were conducted at the same time as the CPIS to ensure that there was no double counting. Finally, the monthly direct reporting of external operations from 2014 onward allows clearly identifying direct investment operations. These operations are not included in the CPIS.

Romania

6.27 The separation between portfolio investment and direct investment depends on the type of instruments:

  • In the case of listed/unlisted shares and investment funds, a general formula is applied at the level of each instrument and each holder:
    Investmenttype2=Numberof heldinstrumentsNumberofissuedinstruments.
  • An exception applies for umbrella funds, where investment type is classified as portfolio investment regardless of the share of held instrument.

6.28 A comparison between data sources (Foreign Direct Investment survey and direct reporting from resident custodians) is made to avoid double counting of the information related to the direct investors. In the case of debt securities, all the instruments are classified as portfolio investment, private placement being excluded, and other investment or direct investment (depending on the specific case).3

Thailand

6.29 In the case of investment in equity securities issued in Thailand, an SBS database automatically keeps track of the percentage of participation of each investor and assigns a “direct investment flag” once participation reaches the ten-percent statistical criteria.

United States

6.30 As noted in the section on collection methods, portfolio investment data are collected following an SBS/custodian approach. Custodians are provided with the necessary guidelines for distinguishing portfolio and direct investments.

Market Price Valuation

6.31 One of the central principles of the CPIS is the use of market price.4 For regularly traded equities and debt securities, this should not present any problems except that end-investors may not value all their holdings of securities at market prices and resident custodians may not maintain records of the market prices of the securities they are holding. End-investors may follow alternative valuation principles, such as par value, acquisition cost, amortized value, or keep separate books for different portfolios of securities. For example, banks may maintain separate trading books (at current market prices) and investment books (at acquisition cost) for debt securities. On the other hand, institutional investors and collective investment schemes are likely to use market prices for all their holdings of securities to price them on a regular and frequent basis. Other problems arise in the case of infrequently traded securities. Lastly, where market sources are used for prices, issues arise concerning the treatment of interest accrued, the use of bid or ask prices, and the impact of time zones.

6.32 Following is the description of the experience of nine countries (Australia, France, Indonesia, Japan, Malaysia, Portugal, Russian Federation, Thailand, and the United States) where data are either reported on a market price basis or there are mechanisms in place by the compiler to make adjustments, where necessary. Securities not traded actively or denominated in foreign currencies present compilation challenges.

Australia

6.33 Respondents to the SII are requested to report stocks at market value and the explanatory notes provided guidelines on possible valuation methods. In measuring the value of equity securities, respondents were asked to adhere to the following principles. For listed enterprises, the market value of the equity positions should be reported using a recent transaction share price; if recent transaction prices were not available, the midpoint of the quoted buy and sell prices of the shares on their main stock exchange on the reference date specified provided a useful approximation. For unlisted enterprises, if a market value of the shares was not available, the respondent was asked to estimate the market value by one of the following methods (in descending order of preference): a recent transaction price, a director’s valuation, or net asset value. For debt securities, survey respondents were asked to report traded price on the date specified. If that value was not available, they were asked to report using, in order of preference, one of the following methods: yield to maturity, discounted present value, face value less written-down value of discount, issue price plus amortization of discount (less amortization of premium), or another mark-to-market basis. The bases upon which debt securities were actually valued are not known.

France

6.34 Survey respondents are asked to report holdings at market prices on closing dates, with accrued interest included in the value of debt securities. For securities without available market prices, respondents are advised to refer to the last quoted price, expert appraisal, or nominal value to select the most relevant value, taking into account a concern of cautiousness. However, this case represents a small share of total holdings. Several consistency checks are also applied, allowing the detection of mispriced holdings. In particular, inadequacies at the security level between holdings and amount outstanding at market price are carefully analyzed—the latter being separately collected by the Euro system (CSDB). It is noted that holdings of equities not listed on traded markets are not covered in the CPIS.

Indonesia

6.35 Equity securities listed on traded markets are valued at market prices, whereas market valuation of equity holdings in the unlisted enterprises is based on the own funds at book value approach recommended in the BPM6. In general, debt securities are not valued at market prices.

Japan

6.36 Equity securities listed on traded markets are valued at market prices. However, the valuation of equity in the unlisted enterprises is based on the historic cost approach. Regarding debt securities, market price valuation is applied if available. If not, they are valued at book value.

Malaysia

6.37 Reporting entities are required to report stocks and positions of each securities at market value. If market value is not available, respondents are asked to provide book value as a proxy for market value. Other estimation methods are explored but not preferred as the complexity of these methods will introduce a heavy burden in calculating an estimated market value for the respondents. Additionally, the securities that are probably undervalued are very small in percentage over the total value.

Portugal

6.38 Equity securities listed on traded markets and debt securities are generally valued at market prices. In the cases where it is not possible to adjust fully to market prices due to lack of information, nominal values have been used. This led to further discussion with respondents. The Lisbon Stock Exchange’s publications were consulted to perform quality checks on unit values of securities reported in the CPIS and to perform consistency checks against the total value of each investment fund. For each investment fund, published data provided information on the portfolio composition (quantity, market price, and currency) for relevant dates. For equity securities not listed on traded markets, the valuation is considered at the recent transaction price (which corresponds to the value paid for that security, excluding any income, commissions, and taxes at the time the acquisition took place) or at the nominal value (or face value) if the recent transaction price is not available.

Russian Federation

6.39 Respondents are obliged to report market values at the end of a reporting period for listed securities (the values of debt securities are recorded, including accrued income). In the case of unlisted securities, estimations should be presented using the following methods: the value of discounted future payments associated with the securities, the issue price adjusted for the amortization of the discount or the premium, and the value of securities for accounting or regulatory purposes. For unlisted enterprises, if a market value of a share is not available, the respondent is required to make an estimation by one of the following methods: a net asset value, a recent transaction price, or a director’s valuation. The CBR provides respondents with full methodological assistance through detailed guidelines, consultations, meetings, and CBR’s official website information. Among the respondents, custodians address the CBR on the issues of valuation more often. The reason for this is the core function of the Russian custodians in managing the safekeeping of securities. The CBR places and regularly updates on its official website explanatory guidelines and notes on the issue of estimation of market value as it is one of the most frequently asked questions. The end-investor report form contains a question on the selected method of valuation. As long as the CBR collects data on an SBS basis, the verification of prices reported by respondents is conducted. In case of significant deviations from average values, a respondent is contacted in order to find a coordinated solution. Moreover, the CBR plans to use the data of authorized valuation centers to enrich the data.

Thailand

6.40 For listed enterprises, market capitalization method is used for valuing holdings of equity securities. Own funds at book value is used for unlisted enterprises. Debt securities are valued at market price exclusive of accrued interest.

United States

6.41 Reporters are instructed to provide the fair market value of their holdings as well as the number of shares, from which prices can be deduced. The price for a given security is determined by examining the price information from all respondents who report holdings of a given security. For rarely traded securities, the estimate of fair value should be based on the best information available in the circumstances. The estimate of fair value should consider prices for similar assets and the results of valuation techniques to the extent available in the circumstances.

Treatment of Accrued Interest

6.42 The CPIS recommends market prices of debt securities to include interest accrued but not yet paid (the so-called dirty price).5 This is consistent with the valuation of long-term debt securities in some markets.

6.43 Although not recommended by BPM6 or by this Guide, alternative valuations may be applied at country level. In some countries, long-term debt securities are priced on a “clean” basis: that is, excluding accrual of interest. Where prices for bonds exclude accrued interest, the difference between clean and dirty prices is usually not substantial when coupons are paid frequently.

6.44 For long-term debt securities held in investment accounts (i.e., they are held for prudential or reserve capital requirements and not for trading purposes), the valuation is often that of par or acquisition price, and the valuation does not change with market conditions. While the CPIS seeks information on market prices, respondents will frequently not revalue their “investment book” (as opposed to their “trading book,” which is usually marked to market on a frequent basis—daily, weekly, or monthly). In the same manner, they are unlikely to record accrued interest, and it is often difficult for compilers to obtain the data on the required basis.

6.45 For zero-coupon or deep-discount bonds, the difference between the market value recommended by BPM6 and the acquisition price can be substantial because the amount of interest accruing can amount to a substantial proportion of the initial principal lent/borrowed, especially the longer the original maturity of the instrument and the higher interest rates. In these instances, if respondents are reporting on an aggregate basis, it is important to have respondents report their holdings on a dirty price basis as far as possible. If their holdings are reported on an SBS basis, the compiler should be able to value securities themselves or to make the necessary adjustments with the information available in a reference securities database.

6.46 Most short-term debt securities are issued at a discount: that is, they are zero-coupon instruments. There are several methods used to record money market instruments: at acquisition cost, at amortized value, at par value, or at market price. Respondents may be able to report at market price those securities held for trading purposes, but, as with bonds held for investment purposes, some respondents may use one of the other methods and be unable or unprepared to report on a different basis. However, because of the shortness of time in which interest can accrue, the issue is less important than for zero-coupon, or deep-discount, bonds. Even so, whenever possible, respondents should be encouraged to include accrued interest.

6.47 Around two-thirds of the economies participating in the CPIS report6 that accrued interest is included in the market price of debt securities. Others have either not included accrued interest or included it for some debt securities only. A small number of economies do not know whether accrued interest is included in the value of debt securities or not. The experiences of Ireland, Malaysia, Portugal, and Slovak Republic are described below.

Ireland

6.48 Respondents were asked to provide positions on a clean price market-value basis, market-priced transactions, and valuation changes. In addition, details of outstanding interest (positions) and movements in interest (flows) were required. For the CPIS, the clean price positions were combined with outstanding interest to obtain the dirty price market values of the stocks.

Malaysia

6.49 All reporting of the securities is done on a clean price market-value and market-priced transactions as recommended in BPM6. The reporting of interest accrued but not yet paid is captured separately under the income-reporting framework. For the reporting of CPIS, these two values are then combined to obtain the dirty price.

Portugal

6.50 In general, accrued interest is included in the value of debt securities. Respondents were requested to include accrued interest in the market price valuation. Where custodians and investors were unable to do so, no adjustments were made.

Slovak Republic

6.51 Although respondents are requested (mainly deposit-taking and OFCs) to provide information on accrued interest directly in their regular reports for CPIS, it is calculated using the attributes from the CSDB of ECB. For the debt instruments, accrued income factor (daily accrual) is used for calculation, as well as the last coupon date information. It is noted that the use of the CSDB provided satisfactory outcome so far.

Treatment of Collective Investment Schemes

6.52 Investment fund shares or units in collective investment schemes (mutual funds, investment trusts, and unit trusts) are classified as equity securities,7 regardless of the type of fund or assets that the fund acquires. Thus, for example, if a resident in Country A owns investment fund shares in a collective investment scheme domiciled in Country B that holds only bonds issued by the government of Country C, the resident of Country A should report that he or she holds an equity claim on Country B not a holding in government bonds from Country C. It is important that respondents are aware of this classification because they may classify their portfolios on the basis of ultimate risk and may, therefore, “look through” the collective investment scheme, and report holdings of government bonds of Country C as if they did not have units in the mutual fund in Country B.

6.53 The residence of a collective investment scheme is determined by its legal domicile. Collective investment schemes may be legally domiciled in one economy (e.g., a small economy with international financial center), be managed in a second, be administered in a third, and be listed in several jurisdictions. An investor may be interested in where and how funds are invested, and possibly in the ownership of the mutual fund (such as the parent company), but less so in its legal domicile. For this reason, care will need to be taken to identify the legal domicile of mutual funds in an end-investor reporting system, especially if they are registered, listed, managed, and administered in different jurisdictions. It is also worth emphasizing that units in collective investment schemes are unlikely to be held with custodians for safekeeping. Hence, the investing economy will rely on end-investor reporting.

6.54 The treatment of collective investment schemes in Bermuda, Ireland, Israel, Slovak Republic, Thailand, and the United States is described below.

Bermuda

6.55 An end-investor reporting system was introduced for all authorized mutual funds legally domiciled in Bermuda. The data captured include mutual funds that are legally domiciled and administered in Bermuda, and authorized mutual funds that are legally domiciled in Bermuda but administered elsewhere. Although reporting by resident custodians was considered, this did not prove practically feasible because Bermuda’s authorized mutual funds tended to use the services of nonresident custodians. Respondents are asked to report their gross holdings of cross-border portfolio investment. These could differ from shareholders’ values (net asset values) as a result of leveraging by the managers of the funds (such as by borrowing, the use of repos, or the use of financial derivative instruments). However, in the Bermuda experience, leveraging is not a critical issue. On the asset side, only portfolio investments were included (e.g., any marked-to-market holdings of financial derivative instruments on their balance sheets would be excluded). Holdings of units issued by other mutual funds were reported as issued by the country where such funds were legally domiciled.

6.56 Because the survey is conducted on a voluntary basis, a means for grossing up for nonresponse was needed. This was done by using the net asset values of respondents as a benchmark, which were required to be reported for regulatory purposes.

Ireland

6.57 Data are collected from mutual funds that are legally domiciled and/or administered in the Dublin International Financial Services Center. However, for the purposes of the CPIS, only the cross-border portfolio investment assets of mutual funds legally domiciled in Ireland are included.

Israel

6.58 Holdings in mutual funds are categorized as investments in equity securities regardless of the type of fund or assets held by the fund.

Slovak Republic

6.59 There are two perspectives in this particular area. First, Slovak holdings abroad represented by investment in a form of Collective Investment Schemes are collected directly under the end-investor approach from all institutional units/respondents in Slovak economy. Data are collected on a granular SBS basis and produced to final stage by using the combination of attributes from CSDB of ECB. This form of investment became very significant in recent periods and represents substantial portion of equity assets. Second, from the perspective of Slovak investment funds (and their investments abroad) themselves, those are subject to regular reporting on a SBS basis. As end-investors, they provide data of a very good quality. Nevertheless, the data are also combined with reference data from CSDB for final statistics production.

Thailand

6.60 Collective investment schemes are treated as investment fund shares and marked-to-market at the end of the reference period.

United States

6.61 If U.S. residents own investment fund shares in a mutual fund resident of another country, these holdings are counted as equity holdings in the country in which the mutual fund is legally domiciled. This was so regardless of what type of security the mutual fund purchases or where the mutual fund managers physically reside. U.S.-based mutual funds (or their U.S.-based custodian) reported in detail the securities they owned that were issued by unrelated nonresidents.

Direct Holdings Abroad

6.62 One of the major challenges faced in collection of CPIS data relates to determining the extent to which residents used the services of custodians abroad or held securities in self-custody. For some economies, compilers’ inability to find reliable data sources for such holdings by households and small companies (which could not be covered by end-investor surveys) is of serious concern. For others, such investments are considered to be small and their omission not likely to much affect the results of the survey. The full extent of the problem is difficult to quantify,8 but it is likely to affect some countries much more than others. For example, in countries where there is a history of bypassing resident financial institutions and investing directly abroad, countries did not have mechanisms to collect the information because a direct survey of households is not a feasible proposition. Quite apart from the cost and difficulty of deriving a representative sample (with a bias toward high-wealth individuals), there is the problem of response rate. If the capital has been placed directly abroad to avoid the attention of the country’s authorities, it is probable that those individuals will be disinclined to provide the information for a statistical survey, regardless of assurances of confidentiality. The difficulties in obtaining this information and the perception of its importance is related to how information may be obtained from third-party custodians (i.e., custodians who hold securities issued by nonresidents on behalf of nonresidents). See footnote 5 and paragraphs 4.66–4.91 of Chapter 4 for discussion of the issues related to third-party holdings and developments relating to the International Monetary Fund’s (IMF’s) Technical Group on Third-Party Holdings.

6.63 The experiences of Australia, Israel, Malaysia, Netherlands, Russian Federation, Slovak Republic, and Thailand in addressing the issue of direct holdings abroad in their CPIS are outlined below.

Australia

6.64 Direct holdings abroad by Australian enterprises are directly covered in the SII collection. The SII targeted all Australian enterprises that were known to have any international investment activity. Although most enterprises channel such activity through investment (fund) managers or the custody system, those enterprises that have direct holdings abroad are asked to report directly on these holdings. Direct holdings abroad by Australian households, on the other hand, are not directly covered by the SII. Households may invest abroad through one of three routes: (i) direct personal holdings of securities issued by nonresidents, (ii) enterprises and legal entities set up by individuals and families to manage their financial affairs (e.g., for tax-efficiency reasons), or (iii) superannuation (pension fund) and other collectively managed investment vehicles. While individuals may deal directly with foreign-based brokers, nominee companies, or foreign-based fund managers, such direct holdings are regarded as being relatively insignificant in the Australian context and are not measured in the SII. Since it is considered that the great majority of investment abroad by households passes through either the second or third routes, holdings by households of securities issued by nonresidents were assumed to be adequately covered in Australian statistics.

Israel

6.65 Aggregate data for holdings abroad are compiled quarterly from entities with annual sales turnover greater than $50 million (businesses) or with a balance of financial assets abroad greater than $20 million (businesses, nonprofit organizations, and households).

Malaysia

6.66 The reporting of the portfolio investment which are grouped by institutional sector facilitates identifying the pattern of investment. Institutional investors tend to have direct holdings abroad, while the mutual funds, unit trusts, and households are more likely to invest through the nominees as reported by the custodians. Both end-investors and custodians report similar details, such as ISIN codes and countries of residence issuers, to facilitate reconciliation if the investments through the nonresident custodians are rechanneled back to home country.

Netherlands

6.67 Resident institutional investors (such as pension funds and insurance companies) and, to a lesser extent, resident investment institutions (such as mutual funds and unit trusts) are likely to have direct holdings abroad. For institutional investors, total holdings of foreign shares and bonds are known from balance sheet information. In contrast to the figures derived from the custodian survey, they are not broken down by country. As a consequence, direct holdings may be estimated as the difference between these sources, but without a geographical breakdown. Additionally, the most important institutional investors are required to report their direct holdings annually, broken down by country of residence of the issuer. A similar method is used for investment institutions. For the nonfinancial sector, no information on direct holdings is available. It is assumed that households mainly prefer to use the services of resident custodians rather than invest directly abroad, and that the size of direct holdings abroad by households is, therefore, likely to be small.

Russian Federation

6.68 If securities are purchased by a resident (excluding a deposit-taking corporation and the central bank) via foreign bank accounts and are kept with nonresident custodians, the CBR may not have information on such security holdings. However, this problem is mostly solved by the use of the ITRS data on sale of securities and on income payments (coupon or dividend) for the securities held by residents. This practice allows the CBR to enlarge the scope of the CPIS respondents. Besides, the ITRS may serve as an additional source of indirect indication of residents’ holdings of securities issued by nonresidents and allows making some alternative estimations on local sectoral distribution of holdings.

Slovak Republic

6.69 For the purpose of CPIS, but mainly for other external datasets (such as the balance of payments and the IIP), the reporting channels were designed from the very beginning as an end-investor approach reporting system on the asset side. As such, it enables excellent identification of direct holdings abroad. The data are collected from whole range of institutional units on an SBS basis, later combined with selected attributes of CSDB of ECB. This method brings reasonable outcome, regularly checked against balance sheets of individual respondents. The only area out of scope of end-investor approach is the NFCs sector as well as holdings of households. While for NFCs there are alternative channels for obtaining the information on their direct holdings abroad (although only on an aggregated basis), the custodian approach for the households is not sufficient. It addresses only domestic custodians, while the general knowledge is that the households use widely alternative channels to purchase foreign securities, mainly equity. This is a prerequisite for data gaps that may be of significant amounts. Therefore, household’s holdings are estimated based on statistical monitoring or by using the comparisons vis-à-vis similar economies’ household’s holdings.

Thailand

6.70 Unless reported as direct investment, direct holdings abroad are treated as portfolio investment and are reported as “marked-to-market” value at the end of the reference period by end-investors and custodians.

Quality Control

6.71 Data received by the compiler should be verified because respondents may not provide the information on the basis required for the survey. These checks can take a variety of forms. Following is a description of some of the major verification checks that were used by Australia for an aggregate approach and by Malaysia, Portugal, Romania, Slovak Republic, and Thailand for an SBS approach. Many of the checks used are applicable though to whichever approach is used to collect data for the survey. See also paragraphs 5.24–5.46 of this Guide.

Aggregate Approach

Australia

6.72 Through survey forms. In Australia, the international investment reporting forms are structured so that there is a full reconciliation for each item between the opening and closing levels of investment and for transactions during the period as illustrated in Table 6.2.

Table 6.2

Reconciliation of Reporting of International Investment Position and Balance of Payments Data in Australia

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6.73 In the Australian experience, this approach both educates respondents about the relationships between individual data items and forces them to consider the consistency of the data reported. The Australian Bureau of Statistics (ABS) has found that full data on transactions and other reasons for changes in stocks are usually available when survey respondents provide data on their own accounts or client activity: for example, pension funds investing and managing their own assets, investment (fund) managers managing assets on behalf of other entities, and trading entities managing their own portfolios. These entities will collect all relevant stocks and transactions data at market prices.

6.74 Through other reported data. For both the financial and NFCs sectors, independent sources (e.g., published stock or bond price indices or exchange rate movements over the period) are used to judge whether the reported data are accurate. For example, if a 20-percent change in the value of a U.K. asset in Australian dollar terms is explained by a negative entry in the “Exchange rate variations” column (implying a decline in the value of sterling relative to the Australian dollar) and it is known that the bilateral rate had not moved in that direction or by that approximate magnitude over the period, then the ABS questions the respondent. Information from share price indices provides a useful check on entries in the “other factors”9 box for equity. Anecdotal evidence, such as that derived from market or media comment or contact with other data providers, is also used to confirm data. For example, if there has been evidence that Australian enterprises in general were selling securities in a specific market, but a particular respondent reported a large increase in assets in that market owing to positive net transactions, the respondent is questioned. Comparisons are also made with the general magnitude, type, and direction of data reported by similar entities to see if they are behaving similarly and providing consistent explanations for movements.

6.75 Through analytical checks. Within the ABS, individual analysts are responsible for confirming the reported data. They produce editorial notes that identify and explain all large movements at the aggregate level by reference to the entities contributing significantly to those movements. The computer system edits and checks the arithmetic and compares large changes in levels with the “reconciliation” data at the individual respondent level. All large amounts (approximately A$200 million for entities other than banks and approximately A$500 million for banks) reported in the transactions, exchange rate variations, and “other factors” boxes are validated with respondents. Additionally, income item movements above A$50 million are also validated with respondents.

6.76 Other edit checks. Survey outputs are verified through (i) data confrontation with results obtained from the ABS’s Survey of Financial Information, which collects data on institutional units’ balance sheets, transactions, and “other changes,” not just transactions and balances with nonresidents (the Survey of Financial Information does not provide geographical detail); (ii) an examination of the comparability of balance of payments and financial account balancing items; (iii) data confrontation with annual reports and Australian Stock Exchange reports (especially for dividends and reinvested earnings); and (iv) checking details provided against press clippings and unit profiling checks.

Security-by-Security Approach

Malaysia

6.77 Reporting entities are required to report all the individual securities based on the ISIN codes provided by the Central Bank of Malaysia, which integrate directly with the bonds data warehouse. This has helped to ease the reporting burden by the reporting entities and to ensure accuracy of profiles of the securities issuers. The Central Bank maintains the entity database that includes the ISIN codes and profiles of the issuers, and other entity’s information for validation of the information submitted to the Central Bank. Other detailed information on entities such as institutional and business sector are captured to facilitate the publication of statistics aligned with international standards.

6.78 The integration with the bond data warehouse, a back-end debt securities trading platform of Real-time Electronic Transfer of Funds and Securities System, facilitates the cross-checking of data on debt securities issued in domestic currency and sold in Malaysia being reported by the custodian agencies, as the aggregated exposures by each custodian are transparent to the Central Bank. On the other hand, data on local equity securities are cross-checked against the Kuala Lumpur Securities Exchange managed by the Bursa Malaysia.

6.79 The main quality framework involves comparisons against official sources such as the stock registrars, approval database, as well as other datasets like the monthly financial and banking, ITRS statistics, and the annual reports of companies.

Portugal

6.80 Through SBS forms, respondents were asked to provide the security identification number, quantity of securities held, and face or nominal value of each security. Methodological explanations and definitions, in line with those in the second edition of the CPIS Guide, were included in the instructions. For banks, data reported in the CPIS were compared with information reported in money and banking surveys. For investment companies, data reported in the CPIS were checked against data provided by the Lisbon Stock Exchange.

6.81 In the case of some NFCs, the accounting reports were used to check the reported information. Using a breakdown of portfolio assets by the currency in which issues are denominated, a reconciliation between flows and stocks was performed.

6.82 In the event of misreporting (such as of market values or units of values), respondents were asked to provide corrected values. For some banks, the reported figure is replaced by data from money and banking statistics. A comparison between the investment funds (aggregated data) and the data provided by the Lisbon Stock Exchange is made. Checks are also made at the level of aggregated and detailed data reported by each custodian. Double counting was minimized by the fact that the CPIS was conducted primarily on a custodian basis and the requirement that end-investors reported only their holdings of securities held in self-custody or with nonresident custodians.

Romania

6.83 Different validation and cross-checking controls are made before releasing the data:

  • Checks are made at the level of instruments, and implausible values are detected, investigated, and corrected based on consultations with the reporters.

  • Aggregated figures are checked and compared with other macroeconomic statistics such as monetary financial statistics, balance sheets of investment funds and insurance companies, government statistics, and CPIS data (see Table 8).

Slovak Republic

6.84 An SBS collection system, together with end-investor approach, and a use of reference CSDB of ECB provide a good basis for having the data of appropriate quality, completeness, and timeliness. For the purpose of stocks statistics (CPIS among them), the final statistics according to sectoral, instrumental, and territorial breakdowns is regularly checked against the balance sheets of respondents and against the developments of time series. All outliers are checked prior to compilation. The CPIS itself serves as a very reliable source of data quality measurement. Although the CPIS is primarily aimed at the asset side holdings of individual economies, at the end, it enables a derivation of national liabilities toward other economies after aggregation of their holdings vis-à-vis a particular economy (provided by the IMF as one of the CPIS outputs). As there are only a few possibilities to measure the quality of portfolio liabilities, the CPIS serve as an important source for this purpose. Slovak portfolio liabilities are regularly checked against CPIS results and are found to be satisfactory. Both statistics have similar trends and relatively constant difference (not all countries report, some data are confidential). It is of extreme importance to follow whether derived liabilities of CPIS are higher than those reported in IIP of individual country. In such case, it may indicate insufficient national coverage of data and its quality.

Thailand

6.85 Segregation between direct investment and portfolio investment is verified against the securities register. The overall transaction flow of portfolio investment in equity securities (liabilities) is crosschecked against the monthly and quarterly trading volume of the Stock Exchange of Thailand to ensure data consistency. Data from different sources are cross-checked against one another to ensure no duplication in the aggregates. Data on debt securities issued abroad by Thai residents and purchased through secondary market by Thai residents (i.e., bond buybacks) are detected through an SBS database and subtracted from the portfolio investment liabilities positions.

Steps Taken to Address Low Coverage or Low Response Rates

6.86 If data are collected through a survey not covering the whole potential universe of respondents or if there is a low response rate, there may be a need to gross up results. The experiences of Bermuda and Malaysia are summarized below.

Bermuda

6.87 The Bermuda Monetary Authority (the Authority) incorporated additional lines to the CPIS main template to allow respondents to reconcile their CPIS data with their prudential data. This has helped in enhancing the integrity of the data. In addition, the CPIS data are collected on a voluntary basis and some reliance is placed on estimation procedures to account for assets held by nonrespondents. The totals reported by each sector are aggregated, and a calculation is made for the securities held in each economy as a percentage of the total assets (prudential data) reported. The respective percentages are applied to derive an estimate and allocation of the total assets for the nonrespondent entities. These estimation techniques assumed that the breakdown by the economy of residence of the issuer, as reported by CPIS respondents in that sector, was representative of all companies within that sector (i.e., including those that did not complete the CPIS questionnaire). In addition, the Authority publishes a comprehensive report on its website, on an annual basis, analyzing Bermuda’s CPIS results. The report contributes to improved understanding of Bermuda as an international financial center and its impact on global financial intermediation.

Malaysia

6.88 CPIS is collected on a mandatory basis in Malaysia with 100-percent response rate from the reporting entities. Penalties and legal actions can be taken for any respondents that do not comply with the reporting requirements, including incidences of nonreporting.

Experience of Economies in Compiling the Encouraged CPIS Data

6.89 Beginning with the end-June 2013 data collection, the IMF introduced enhancements to the CPIS in the context of the G20 Data Gaps Initiative. These enhancements cover three areas: (i) frequency (from annual to semiannual data), (ii) timeliness (reducing the reporting lag by three months), and (iii) widening the scope of the encouraged items (increasing the number of reporting tables from three to six; see Table 6.3). In addition, the reporting forms were revised to align the financial instrument and institutional sector classification with the overall framework of the BPM6.

Table 6.3

Number of Reporters of Core and Encouraged Items (End-June 2016 CPIS)

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Note: CPIS, Coordinated Portfolio Investment Survey.

Cover data by sector of resident holder and sector of nonresident issuer for specified economies.

6.90 As discussed in Chapter 2, CPIS Table 1 is a mandatory or core item for participation in the CPIS. Tables 2–7 are not necessary for participation, and economies are encouraged to report these data if they want to extend the scope of the national survey beyond the core requirements of the CPIS. Of these tables, Tables 5–7 are introduced as part of the enhancements to the scope of encouraged tables from the end-June 2013 CPIS.

6.91 While 72 countries reported Table 1 for the end-June 2016 data, the number of countries that reported the encouraging items, and especially the enhanced items (Tables 5–7), is much less. Table 6.3 provides the number of reporters of core and encouraged items for June 2016 survey. The issues pertaining to data collection on encouraged items are of importance given the slow progress in number of countries reporting these data. What are the challenges faced by countries in collection of these data? Why only some countries are successful in providing such data? An examination of metadata shows that most of the economies that implemented the enhancements collects data through an SBS approach, which facilitates the identification of many attributes within the database.

6.92 The experience of the following four countries (Romania, Russian Federation, Turkey, and the United States) illustrates the challenges and plans of these countries in compiling the data on encouraged categories (including the enhancements).

Romania

6.93 The National Bank Romania (NBR) has been compiling CPIS data since 2004. From the end-June 2013 CPIS, core and all the encouraged data elements (except Table 7) are reported. This has become possible with implementation of a new data collection system based on an SBS basis starting with 2013.

6.94 In terms of the coverage of securities, Romanian securities issued on external capital markets are covered mostly from national data sources, since debt instruments are mainly issued by Romanian public administration sector. In the case of listed shares, most of them are issued on the domestic market; just a few depository receipts (DRs) have been issued until now. The NBR extracts the data on holdings of nonresident securities mainly from CSDB of ECB.

6.95 The NBR also collects information about securities under repo agreements and security lending. NBR’s accounting practice is to regard the securities involved in repo transactions as remaining on the books of the seller and to record the cash received as a collateralized loan. For CPIS, the same treatment is applied.

6.96 Adjustments are undertaken for improving the estimates and data coverage in the following cases:

  • a) Since the coverage of nonresident holders of Romanian securities is incomplete, estimation (Δ) is carried out to obtain the whole stock of nonresidents holdings:

    • Δ = Total resident issuances – Total holdings (collected information concerning resident and nonresident holders).

This amount is added to the nonresident holdings of Romanian debt securities, taking also into account the country breakdown included in the mirror datasets with respect to the nonresidents holdings of Romanian debt securities provided by CPIS, published on the IMF web page—Derived Portfolio Investment Liabilities (All economies) by economy of nonresident holder (Derived from Creditor Data).

  • b) Country allocation adjustments of investors in case of liabilities side of portfolio investment is also applied, since the experience showed that information received from custodians is not precise in terms of country breakdown of the holder. Comparing the results based on NBR’s data sources to mirror datasets presented in CPIS (Table 8), Derived Portfolio Investment Liabilities (all economies) by economy of nonresident holder (Derived from Creditor Data), high discrepancies were identified for some countries. Therefore, starting with 2015 data, NBR derives the country breakdown based on the information reported in the CPIS (mirror data/Table 8). The approach considers the weight of individual countries in the total reported holdings from CPIS (Table 8), broken down by instrument type (equities and debt securities). Each percent is applied to the total holdings of securities available from the domestic data sources. For example, revised data for 2015 (revision made in September 2016) have been calculated based on the latest weights per country and per instruments derived from end-June 2015 CPIS.

6.97 Extending data sources in case of nonresident holders of Romanian securities could improve the coverage and quality of these data in future. A new database, SHSDB, has been developed at the level of ECB and Bundesbank with participation of euro zone countries, whereas the other European Union (EU) central banks have been also encouraged to supply data about their own country security holders. The system contains granular information (SBS data) related to holdings of debt securities, listed shares, and unit funds; transactions; reevaluations; and stocks of holdings are calculated at nominal/market value. The NBR has been reporting monthly data about resident holders to ECB starting with December 2013. The NBR together with other EU countries asked ECB for the permission to access the data needed for compiling the liabilities side of portfolio investments, and currently the negotiations are in progress.

Russian Federation

6.98 The CBR has been participating in the CPIS since 2001 survey. The report covers all mandatory and encouraged tables on the currency structure of investment, the sector of holders, and the sector of issuers. The frequency is semiannual with prescribed timeliness. In 2017, the CBR has launched a quarterly survey and thus is ready to provide CPIS data on a quarterly basis. The CBR sets as its priority the reduction of timeliness and the development of the encouraged breakdowns.

6.99 Treatment of DRs: As mentioned in paragraph 3.74 of this Guide, the economy attribution of the issuer of DRs should be based on the economy of issue of the underlying security. In addition, it is also clarified that the currency classification of DRs should be based on the currency of denomination of the underlying security. However, the respondents sometimes report to the CBR of the country in which the DRs are issued instead of the country of residence of the issuer of the underlying securities. Further, currency of denomination may be reported in the form of the currency of a DR. The CBR maintains and updates the database of the DRs, which is used to enrich and control the submitted data even when the respondents don’t make the necessary adjustments.

6.100 Sectors of nonresident issuers: Another challenge for respondents is the correct identification of the sector of nonresident issuers. Given the significant number and variety of securities traded in international markets, the CBR elaborates and maintains the database on foreign securities which helps to ensure the quality of data. However, there are some difficulties with the sector classification of foreign holding companies that are engaged in many economic activities. The CBR is planning to address this problem by participating in the IMF pilot initiative for the international exchange of the data on sectors of nonresident issuers.

6.101 Regarding Table 4 on portfolio investment liabilities by country of residence of nonresident holder, the CBR has encountered some difficulties due to the following reasons:

  • a) The national custodian system has only started providing enough information to make a clear portfolio investment classification of liabilities according to the country of residence since July 2017 and the quality of this information is under review.

  • b) Some transactions with Russian securities between nonresidents take place in foreign markets making it hardly possible for the CBR to be based on its main information sources, such as the ITRS. The issue may be addressed by making mirror comparisons with the largest global custodians for the Russian securities held abroad.

  • c) The data on DRs on Russian securities obtained from custodians quite often contain the information on nominees, such as Deutsche Bank or the Bank of New York, acting on behalf of beneficiaries, without disclosure of owners.

6.102 In the CBR’s opinion, the principal source of information for liabilities should become the data of resident custodians that hold the bulk of Russian issues enriched with some additional data, such as information from stockholder registers updated to the meetings, ITRS data, and partner-country data. The CBR has already been analyzing the mirror data. Table 4 data could be presented by the CBR only if its high-quality standards would be met.

Turkey

6.103 The Central Bank of Turkey (CBRT) has been reporting CPIS data to the IMF since 2001. Prior to the CPIS enhancements that were implemented during 2013, the CBRT was reporting Tables 1 and 3. From the end-June 2013 survey, core and all the encouraged data elements (except Tables 4 and 7) are reported. In fact, the CBRT has been conducting the CPIS on quarterly basis since the first quarter of 2006 to incorporate the survey results into the quarterly IIP statistics to improve consistency between the two data-sets. While the data collection system for depository corporation’s holdings is based on SBS/end-investor approach, combination of approaches (directly and indirectly using the reports of custodians) are used for other sectors. These data are collected on a mandatory basis with penalties for nonreporting. The following steps were undertaken toward the implementation of CPIS enhancements:

  • A feasibility study was undertaken including a short survey with questions on the prospective changes and extensions. The reporting forms were sent to the main CPIS respondents (i.e., custodian banks and big companies) to seek their opinion before officially sending out the new forms.

  • Although the sector of the resident holder of the securities were already available, details were not enough to comply with the new requirements of the CPIS. Hence, the respondents were asked whether they could provide a more detailed sectoral breakdown of the resident holder of the securities, the sector of the nonresident issuer along with the geographical breakdown, and the currency composition of securities both in original currencies and the U.S. dollar equivalents.

  • Based on the feedback from the respondents, it was concluded that data on the sector of the resident holder and the sector of the nonresident issuer for specified countries could be derived by combining data to be requested newly with the existing encouraged items.

  • Data on short or negative positions were not requested as holding such positions is legally forbidden in Turkey.

  • Based on the positive feedback from respondents, reporting forms were revised by adding the following dimensions in the second and fourth quarter surveys of 2013 (see Table 6.4).

Table 6.4

Period of Addition of Survey Components

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6.104 Regarding portfolio investment liabilities of Turkey, data on nonresidents’ holdings of equity securities and debt securities issued domestically by resident in Turkey are obtained from the Central Registry Agency and the custodians with country information. Country information for nonresidents’ holdings of Government Domestic Debt Instruments can also be compiled from the CBRT records. The stock of the bonds issued abroad by the public banks and the Undersecretariat of Treasury (UT) are provided by the UT. Following the residency principle, resident banks’ and other sector’s holdings of bonds issued abroad by the UT are deducted from UT’s bond issues abroad. The same principle is also applied for bonds issued abroad by resident banks and other sectors. However, due to partial coverage of the country information, the CBRT is currently not able to report Table 4 of the CPIS on portfolio investment liabilities. Studies to enhance the coverage of detailed holder information of mentioned instruments are also in progress in cooperation with the relevant institutions.

6.105 In addition to the above, the challenges faced in implementation of enhancements mainly pertain to information technology (IT) issues. The respondents’ databases and application programs were needed to be revised to meet the requirements of the enhanced CPIS. In practice, each reporting institutions had different IT infrastructure and human resources, which could be assigned to provide these data. Thus, it is not an easy task to carry forward the transition process and complete all the enhancements in a time-bound manner. Moreover, the transition process also required a very close cooperation between the Statistics and IT departments of CBRT. Given that the IT department was loaded with other projects, planning, preparation, testing, verification, and final implementation took considerable time.

United States

6.106 The CPIS data are collected by the FRS under legal authority of the U.S. Department of Treasury. A typical annual survey of cross-border holdings involves collecting and processing roughly 1.25 million records of data at the underlying security (CUSIP10 or ISIN) level. The data are collected on a mandatory basis with penalties for nonreporting. Mostly, the data are reported on an SBS basis by custodians or on an SBS by end-investors if the foreign holdings are held with nonresident custodians. In general, the coverage of different sectors exceeds 90 percent of the value of holdings of respective sectors. In addition to Table 1, which is mandatory, the FRS has been reporting Table 2 (partially). While some requested data elements (including data on short positions) are not collected under the present system, other requested data breakdowns are feasible but present various challenges.

6.107 Currency breakdowns: Currently, the United States reports Table 2 on the currency breakdown of portfolio investment assets partially. While the currency breakdown is reported for debt securities (both long and short terms), equity and investment fund shares are reported without such breakdown due to the following difficulties. Currency breakdowns, which are available only from annual surveys, present challenges regarding the handling of DRs for equity and the growing issuance of similar “repackaged” debt securities. Many stocks owned by U.S. investors are held in the form of American depository receipts (ADRs), which while technically denominated in U.S. dollars, more properly reflect exposure to the currency of the underlying equity security. The security-level database categorizes ADRs as U.S. dollar–denominated foreign equity and understates the true foreign currency exposure of the resident investors. Due to the understatement of currency risk, the FRS is not comfortable in providing a currency breakdown for U.S. holdings of foreign equity. There is also an increase in the holdings of emerging market economies’ local currency sovereign debt that has been repackaged and issued as U.S. dollar– denominated DRs. Overall, correctly handling the reporting of this growing phenomenon is highly problematic and considerable resources are devoted for ensuring the proper currency assignment that reflects the currency of the underlying bond.

6.108 Country-level holdings by sector of domestic investor: The United States previously collected, and continues to collect, data on holdings by mutual funds, insurance corporations, and pension funds. The annual claims survey forms are revised to collect more detailed information and to identify the holding of foreign securities by the following sectors in addition to the existing sectors: depository institutions, managed funds other than mutual and pension funds, nonbank financial institutions, and nonfinancial institutions. The additional sector breakdowns were first collected for the December 2014 survey; after a period of review, CPIS sectoral data for all dates back to December 2014 were submitted in 2017. The FRS intends to report this information in the CPIS Tables 3, 5, and 6 with some limitations. The report forms do not break out holdings by monetary authorities and the general government, or the holdings by MMFs. It is considered that in both cases, any potential benefit to provide this level of detail is outweighed by the associated increase in reporter burden to provide this information as well as the cost to compilers in processing this additional level of detail. In rare cases where the U.S. monetary authority could have sizable non-reserve holdings (as was the case with holdings in the Federal Reserve’s Maiden Lane III facility11), the collection system can capture such information. However, the ability to provide such data in the CPIS submission will necessarily depend on the extent to which this information is made publicly available. Most of the non-reserve government funds are of government pension funds and thus classified as pension fund holdings. Regarding MMFs, the Securities and Exchange Commission filings indicate that majority of their holdings are not in fact cross-border holdings.

6.109 Country-level holdings by sector of foreign issuer: The FRS considers that the data collection of these items are rather challenging. As a first step, a review of the reliability of the vendor data to assign industry codes (using the North American Industry Classification System) to the large volume of securities reported in the annual surveys is undertaken. Preliminary findings suggest that some manual assignments will be necessary. Further, it is also found that the sector of issuer is easier to assign for some securities than others. For example, sovereign debt is generally easy to identify, but is rather difficult to correctly classify debt issued by public–private enterprises. In addition, distinguishing the debt issued by financial institutions and financing arms of NFCs is also found to be challenging.

6.110 With additional improvements, the United States intends to provide a more detailed breakdown by country, crossed by both holder and issuer sectors.

Author: Venkat Josyula