U.S. Cross-Border Derivatives Data: A User's Guide
Curcuru, Stephanie E., Robison, Jonas J., Federal Reserve Bulletin
The global derivatives market has grown rapidly in the past decade. By one measure of market size--the notional value, which is used to determine the payments made on a derivatives contract--the derivatives market expanded from $87 trillion in June 1998 to $454 trillion in June 2006 (figure 1). (1) Measured by the price at which a derivatives contract can be purchased in a current transaction, or the market value, the derivatives market grew from $3 trillion in June 1998 to $10 trillion as of June 2006.
Available data suggest that cross-border derivatives deals--in which a resident of one country enters into a contract with a resident of another country-make up a substantial share of derivatives transactions. (2) Recognizing this fact, the International Monetary Fund (IMF) has recommended that its member countries include cross-border derivatives in their reports on external-sector finances. (3) Many countries with financial services firms active in the derivatives market have included derivatives in these reports since the mid-1990s. The United States, however, has to date published very little information on cross border derivatives because of the limited availability of data. (4) As a result, U.S. reports on cross-border financial flows and holdings currently exclude the bulk of transactions and positions in cross-border derivatives.
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To address these gaps in data and reporting, the U.S. Department of the Treasury, the Federal Reserve Bank of New York, and the Federal Reserve Board began collecting data on U.S. cross-border transactions and positions in derivatives in March 2005. They collect the data through the Treasury International Capital (TIC) reporting system, which for many years has collected similar data for securities such as stocks and bonds. (5) Because existing TIC reporting forms were ill equipped to capture cross-border derivatives transactions and positions, the Treasury developed a new form specifically for this purpose--TIC form D.
This article introduces the new data collected by form D and provides helpful information for data users. The article begins with a discussion of the relevance of derivatives to the U.S. external-sector reports published by the U.S. Department of Commerce, Bureau of Economic Analysis. To date, derivatives have been largely excluded from these reports. The article explains in detail the effects of the exclusion on two such reports--the U.S. balance of payments and the U.S. international investment position. In particular, it shows how the omission of derivatives from reports on cross-border flows and holdings can lead to mistaken inferences about what is driving changes in the international investment position of the United States. The implications of the analysis extend beyond the omission of derivatives. The effect of any other systematic omission of data on the external-sector reports may be similar.
The article then summarizes the information collected by form D and shows how the data will improve external-sector reporting. It also presents the 2006 data and discusses their relation to the derivatives data reported by other countries. The article concludes with a discussion of the use of the data to estimate risk exposures. Because the terminology associated with derivatives can be somewhat daunting, detailed definitions are provided in the boxes accompanying the main text.
DERIVATIVES AND THE U.S. EXTERNAL-SECTOR REPORTS
The purpose of TIC form D is to collect the information needed for the inclusion of cross-border derivatives transactions and holdings in U.S. external-sector reports. This section examines the effect of the inclusion of derivatives data in external-sector reports through examples of accounting entries in two such reports. The examples illustrate the current and future treatment of derivatives transactions in the U.S. balance of payments as well as the current and future treatment of derivatives holdings in the U. …