242 Government Finance Statistics Manual 2014
should be shown separately for assets and liabilities,
whenever possible, but net settlements are acceptable
when gross reporting is impractical. Any commis-
sion payable to brokers or other intermediaries for
arranging a fi nancial derivatives contract is treated
as a payment for a service. In many cases, however,
fi nancial derivatives transactions involve implicit ser-
vice charges, and it is usually not possible to estimate
the service element. In such cases, the entire value of
the transaction should be treated as a transaction in
fi nancial derivatives.
9.71 At inception:- Th e creation of a forward-type contract (see
paragraphs 7.212–7.214) does not generally re-
quire the recording of a transaction in a fi nan-
cial derivative because risk exposures of equal
value are usually being exchanged. Th at is, there
is usually zero exposure and zero value for both
sides. In some cases, however, there may be a
nonzero transaction value at issue, such as with
off -market swaps. (In addition, there may be a
service charge for the issue.) - Th e purchaser of an option (see paragraph 7.209)
pays a premium to the seller, which is the acqui-
sition price of the instrument. Sometimes a pre-
mium is paid aft er the inception of the contract.
In that case, the value of the premium is recorded
at the inception of the contract in the same man-
ner as if it had been paid then, but is shown as
being fi nanced by other accounts receivable/
payable between the writer and the purchaser.
9.72 Subsequent changes in the prices of deriva-
tives are recorded as holding gains or losses, not as
transactions, as explained in paragraph 10.42.
9.73 Sales of options in secondary markets—
whether exchanges or over the counter—are valued at
market prices and recorded as transactions in fi nan-
cial derivatives.
9.74 When a contract requires ongoing servicing
(such as an interest rate swap) and a cash payment is
received, there is a decrease (increase) in a fi nancial
derivative asset (liability) if, at the time of the payment,
the contract is in an asset (liability) position. If compil-
ers are unable to implement this approach because of
market practice, all cash receipts should be recorded
as reductions in fi nancial assets, and all cash payments
should be recorded as decreases in liabilities.
9.75 Margins are payments of cash or deposits of
collateral that cover actual or potential obligations
incurred through fi nancial derivatives—especially
futures or exchange-traded options. As discussed in
paragraph 7.219, repayable margins in cash are clas-
sifi ed as transactions in deposits or other accounts
receivable/payable, and nonrepayable margins are
classifi ed as transactions in fi nancial derivatives.
9.76 At settlement, either a cash payment is made
or an underlying item is delivered.- When a fi nancial derivative is settled in cash, a
transaction equal to the cash value of the settle-
ment is recorded for the derivative. In most
instances, when a cash settlement payment is re-
ceived, a reduction in a fi nancial derivative asset
is recorded. When a cash settlement payment is
made, a reduction of a fi nancial derivative liabil-
ity is recorded. - When an underlying item is delivered, two trans-
actions are recorded:
Th e transaction involving the underlying item
is valued at the market price at the time. Th e
entry for the underlying item is recorded under
the relevant heading (goods, fi nancial instru-
ment, etc.).
Th e transaction involving the derivative is val-
ued as the diff erence, multiplied by the quantity,
between the market price for the underlying
item and the strike price specifi ed in the deriva-
tive contract. - When more than one contract is settled—in cash,
at the same time, and with the same counterparty—
some of the contracts being settled are in asset
positions and some are in liability positions.
In this situation, transactions involving assets
should be recorded separately from those involv-
ing liabilities, wherever possible, but net settle-
ments are acceptable when gross reporting is
impractical.
Employee stock options (32072, 32172, 32272, 33072, 33172, 33272)
9.77 General government units are very unlikely
to issue stock options. Only entities with issued share
capital can create employee stock options, so they
may arise for public corporations in unusual cases.
An employee stock option is created on a given date