Download Treasury International Capital System (“TIC”) Form S: Purchases

February 21, 2012
Treasury International Capital System (“TIC”) Form S:
Purchases and Sales of Long-Term Securities By Foreigners
If you have any questions regarding the matters discussed in this
memorandum, please contact the
following attorneys or call your
regular Skadden contact.
Anastasia T. Rockas
New York
212.735.2987
[email protected]
Matthew B. Collin
New York
212.735.2214
[email protected]
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This memorandum is provided by
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& Flom LLP and its affiliates for
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purposes only and is not intended
and should not be construed as
legal advice. This memorandum
is considered advertising under
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T
he purpose of TIC Form S is to gather information from U.S.-resident entities on their monthly transactions of long-term securities1 (purchases, sales,
redemptions, and new issues) directly to or from foreign residents.2 A U.S.resident entity is required to file the form if the total value of its purchases and sales
of U.S. or foreign long-term securities directly from or to foreign residents exceeds
$50 million in any month.3 If the level of an entity’s transactions meets or exceeds the
reporting threshold in any month, the entity must report for the remainder of that calendar year.4 To minimize the reporting burden, a U.S.-resident entity is not required to
report transactions conducted through a U.S.-resident financial intermediary (such as a
U.S.-resident broker or dealer).5
Reportable Transactions
All transactions undertaken directly with foreign residents involving long-term securities are reportable, including securities received or delivered to settle derivatives contracts.6 Transactions for which a foreign-resident agent is used on behalf of a reporter
or its clients are also reportable.7 Reportable transactions include purchases and sales
of newly-issued securities (primary market transactions); purchases and sales of existing securities from other investors (secondary market transactions); and transactions
that result from sinking fund redemptions, called or maturing securities.8
Transactions in the following types of securities are not reportable: short-term securities (original maturity of one year or less); certificates of deposit; deposit notes; bankers’ acceptances; participations in loans; derivatives;9 interest payments on securities and
dividend distributions; direct investments; securities taken in or lent as collateral; and
securities involved in repurchase/resale agreements or securities lending agreements.10
1
Long-term securities are securities that have no maturity date or that have an original maturity in
excess of one year. U.S. Dep’t of the Treasury, Instructions for the Monthly Treasury International
Capital (TIC) Form S and Memorandum: Purchases and Sales of Long-Term Securities by Foreigners,
at 1 (2011) (“Form S Instructions”), available at http://www.treasury.gov/resource-center/data-chartcenter/tic/Documents/sinstr-june2011.pdf.
2
Id. at 1, 4.
3
Id. at 6.
4
Id.
5
Id. at 4. U.S.-resident entities that only provide custodial or settlement functions are not intermediaries
for purposes of Form S. Id.
6
Id. at 8.
7
Id. at 4.
8
Id. at 8.
9
Options, rights, warrants, and other derivatives that are written by a company, indexed to an ownership
interest in the company, and not readily convertible to cash (often because they are convertible to a
security that has a restriction on immediate sale) are excluded from the definition of a derivative and
are reportable as equity securities on Form S. Frequently Asked Questions, Treasury International
Capital Form S Purchases and Sales of Long-Term Securities by Foreigners, U.S. Dep’t of the
Treasury, http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/fsqa.aspx (last visited
Feb. 21, 2012).
10
Form S Instructions, supra note 1, at 8-9.
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2
Consolidation Rules
U.S.-resident entities are generally required to consolidate all of their U.S.-resident subsidiaries in
accordance with U.S. GAAP, including trusts, variable interest entities, and special purpose entities.11
An entity that is not 50 percent or more owned by another U.S.-resident entity should report on its
own behalf and on behalf of its subsidiaries.12 U.S.-resident investment managers are required to
include transactions conducted by their U.S.-resident funds.13 However, a reporter should not consolidate brokers, dealers, depository institutions, or insurance underwriting entities that are part of its
organization. Such entities are required to report separately if they conduct transactions in an amount
equal to or greater than the reporting threshold.14
How to Report
A reporter is required to report transactions from the viewpoint of the foreign resident. Purchases of
long-term securities from a foreign resident should be reported as sales by a foreign resident. Sales
of long-term securities to a foreign resident should be reported as purchases by a foreign resident.
Transactions should be reported opposite the country or geographic region of the residence of the
foreign purchaser or seller of the security.15
Reporters are required to report the gross amount of funds (or assets) transferred to execute a transaction. Purchase amounts should reflect the cost of the securities acquired, including brokerage charges,
taxes, and any other expenses incurred by the purchaser. Sales amounts should reflect the proceeds of
the sale less brokerage commissions and other charges. For example, if a U.S. investment manager
purchases a $100 million U.S. Treasury note from a foreign resident, and the foreign resident only
receives $98 million ($100 million minus $2 million for fees), the U.S. investment manager would be
required to report $98 million on Form S.16
Reporters are required to use settlement date accounting. Transactions should only be reported after securities are delivered to the purchaser and payment is received by the seller, and transaction
amounts should reflect the cost at the time of settlement.17 A reporter should not revalue transactions
to reflect price changes during the reporting month. Reporters are required to convert payments in
foreign currencies to the U.S. dollar equivalent value using the spot exchange rate at the close of business on the day of settlement. Reported values should not contain decimals or negative positions.18
Reporting For Investment Managers
A U.S. investment manager is required to report purchases and sales it makes for its own account or
for the accounts of its U.S. funds or clients that are (1) placed through a foreign broker, dealer, or
underwriter; or (2) conducted with a foreign resident, including foreign investment managers, subadvisors, and end-investors without the use of a U.S. broker, dealer, or underwriter.19 U.S. investment
11
Id. at 5-6.
12
Id. at 5.
13
Id. at 6.
14
Id. at 5.
15
Id. at 9.
16
Id. at 7.
17
Id.
18
Id.
19
Id. at 24-25.
3
managers also are required to report purchases and sales made for the accounts of their foreign funds
and foreign clients that are placed through U.S. brokers, dealers, or underwriters if the U.S. investment manager does not disclose the identity of the foreign funds or clients to the U.S. broker, dealer,
or underwriter.20
U.S. investment managers also have potential reporting obligations with respect to purchases and
sales of interests in their domestic and foreign funds. A U.S. investment manager who creates a foreign master fund with a U.S. feeder is required to report purchases of the master fund’s shares by the
U.S. feeder fund.21 A U.S. investment manager who creates a U.S. master fund with a foreign feeder
is required to report sales of the U.S. master fund’s shares to the foreign feeder fund.22 U.S. investment managers are required to report purchases of shares in their foreign funds by U.S. clients if no
U.S.-resident intermediary is used.23 U.S. investment managers are also required to report purchases
of shares in their U.S. funds by foreign clients if no U.S.-resident intermediary is used.24
Foreign-resident investment managers also have potential reporting obligations on behalf of their
U.S. funds. A foreign-resident investment manager who sets up a foreign master fund with a U.S.
feeder fund is required to report purchases of shares in the foreign master fund on behalf of the U.S.
feeder fund.25 A foreign investment manager who sets up a U.S. master fund with a foreign feeder
fund is required to report sales of the U.S. master fund’s shares to the foreign feeder.26
Reporting Redemptions of Securities
U.S. investment managers are required to report redemptions of securities from their own accounts or
the accounts of their U.S.-resident funds and clients that are presented to a foreign intermediary, such
as a foreign-paying agent, foreign-resident broker, foreign-resident dealer, or foreign-resident issuer,
without the use of a U.S.-resident custodian.27 U.S. investment managers are also required to report
redemptions from the accounts of their foreign-resident funds and clients that are presented to a U.S.resident intermediary if the intermediary does not know the identity of the foreign clients or funds.28
Submission of Reports
Reports are due no later than 15 calendar days following the last business day of the reporting month.
If the due date falls on a weekend or holiday, the form is due the following business day.29 Reporters,
other than depository institutions and bank holding companies, are required to submit their forms to
the Federal Reserve Bank of New York. Depository institutions and bank holding companies are required to submit their forms to the Federal Reserve Bank of the District in which they are located.30
Reporters may submit forms electronically through the Federal Reserve System’s Internet Electronic
20
Id. at 25.
21
See id. at 14.
22
See id. at 14-15.
23
See id. at 22.
24
See id. at 13, 26.
25
See id. at 15-16.
26
See id. at 16.
27
Id. at 25.
28
Id.
29
Id. at 27.
30
Id.
4
Submission (IESUB) system, or they may fax or mail their forms to the applicable Federal Reserve
Bank. Reporters must retain data for three years from the date of submission.31
Confidentiality
Data reported on the form will be held in confidence by the Treasury, the Board of Governors of the
Federal Reserve, and the Federal Reserve Banks. Aggregate data derived from Form S reports may
be published or otherwise publicly disclosed, but amounts reported by individual respondents will
remain confidential. However, information may be given to other Federal agencies in accordance
with applicable law.32
31
Id. at 27-28.
32
Id. at 2.