Definition: Portfolio investment account
Balance of payments
The euro-area portfolio investment account includes (i) equity securities and (ii) debt securities in the form of bonds and notes and money market instruments, unless they are categorised either as direct investment or as reserve assets. Financial derivatives as well as repurchase agreements and securities lending are excluded from portfolio investment.
The "equity securities" item covers all instruments representing claims on the residual value of incorporated enterprises after the claims of all creditors have been met. Stocks, shares, preference stocks or shares, participation certificates or similar documents denote ownership of equity. Transactions/holdings of shares of collective investment institutions, e.g. investment funds, are also included.
Bonds and notes are securities issued with an initial maturity of more than one year which usually give the holder (i) the unconditional right to a fixed monetary income or contractually determined variable monetary income (payment of interest being independent of the earnings of the debtor) and (ii) the unconditional right to a fixed sum in repayment of principal on a specified date or dates.
Unlike bonds and notes, money market instruments are securities issued with an initial maturity of one year or less. They generally give the holder the unconditional right to receive a stated, fixed sum of money on a specified date. These instruments are usually traded, at a discount, in organised markets; the discount is dependent upon the interest rate and the time remaining to maturity.
The report by the Task Force on Portfolio Investment Data Collection Systems was followed by national feasibility studies concerning the possibility of data collection on a security-by-security basis euro-area-wide. These studies were carried out by the then 15 European Union Member States and concluded with an agreement to collect, as a minimum, quarterly portfolio investment stocks in the euro area on a security-by-security basis. This agreement established four valid models for the compilation of portfolio investment statistics.
For the sectoral breakdown of the euro-area net liabilities in portfolio investment, the requirements regarding international investment position data are the same as for balance of payments flows.
The recording of portfolio investment transactions in the euro-area balance of payments takes place when the euroarea creditors or debtors enter the claim or liability in their books. Transactions are recorded at the effective price received or paid, less commission and expenses. Thus, in the case of securities with coupons, the interest accrued from the last payment of interest is included and, in that of securities issued at a discount, the interest accumulated since the issue is included. Inclusion of interest accrued is required for the financial account of the quarterly balance of payments and the international investment position; in the monthly balance of payments the same treatment is encouraged; these recordings in the quarterly (and monthly) financial account need to have offsetting entries in the respective income account.
European Union, Recommendation of the European Central Bank of 16 July 2004 on the statistical reporting requirements of the European Central Bank in the field of balance of payments and international investment position statistics, and the international reserves template (ECB/2004/16)