Survey on the Methods of Valuation of Shares and other Equity in Financial Accounts

1. Survey on the Methods of Valuation of Shares and other Equity in Financial Accounts WPFS – 29 November -1 December 2010

2. Presentation contents: • Background for the Survey on Valuation of Shares • Content and Main results • Replies to General Questions • Replies to Specific Questions • Replies to Additional Questions • Conclusion

3. Background • In the SNA 1993, there is no reference to specific issues or methods regarding the valuation of shares • In the SNA 2008, various methods of valuation are proposed and defined • The 2010 survey is an update and a complement of the questionnaire launched in 2006 and limited to: • two sectors • three categories of financial instruments • The 2010 survey deals with more specific questions regarding the method used to value quoted and unquoted shares

4. Content of the survey • General questions • availability of data by type of shares and equities • link between flow data and stock data • link between assets and liabilities • consistency between SNA data and other sources • Specific questions • sources of the data • method of valuation • compilation of unquoted shares • Additional questions • investment funds shares

5. Results of the survey • Replies frommost OECD countries, including new Members, and Estonia • No replies from six countries • Iceland, Ireland, Japan, Korea, Mexico and New Zealand • Good quality of the replies • Large amount of information collected in the 2010 survey • Great disparity in data availability, methods used and classification followed

6. General Questions • There is a split of ‘Shares and other Equity’ (F51) in a large majority of countries • Stocks are the starting point for computing transactions in most countries: • stock data are based on a security-by-security approach • the sources for stocks provide also counterpart information • the methods used to derived transactions from stocks vary between countries, between instruments and between sectors.

7. General Questions • Data are most often available for both the asset and liability side • but generally the liability side is the most reliable • There is a full consistency between Financial Accounts, BoP statistics and IIP statistics • but differences exist in the valuation or compilation methods or in the breakdown of F5 • Micro data are used to compile macro data in most OECD countries • but , this link is possible for a limited number of sectors

8. Specific Questions • Valuation for quoted shares (F511) • the most commonly used method is the market value for assets and liabilities • the method may differ for flows and stocks • depending on the sector • and depending on the side of the accounts

9. Specific Questions • Valuation of unquoted shares (F512) • Countries which use the method recommended by Eurostat apply similar criteria regarding • the exclusion of specific quoted companies, • the number of branches used to evaluate the stocks of unquoted shares, • the average of the ratio of capitalisation • the eventual use of a liquidity ratio differ from country to country

10. Specific Questions • Valuation of unquoted shares (F512) • Most countries follow, or will follow, the Own Funds at Book Value (OFBV) method, one of the methods recommended in the SNA2008 • In some countries, a combination of two methods is applied • A few countries have not yet decided which method they will use

11. Additional Questions • Breakdown of the instrument F52 • Money Market Funds shares data are available in a large majority of OECD countries • the split between other types of investment fund shares is less frequent • the breakdown between listed and unlisted investment fund shares is very rare • Valuation of the instrument F52 • all countries value investment fund shares (F52) at market prices, except two countries

12. Additional Questions • Classification of securitisation units’ equity • for many respondents, this question is irrelevant • for others, there is no common method to classify these units which can be: • under F51 (2 countries) • under F52 (3 countries) • under F3 (4 countries) • Others (2 countries)

13. Conclusions • Taking into account the large amount of information but also the great diversity in replies, it is envisage to convene a Workshop • to improve our knowledge and to better understand the methods used by countries • monographic presentations by countries • discussions on the best practices • to work towards common classifications, definitions and methods in order to increase international comparability of financial accounts.

14. Conclusions • Workshop on Valuation of Equity be organized in the same manner as the Workshop on Securitisation • in an OECD country which will • host the meeting • prepare the agenda • with the assistance of the OECD which will • launch the call for papers and track them • be responsible for administrative tasks

15. Delegates are invited • to discuss some important aspects on the methods used by the OECD countries • to agree on the proposal of a Workshop on Valuation of Shares to be organised in 2011 • to inform the Secretariat on their readiness to host and prepare this Workshop.