Introduction
The U.S. Treasury Department (the “U.S. Treasury”) has made significant changes to Treasury International Capital (“TIC”) Form SLT, a filing required to be made by many investment managers on behalf their U.S. fund clients, and its instructions that are effective for TIC Form SLT filings commencing as of November 2022 (with the first submission due date being December 23, 2022).
Description of TIC Form SLT
TIC Form SLT is a monthly report that currently gathers information from U.S.-resident reporters on: (i) foreign-resident holdings of long-term U.S. securities; and (ii) U.S.-resident holdings of long-term foreign securities.1 The information reported therein is used by the U.S. government in the formulation of international financial and monetary policies and for the preparation of the U.S. balance of payments accounts and the U.S. international investment position. In particular, all U.S.-resident custodians, U.S.-resident issuers and U.S.-resident end-investors who meet or exceed the $1 billion fair value holdings and/or issuances of long-term securities2 threshold as of the last business day of any month (collectively, “U.S. Reporters”) are required to electronically report on TIC Form SLT within twenty-three calendar days after the end of the month (or the following business day if the due date falls on a weekend or a holiday) via the “Reporting Central” submission system of the Federal Reserve Board of New York (the “FRBNY”). Thereafter, the U.S. Reporter is required to submit a TIC Form SLT report for each remaining month in that calendar year, regardless of the consolidated total of reportable securities held in any subsequent month.
The U.S. Treasury’s changes to TIC Form SLT and its instructions, which are currently effective, are summarized below.
Summary of Changes to TIC Form SLT
(1) Reporting of Cross-Border Purchases and Sales of Long-Term Securities; Reporting Perspective – The TIC Form SLT and its instructions have been expanded to add the collection of data on cross-border purchases and sales of long-term securities. In particular, the revised TIC Form SLT requires U.S. Reporters to report the aggregate amount of monthly: (i) purchases and sales by foreign residents of the long-term securities of U.S. resident issuers not held by a U.S.-resident custodian (e.g., a foreign investor’s subscriptions and withdrawals in respect of a U.S. standalone fund or a U.S. feeder fund; a foreign feeder fund’s subscriptions and withdrawals in respect of a U.S. master fund); and (ii) purchases and sales by U.S.-resident entities of the long-term securities of foreign issuers not held by a U.S.-resident custodian (e.g., a standalone U.S. fund’s and a U.S. master fund’s purchases and sales of foreign issuers; a U.S. feeder fund’s subscriptions and withdrawals in respect of a foreign master fund).
Notably, all such purchases and sales must be reported from the U.S.-resident’s perspective on the revised TIC Form SLT3. For example, a U.S. feeder fund’s subscriptions and withdrawals in respect of a foreign master fund should be reported as purchases and sales, respectively, by the U.S. Reporter. Similarly, a foreign feeder fund’s subscriptions and withdrawals in respect of a U.S. master fund should be reported as sales and purchases, respectively, by the U.S. Reporter.4
(2) Newly-Added “Valuation Due to Price” Data Column – The revised TIC Form SLT contains a new “valuation due to price” data column to capture the total fair market value change solely due to price for all reportable securities. In particular, U.S. Reporters are required to report: (i) the changes in fair market value due to price for securities that were included for both the prior and current as-of dates; and (ii) both the changes in fair market value due to price for the securities that were (A) held at the beginning of the month but were disposed of before the end of the month, and (B) added during the month and remain at the end of the month. A net increase in fair market value due to price must be reported as a positive number, and a net decrease fair market value due to price must be reported as a negative number. Set forth below are certain examples of reporting valuation changes due to price.
Example #1 – Let’s assume a standalone U.S. fund holds a foreign long-term bond and the value of that holding was $10 million at the end of the prior month and is valued at $12 million as of the end of the current month. The valuation change due to price should be reported as $2 million.
Example #2 – Let’s assume a standalone U.S. fund holds a foreign long-term equity security and the value of that holding was $5 million at the end of the prior month but the security was sold during the current reporting month for $8 million. The value of the holding as of the end of the current month would be $0, the sale amount should be reported as $8 million and the valuation change due to price should be reported as $3 million.
Example #3 – Let’s assume a standalone U.S. fund makes a mid-month purchase of a foreign long-term equity security for $3 million and the value of that security increases by $100,000 by the end of the month. The value of the holding as of the end of the month would be $3.1 million, the purchase amount should be reported as $3 million and the valuation change due to price should be reported as $100,000.
Example #4 – Let’s assume a U.S. standalone fund has a single foreign investor, the value of the foreign investor’s limited partnership interest was $5 million at the end of the prior month and such holding is valued at $5.2 million as of the end of the current month. The valuation change due to price should be reported as $200,000.
Example #5 – Let’s assume a foreign feeder fund makes an initial $25 million capital contribution to a U.S. master fund on the first day of the current reporting month, the value of that interest decreases by $5 million by the end of that month, and the foreign feeder makes a $10 million withdrawal as of the end of that month. The reportable value of the foreign feeder’s holding in the U.S. master fund as of the end of the current month would be $10 million, the U.S. Reporter would report the $25 million capital contribution by the foreign feeder fund as a sale by the U.S. master fund, the $10 million withdrawal by the foreign feeder fund as a $10 million purchase by the U.S. master fund, and the valuation change due to price should be reported as negative (-) $5 million.
(3) Report Structure – The revised TIC Form SLT is no longer divided into parts A and B, where previously a U.S.-resident custodian reported data in part A and U.S.-resident issuers and U.S.-resident end-investors reported data in part B. In the revised TIC Form SLT, the U.S. Reporter must check one or both of the two new boxes on the cover page to specify the filer type. So a firm that reports data for both a custodian and an issuer and/or end-investor will combine both types of data into a single report.
Discontinuation of TIC Form S
In connection with the adoption of the revised TIC Form SLT, the TIC Form S, which is a report that collects information on cross-border purchases and sales of long-term U.S. and foreign securities by foreigners in transactions with U.S. residents, will be phased out since purchases and sales of long-term securities will be required to reported in the revised TIC Form SLT. However, it is anticipated that there will be a duplication of the purchase and sales data with the TIC Form S for at least a three-month period. In particular, it is anticipated that TIC Form S reporters will continue to be required to report on TIC Form S in parallel for November 2022, December 2022 and January 20235, pending possible adjustments from the FRBNY and the U.S. Treasury. After the January filing (which is due by February 15, 2023), it is anticipated that the TIC S Form will be discontinued.
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