Circular D4/EB/2001/3 Electronic Transmission of Financial Data - Modifications to Reporting

COMMISSION BANCAIRE ET FINANCIERE
Prudential Supervision of Investment Firms
Avenue Louise 99, B-1050 Brussels telephone +32(2)535.22.11 - fax +32(2)535.23.08 Brussels, December 10, 2001

CIRCULAR D4/EB/2001/3 TO SECURITIES FIRMS
Electronic Transmission of Securities Firms' Financial Data Modifications to the accounting and financial reporting to be communicated periodically to the Banking and Financial Commission in application of Article 91 of the Law of April 6, 1995

Madam, Sir,

This circular aims to modify the reporting tables communicated to the Commission quarterly by securities firms in accordance with Circulars 90/2 of March 13, 1990 and 91/7 of December 18, 1991, which established respectively a periodic statement and a securities balance sheet. Through this circular, the Commission also intends to inform the sector that in its session of November 8, 2001, it approved an order which, on the one hand, modifies the Order of June 24, 1997 relating to periodic information to be communicated concerning the application of regulations relating to the own funds of securities firms and the placement of client funds, and on the other hand, establishes, by March 31, 2002 at the latest, the electronic transmission of the accounting and financial data of securities firms. The adaptations made to the various tables, the reasons justifying them, as well as the procedures for the electronic communication of accounting and financial data are set out below.

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For reasons of efficiency, the Commission establishes, effective December 31, 2001 (statements to be submitted for January 31, 2002) and, at the latest, by March 31, 2002 (statements to be submitted for April 25 or 30, 2002), an automated procedure for the transmission of the accounting and financial statements of securities firms (periodic statements, securities balance sheet, reports on regulations relating to own funds and the placement of client funds) which currently reach it on "paper" medium. Securities firms will submit their financial data based on a structured text file format conforming to the technical prescriptions included in Annex 5 of this circular. To this end, firms that wish to do so may use the data entry program communicated in the annex of this circular on CD-Rom (application named "Reporting CBF") whose "export tables" option automatically generates the file. This program has the advantage of including tests for coherence, plausibility, and completeness of data, thereby allowing firms to verify the quality of the encoded data before sending it to the Commission. Securities firms that do not encode their data in the data entry program may, however, import the content of the text files intended for the Commission using an "import datas" option and launch a general verification of their data via the "global check" option.

Data pertaining to the same period should preferably be grouped in a single file. This file will be sent to the Commission, either on a magnetic medium (floppy disk) via simple or registered mail, or sent to the following E-mail address: reporting.eibo@cbf.be.

In the case of email, firms are invited to secure the transfer of their data by encrypting the file beforehand using an encryption program (Acrypt or any other "freeware" that allows coding an email and/or an "attachment" without purchasing a license). The code used to decrypt the file will be sent beforehand to the Commission via duly signed postal mail by the management.

The financial data as of December 31, 2001 must be transmitted electronically to the Commission. However, the "paper" medium will still be processed by the Commission for reports up to and including February 28, 2002. In other words, all securities firms must have adopted electronic reporting by March 31, 2002 (statements to be submitted for April 25 or 30, 2002) at the latest.

The validity of the financial data transmitted to the Commission electronically is subject to the condition that the firm retains a copy of the various reports sent, duly signed by the person(s) authorized to do so. A global print option has been expressly provided for this purpose within the application. These copies, grouped by accounting period, must remain permanently available to the Commission at the firm's headquarters.

A separate letter containing the identification code assigned to your firm is attached to the sending of this circular. It goes without saying that this code must be scrupulously respected when sending all financial data of your firm as well as, where applicable, consolidated financial data of the group of which your securities firm is the parent company.

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The modifications made to the regulation relating to the own funds of securities firms of December 5, 1995 following the orders of the Banking and Financial Commission of July 4, 2000 and May 8, 2001 have made it necessary to adapt some of the reporting tables relating to own funds. These modifications concern:

• Table 10.10 relating to capital adequacy tests, in which the notion of "foreign exchange risk" is replaced by the notion of "foreign exchange risk and on base products";
• Table 10.40 relating to "foreign exchange risk and on base products" within which the risk coverage requirements related to precious metals are replaced by new risk coverage requirements related to base products, the calculation method of which differs (see explanatory note in Annex 3 to this circular);
• Table 10.80 relating to settlement/counterparty risk, the calculation of the risk coverage requirement related to off-exchange derivative instruments of which is limited to the market value-based method.

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The modifications in the architecture of financial markets and the launch of Euronext also have an impact on the reporting scheme of securities firms. Indeed, the disappearance on November 27, 2000 of the futures market and the Euronext Brussels rollover system rendered obsolete Annex 3 of the periodic statements relating to rollover operations as well as, partially1, Annex 2 relating to forward operations. Transactions with deferred settlement-delivery – whose settlement-delivery date is subsequent to the liquidation date of the operation or whose liquidation date is deferred (post J+3) – are still currently concluded and, given the risks they entail, it is important to maintain appropriate monitoring. Consequently, from January 1, 2002, the framework of Annex 3 of the periodic statements is extended to all transactions initiated by the order giver with deferred settlement-delivery on shares and other assimilable values, executed in Belgium or abroad, on or outside a regulated market. In the Annex, all these operations bought and sold that are ongoing at the end of the period will be reported, by category of order giver, the mode of financing used if any, as well as the guarantees exchanged. As for Annex 2 of the periodic statements, it is abolished.

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Finally, the electronic transmission of financial data requires the revision of the structure of the various tables that make up the reporting. These adaptations are generally minor, limiting themselves most often to a modification of the order of columns and to a more complete codification (rows/columns) of each of the tables or even the addition of an additional "code" column in the annexes of the periodic statements to inform the internal code of the client/counterparty concerned used by the firm. The adaptations are, however, more significant for the following few tables:

• Table 10.80 relating to settlement/counterparty risk which has been decomposed into two parts: the part reserved for unsettled operations subject to Table 10.8A, the remainder of Table 10.80 constituting Table 10.8B;
• Table 10.90 relating to large risks in which some additional information has been requested so that the supplementary capital requirement can, where applicable, be automatically calculated.

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As a result of the foregoing, please find attached to this circular a new example of all the tables and their comments constituting the accounting and financial reporting of securities firms modified following the Order of November 8, 2001 mentioned above and this circular. These tables must be used for the establishment of reports from January 1, 2002. To be complete, a technical inventory of the modifications made to the various reporting tables is also communicated in Annex 4.

1 Namely, operations carried out on Euronext (formerly BXS) on the futures market for buying (column 3) and selling (column 4).

A copy of this circular and its annexes is sent to the commissioner of your firm.
The Commission's services remain at your disposal for any additional information.
Please accept, Madam, Sir, the expression of my distinguished sentiments.

The President,
E. WYMEERSCH.

Annexes