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.
1 U.S.-resident custodians that meet or exceed the $1 billion holdings threshold are required to report: (i) all long-term U.S. securities that they hold in custody for the account of foreign residents (including their own foreign branches, subsidiaries and affiliates); (ii) all foreign long-term securities that they hold in custody for the accounts of U.S.-resident issuers or U.S.-resident end-investors; (iii) all foreign long-term securities that they hold for their own accounts; and (iv) all cross-border purchases and sales of long-term securities during the month and the change in fair (market) value that occurred during the month.
U.S.-resident issuers that meet or exceed the $1 billion issuance threshold are required to report all long-term securities issued by them directly to foreign residents, unless such securities are held by a U.S.-resident custodian.
U.S.-resident end-investors that meet or exceed the $1 billion holdings threshold are required to report all of their foreign long-term securities that are not held with a U.S.-resident custodian (e.g., a U.S. feeder fund’s holdings of interests in a foreign master fund). Notably, the term end-investor includes investment managers, who are required to calculate the $1 billion holdings threshold and report on a single TIC Form SLT on behalf of the portfolios of all of their U.S. clients.
However, as U.S. Reporters are required to file a single, consolidated TIC Form SLT, for purposes of determining whether a U.S. Reporter meets or exceeds the $1 billion exemption level, a U.S. Reporter should aggregate holdings and issuances as a U.S.-resident custodian, U.S.-resident issuer and U.S.-resident end-investor.
2 Reportable long-term securities are equity securities (e.g., common stocks, preferred stocks, limited partnership and limited liability company interests) and debt securities that have original maturities of more than one year or no contractual maturity, but excluding: (i) derivative contracts; and (ii) Direct Investments (which must be separately reported to the Bureau of Economic Analysis of the Department of Commerce). A “Direct Investment” is ownership of at least 10% of the voting securities of an incorporated business or the equivalent interest in an unincorporated business (e.g., a limited partnership or a limited liability company). However, under an exception from that definition for private funds, investments by U.S. entities of a 10% or more voting interest in a foreign private fund, and investments by foreign entities of a 10% or more voting interest in a U.S. domiciled private fund should be reported on TIC surveys to the extent the private fund does not own an operating company – i.e., a business enterprise that is not a private fund in which the U.S. or foreign parent owns at least 10% of the voting interest.
3 TIC Form S requires U.S. Reporters to report purchases and sales from the foreign resident’s perspective.
4 All reporting on TIC Form SLT, including purchases and sales, is done on a country-by-country or geographical area basis based on where the foreign-resident holder of U.S. securities resides or the foreign-resident issuer resides, as applicable. For a foreign-resident entity, its residence is the country where it was legally formed or incorporated, and for a foreign resident natural person, its residence is the country in which he or she is domiciled.
5 A TIC Form S will only be required for January 2023 if the TIC Form S threshold is met or exceeded for that month.
