Regular way purchase or sale

Regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. This mechanism is present in nearly all major stock exchanges, where transactions are settled a few days after they are entered into. However, the policy choice discussed here applies also to private issue financial instruments (IFRS 9 IG.B.28).


A regular way purchase or sale of financial assets as such means trading in long positions on an exchange.

IFRS 9 B3.1.5 and IFRS 9 B3.1.6 address the recognition and derecognition of financial assets traded under regular way purchases and regular way sales of long positions. The regular way exceptions are not applicable to short sales of securities, as a result of which such short sales are accounted for as derivatives and are measured at fair value with changes in fair value recognised in profit or loss.

A regular way purchase or sale of financial assets is recognised using either trade date accounting or settlement date accounting. An entity shall apply the same method consistently for all purchases and sales of financial assets that are classified in the same way in accordance with this Standard. For this purpose assets that are mandatorily measured at fair value through profit or loss form a separate classification from assets designated as measured at fair value through profit or loss.

The trade date is the date that an entity commits itself to purchase or sell an asset. Trade date accounting refers to:

  1. the recognition of an asset to be received and the liability to pay for it on the trade date, and
  2. derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. Generally, interest does not start to accrue on the asset and corresponding liability until the settlement date when title passes.

The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to:

  1. the recognition of an asset on the day it is received by the entity, and
  2. the de-recognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity.

Accounting for Changes in Fair Value

When settlement date accounting is applied an entity accounts for any change in the fair value of the asset to be received during the period between the trade date and the settlement date in the same way as it accounts for the acquired asset.

In other words,

  1. the change in value is not recognised for assets measured at amortised cost, i.e. amortisation itself take care of this.;
  2. it is recognised in profit or loss for assets classified as financial assets measured at fair value through profit or loss; and
  3. it is recognised in other comprehensive income for financial assets measured at fair value through other comprehensive income in accordance with IFRS 9 4.1.2A and for investments in equity instruments accounted for in accordance with IFRS 9 5.7.5.

Consistency

An entity shall apply the same method consistently for all purchases and sales of financial assets that are classified in the same way in accordance with this Standard.

For this purpose asset, those are mandatorily measured at fair value through profit or loss, form a separate classification, from assets designated as measured at fair value through profit or loss. In addition, investments in equity instruments accounted for using the option provided in paragraph 5.7.5 form a separate classification.

Further, it should be noted that a, contract that requires or permits net settlement of the change in the value of the contract is not a regular way contract. Instead, such a contract is accounted for as a derivative in the period between the trade date and the settlement date.

Benefits of Trade Date Use

Using trade dates in accounting ensures that a company has an up-to-date record of what monies will be coming into, or going out of, its accounts, as a result it is used in a trading environment were multiple trades per hour/minute take place, including automated trading.

EXAMPLE – Trade date vs settlement date: amounts to be recorded for a purchase

How are the trade date and settlement date accounting principles in IFRS 9 applied to a purchase of a financial asset?

The following example illustrates the application of the trade date and settlement date accounting principles in IFRS 9 for a purchase of a financial asset. On 29 December 20X1, an entity commits itself to purchase a financial asset for CU1,000, which is its fair value on commitment (trade) date. Transaction costs are immaterial. On 31 December 20X1 (financial year-end) and on 4 January 20X2 (settlement date) the fair value of the asset is CU1,002 and CU1,003, respectively. The amounts to be recorded for the asset will depend on how it is classified and whether trade date or settlement date accounting is used, as shown in the two tables below

Settlement date accounting

Trade date accounting

EXAMPLE – Trade date vs settlement date: amounts to be recorded for a sale

How are the trade date and settlement date accounting principles in IFRS 9 applied to a sale of a financial asset?

The following example illustrates the application of the trade date and settlement date accounting principles in IFRS 9 for a sale of a financial asset. On 29 December 20X2 (trade date) an entity enters into a contract to sell a financial asset for its current fair value of CU1,010. The asset was acquired one year earlier for CU1,000 and its gross carrying amount is CU1,000.

On 31 December 20X2 (financial year-end), the fair value of the asset is CU1,012. On 4 January 20X3 (settlement date), the fair value is CU1,013. The amounts to be recorded will depend on how the asset is classified and whether trade date or settlement date accounting is used as shown in the two tables below (any loss allowance or interest revenue on the financial asset is disregarded for the purpose of this example).

A change in the fair value of a financial asset that is sold on a regular way basis is not recorded in the financial statements between trade date and settlement date even if the entity applies settlement date accounting because the seller’s right to changes in the fair value ceases on the trade date.

Settlement date Sale

Trade date accounting sale.

EXAMPLE – Settlement date accounting: exchange of non-cash financial assets

If an entity recognises sales of financial assets using settlement date accounting, would a change in the fair value of a financial asset to be received in exchange for the non-cash financial asset that is sold be recognised in accordance with paragraph 5.7.4 of IFRS 9?

It depends. Any change in the fair value of the financial asset to be received would be accounted for under paragraph 5.7.4 of IFRS 9 if the entity applies settlement date accounting for that category of financial assets. However, if the entity classifies the financial asset to be received in a category for which it applies trade date accounting, the asset to be received is recognised on the trade date as described in paragraph B3.1.5 of IFRS 9. In that case, the entity recognises a liability of an amount equal to the carrying amount of the financial asset to be delivered on settlement date.

To illustrate: on 29 December 20X2 (trade date) Entity A enters into a contract to sell Note Receivable A, which is measured at amortised cost, in exchange for Bond B, which meets the definition of held for trading and is measured at fair value. Both assets have a fair value of CU1,010 on 29 December, while the amortised cost of Note Receivable A is CU1,000.

Entity A uses settlement date accounting for financial assets measured at amortised cost and trade date accounting for assets that meet the definition of held for trading. On 31 December 20X2 (financial year-end), the fair value of Note Receivable A is CU1,012 and the fair value of Bond B is CU1,009. On 4 January 20X3, the fair value of Note Receivable A is CU1,013 and the fair value of Bond B is CU1,007. The following entries are made:

29 December 20×2

Bond B CU1,010
Payable CU1,010

31 December 20×2

Trading loss CU1
Bond B CU1

29 December 20×2

Payable CU1,010
Trading loss (calculated = CU1,010 -/- CU1 -/- CU1,007) CU2
Note receivable A CU1,000
Bond B CU2
Realisation gain CU10

Regular way purchase or sale

Regular way purchase or sale

Regular way purchase or sale

Regular way purchase or sale Regular way purchase or sale Regular way purchase or sale Regular way purchase or sale

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