With MiFID II having just gone live in January, financial market participants are now seeking to understand what impact the upcoming Securities Financing Transactions Regulation (SFTR) regulation will have on their post-trade processes.
DTCC Connection spoke with subject matter experts from The Depository Trust & Clearing Corporation (DTCC) Connection to get answers to key questions about SFTR.
1. What is SFTR?
In January 2014, the European Commission published a proposal to regulate Securities Financing Transactions (SFTs) as a way to increase the transparency of the securities financing markets. The resulting SFTR will set new reporting obligations that will impact securities lending, repo and margin financing transactions. SFTR includes a number of new rules for market participants including a requirement to report all SFTs to an approved Trade Repository (TR).
2. When will SFTR come into effect?
SFTR will come into effect in a phased approach based on entity classification. While the final Regulatory Technical Standards (RTS) have yet to be approved, SFTR is expected to come into force for investment firms in Q2 2019.
3. Which Securities Financing Transactions will be affected by SFTR?
SFT that fall under the scope of SFTR will include securities loans and borrows, repurchase transactions (including buy/sell backs), commodities loans and borrows, and prime brokerage margin lending transactions.
4. Will SFTR have an impact outside of Europe?
SFTR will apply to clients who are established in the EU (including all of their branches, irrespective of where they may be located). SFTR will also have a wider global impact as it may also apply to all counterparties to an SFT with a branch in the European Union (EU).
5. Will SFTR require dual-sided reporting?
The reporting obligation is dual-sided, however, unlike EMIR, for trades between financial counterparties and small non-financial counterparties, the financial counterparty is required to report for both sides. Delegated reporting is also permitted.
6. How will SFTR affect my post trade reporting?
Under SFTR repo counterparties will be required to report SFT’s in an EMIR style report to an authorized trade repository. DTCC’s Global Trade Repository will be entering the securities financing market as a registered trade repository and will enable clients to meet their reporting obligations under SFTR.
7. Does SFTR have an LEI requirement?
Yes, SFTR will require all counterparts to an affected transaction to be identified with a Legal Entity Identifier (LEI). Unique Trade Identifiers (UTIs) are also required for all trades reported.
8. How can matching trades before reporting help to ensure better SFTR reporting for repos?
The key to enhancing data quality for SFTR includes effectively matching repo trades, using platforms such as DTCC Central Trade Matching (CTMTM), before reporting. SFTR will require that certain fields within the reported data from both counterparties match.
Beyond SFTR effective matching and settlement of transactions will allow repo clients to:
- Ensure high transparency and consistency to post-trade processing
- Reduce the occurrence and impact of trade settlement fails
- Ensure that reporting data for all counterparties to a repo transaction is correct, thereby improving regulatory compliance and risk management.
To learn more about how DTCC is helping clients to mitigate the impact of SFTR, visit www.dtcc.com/sftr.