SMART/Track for Agency Lending Disclosure Helps Firms Meet FSA Deadline
The Depository Trust Company’s (DTC) SMART/Track for Agency Lending Disclosure (ALD) service helped European firms meet the U.K. Financial Services Authority’s (FSA) January 1, 2010, deadline for agent lenders and borrowers to disclose open loan information on their securities lending transactions.
SMART/Track for ALD, which has been available in the U.S. since 2006, acts as a central communications hub that allows both parties to the loan to transmit key data for credit monitoring and capital requirement purposes.
“The rollout of SMART/Track ALD in Europe was smooth and seamless for our customers,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “European firms are quickly learning that SMART/Track ALD brings greater transparency to securities lending and helps borrowers more effectively manage their counterparty credit risk and calculate their regulatory capital requirements. It was a natural extension of DTCC’s global capabilities that we could quickly leverage the U.S. system to meet the January 2010 implementation deadline set by the FSA.”
A ‘post office’
SMART/Track essentially acts as a “post office” for agency lending disclosure, providing a single point of access for all parties. The service allows agent lenders and borrowers to connect directly to SMART/Track ALD or connect via a vendor.
“SMART/Track ALD is the most efficient, cost-effective service available for transmitting open loan data between borrowers and lenders,” said Javette Laremont, DTCC director, Clearance and Settlement/Equities. “It eliminates the need for agent lenders, borrowers or vendors to build bilateral links to their counterparties to communicate loan information.”
Daily and periodic disclosures
SMART/Track transfers daily open loan files as well as periodic data files between agent lenders and borrowers.
The daily files enable borrowers to analyze their capital requirements and make adjustments to any collateral posted for securities borrowed. The periodic files allow borrowers to do a credit pre-qualification of the principal lenders they choose to borrow from.
Another feature of the service is its web- based management system, which informs the sender that its files have been received and the recipient that its files are available for retrieval. SMART/Track ALD also creates a receipt record for the sender or, if it cannot deliver the file, generates an error code. All notification messages are aggregated on a web screen for agent lenders, borrowers and vendors to browse for updates on the status of files being processed and to request the creation of unique identifiers for principal lenders.
As a central communications hub, SMART/Track ALD does not edit or validate the data contained in the files nor does it have the ability to read the data records contained in the files.
Industry sponsorship
The International Securities Lending Association (ISLA), a trade association that represents the interests of participants in the securities lending industry, published its model for agency lending disclosure in Europe on July 14, 2008, to meet the FSA’s January 2010 mandate, as required under international financial and banking regulations in Basel II.
“ISLA worked closely with DTCC, consultants and member firms to meet the implementation schedule for transmitting open loan data files on securities lending transactions,” said Hugh Gibson, an official with ISLA. “SMART/Track for ALD offered a proven system for creating standardized file formats that also enhances efficiencies and mitigates operational risk for firms involved in securities lending. Our industry members report success with the process and the model.” @