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Preparing the Buy-Side for SFTR Compliance

By DTCC Connection Staff | February 26, 2020

With the first phase of Securities Financing Transactions Regulation (SFTR) going into effect in April, in-scope dealers and agent lenders are busy finalizing their plans for complying with the mandatory reporting of securities financing transactions (SFT) to an authorized trade repository (TR). But what about their buy-side counterparties?

Buy-side firms, already facing an influx of new regulations like Uncleared Margin Rules (UMR) and Central Securities Depositories Regulation (CSDR), will be the next market segment impacted by SFTR in October.

DTCC Connection sat down with Chris Childs, Managing Director, Head of Repository and Derivatives Services at DTCC and Chief Executive Officer and President of DTCC Deriv/SERV LLC to discuss the challenges that buy-side firms may be facing in the run up to the compliance date and how DTCC is best positioned to help.

DTCC Connection: What have buy-side firms identified as their biggest challenges related to SFTR?

Childs: As a new reporting mandate, SFTR poses significant operational and data challenges for buy-side firms. In September last year, we teamed up with IHS Markit and Pirum Systems to host an SFTR briefing with representatives from nearly 50 buy-side firms to better understand their unique pain points. The event fostered open dialogue around topics including delegated reporting, unique trade identifier (UTI) generation, vendor selection and other key concerns.

The conversation helped us deepen our understanding of the challenges these firms face. Almost half of the attendees cited sourcing the transaction data required for regulatory reporting as the biggest challenge, while UTI sharing was also identified as a top concern due to the required pairing and matching of transactions in a trade repository on a T+1 basis.

Pairing trades takes place using the UTI and LEIs of the parties involved in the transaction, meaning counterparties have to generate and exchange UTI pre-reporting. This is a new challenge for the repo and SFT markets, which until SFTR, did not require UTI.

DTCC Connection: Does delegating reporting to a counterparty ease the burden on buy-side firms?

Childs: Buy-side firms that lack the resources to build and manage technology for their own transaction reporting can delegate to their counterparty. When a buy-side firm delegates reporting, their counterparty or vendor generates and submits the required reports to a trade repository on their behalf, thus fulfilling the buy-side firm’s regulatory reporting obligation. However, we’ve learned that delegated reporting isn’t a perfect substitute for self-reporting. When we asked buy-side firms, responses were split regarding their intention to delegate to a counterparty or vendor, self-report or utilize some combination thereof. We’re seeing firms carefully considering the benefits and drawbacks of each approach.

DTCC Connection: Can you share some of the difficulties around delegated reporting?

Childs: Collateral reuse is a known problem for buy-side firms and their counterparties that can complicate delegated reporting. SFTR requires reporting on the reuse of underlying collateral at the entity level, not the trade level. It is not possible for an agent lender or dealer to know when or what collateral has been reused by a beneficial owner and for what purpose; only the asset owner can report this information. As a result, for all the best intentions of a third-party reporter, the information can never be complete unless there is an exclusive relationship such as a custodian. SFTR’s data requirements may make delegated reporting challenging enough for some buy-side firms that self-reporting may be the only realistic option.

It is also important to note that delegated reporting does not remove a buy-side firm’s legal responsibility to ensure that effective controls are in place, that reporting is performed accurately and on time, and that information can be submitted quickly in the event of an audit or regulatory review.

DTCC Connection: How can DTCC help buy-side clients tackle some of their challenges under SFTR?

Our Global Trade Repository services combined with optional pre- and post-trade reporting tools offered through DTCC Report HubTM allow us to provide a comprehensive SFTR solution, including capabilities designed to ease the reporting burden for buy-side firms.

With the hub’s customisable suite of services, users can transform their data into the required ISO 20022 format, enrich their submissions and manage exceptions – all before submitting to a trade repository. For buy-side firms that delegate some or all of their reporting, the DTCC Report Hub’s reconciliation service will provide support to match their own trading books to transactions reported on their behalf.

We also believe that our comprehensive client service and support model sets us apart from other trade repositories and services providers. At DTCC, “comprehensive” means serving clients throughout their SFTR reporting lifecycle – from project inception to testing, go-live and on-going support – to ensure they are operationally ready to meet their reporting obligations. To accomplish this we offer a robust set of SFTR testing tools and training programs and a level of support that focuses on minimizing the client build-out effort plus 24/6 production support and 24/5 UAT support. All of these services and tools are available at no additional cost to clients.

DTCC Connection: Any advice for buy-side firms as they prepare for SFTR compliance?

Childs: Act now. While their counterparties have made good progress in their readiness for SFTR implementation, the smaller and medium-sized asset managers have much further to go in terms of preparation for timely compliance. We urge all buy-side firms to finalize their plans, select their trade repository and begin testing ahead of the October 2020 implementation date.

To learn more about DTCC’s SFTR solution visit or contact us at [email protected].



Chris Childs
Chris Childs Managing Director, Head of Repository & Derivatives Services, DTCC Chief Executive Officer & President, DTCC Deriv/SERV LLC