SFTR

The Securities Financing Transactions Regulation (SFTR) is the body of European legislation for the regulation of securities lending and repo. The regulation includes requirements to obtain consent from a counterparty before re-using its collateral, disclosure and reporting to trade repositories.

The objective of the legislation is to reduce systemic risk in securities lending and get more visibility over collateral re-use whilst making trading activity in financial markets more transparent.

All EU companies conducting Securities Financing Transactions (SFTs) have a reporting obligation. This applies to both Financial Counterparties (FC) and Non-Financial Counterparties (NFC) have reporting obligations covering both EU-based entities and their branches regardless of location, and non-EU based entities where the SFTR is concluded by an EU-based branch. 

Examples of companies that need to report under SFTR include:

• Investment firms
• Credit institutions
• Insurance companies
• UCITS and AIFMs
• Pension funds
• CCPs and CSDs
• Corportates.

SFTR reporting requires the following data to be reported:

• repurchase transactions
• securities or commodities lending (borrowing)
• Sell-buy (or buy-sell) back transactions
• Margin lending transactions

In terms of the data elements which must be reported, these consist of four tables of data:

• Counterparty data – this relates to the identification of the parties who execute, report, benefit from, arrange, broker and clear the transaction;
• Loan and Collateral data – this relates to the characteristics and terms of the securities financing transaction itself, including the trading and clearing venues, interest calculations, security and commodity information, pricing and rebate details, haircuts and collateral quality;
• Margin data – this relates to initial and variation margin, and collateral posted and received against a portfolio of transactions;
• Re-use, Cash Reinvestment and Funding Sources data – this relates to collateral re-use, cash collateral reinvestment and, for margin lending transactions, funding source information.

All tables of data are differentiated across the four transaction types of: Repurchase; Buy-Sell back; Securities Lending; and Margin Lending transactions. Some data fields are mandatory for some transaction types, and not for others, depending upon the applicability of that data element to that type of transaction.

Reports are required to be submitted to a TR authorised by ESMA by no later than one working day after the day the SFT has been entered into (T+1).

For transactions that were entered into on or before the reporting start date, they must be reported if they either:

• have a remaining maturity exceeding 180 days after the reporting start date; or
• have an open maturity and actually remain outstanding for 180 days after the reporting start date. In this case, the transactions must be reported within 190 days of the reporting start date.

Counterparties will need to report details of Securities Financing Transactions (SFTs) to an ESMA approved trade repository. They will also need to keep a record of all new SFTs that they have concluded, modified or terminated for at least five years after the termination of the contract. Details of SFTs need to be reported at the latest on the following working day, including modifications and termination of the transaction.

SFTs reported to a TR are directly provided to:

• ESMA (the European Securities and Markets Authority);
• EBA (the European Banking Authority);
• EIOPA (the European Insurance and Occupational Pensions Authority);
• ESRB (the European Systemic Risk Board);
• The competent authority supervising the trading venues of the reports transactions;
• The relevant members of the ESCB, relevant authorities of a third country in respect of which an implementing act of equivalence and recognition has been adopted;
• The supervisory authorities designated to supervise bids for the purposes of which they make or introduce;
• The relevant Union securities and market authorities whose respective supervisory responsibilities and mandates cover transactions, markets, participants and assets;
• ACER;
• The resolution authorities to credit institutions and investment firms; and
• The Single Resolution Board.

RTR shall ensure direct and immediate access to details of SFTs to:

• Authorities responsible for the authorisation and supervision of CCPs;
• Authorities part of the ESFS;
• Authorities responsible for the authorisation and supervision of CSDs;
• Authority responsible for the oversight of the securities settlement system operated by the CSD;
• Central Banks in the Union;
• National authorities designated to carry out the supervision of institutions for occupational retirement provision;
• Authorities responsible for the supervision of UCITS;
• National authorities empowered to supervise AIFMs and AIFs;
• Supervisory authorities of markets in financial instruments; and
• Supervisory authorities in charge of the protection of policy holders and beneficiaries of insurance and reinsurance.