Securities Financing Transactions Regulation

Background

The Securities Financing Transactions Regulation (SFTR) is a response to the need to enhance transparency of securities financing markets and thus of the financial system. This Regulation creates a framework under which details of securities financing transactions (SFTs) can be efficiently reported to trade repositories and information on SFTs, total return swaps and reuse of assets received under a collateral arrangement, are disclosed to investors in collective investment undertakings. 

Scope of the regulation

Whereas EMIR focuses on OTC and listed derivatives’ reporting, SFTR extends its reach to the new arena of securities financing trades such as repo and securities lending. The SFTs in scope are repo/ reverse repo and buy/sell back, securities loans and borrows, commodities loans and borrows, prime brokerage margin lending transactions and collateral re-use. The proposal also identifies UCITS funds and AIFM funds as being subject to the regulation.

SFTR has a very broad scope and would cover SFTs conducted by:

  • All EU financial and non-financial counterparties;
  • Including all branches irrespective of their location; and
  • Third country entities which need to report, if the SFT is concluded by an EU branch.

Details to report

Reporting under the SFTR will be consistent with the obligations described in EMIR, as well as with agreed international standards. Although full details have yet to be published, SFTR in its current form specifies that reports shall at least contain information on the following:

  • The parties to the SFT;
  • The principal amount and currency;
  • The assets used as collateral and their type, quality and value; and
  • The method used to provide collateral as well as any substitutes of the collateral.

Reporting timeline

ESMA published the Final regulatory technical standards (RTS) Report on 31 March 2017, however, the actual start date of the reporting requirements depends on when the European Commission and European Parliament can approve it. The standards are expected to enter into force by Q2 2018 with reporting to go live H2 2019 on a phased-in basis, depending on the counterparty type, continuing until 2020.