Uncertainty over scope of SFT reporting
There is still uncertainty about the scope and nature of the reporting requirements likely to be expected under the recently proposed Securities Financing Transaction Regulation in the European Union (EU).
SFT rules will affect financial as well as non-financial institutions engaging in SFTs, and will require them to report details of their SFTs to trade repositories. However, central banks and public bodies managing public debt will be exempted from these reporting obligations. The rules are extra-territorial and will impact non-EU branches of EU entities.
SFTs include repos, reverse repos, securities lending and borrowing transactions, buy-sell backs, sell-buy backs and derivative transactions such as total return swaps, liquidity swaps and collateral swaps. Some of these derivative transactions are already being reported under the European Market Infrastructure Regulation (EMIR) so any regulatory arbitrage must be settled to avoid duplication. There is no firm date yet for implementation of the SFT proposals.
“What will be interesting to see will be whether ESMA elucidates on how extensive the reporting requirements are. It is unknown at this point whether all counterparties involved in a trade will have to report. The possible counterparties to a SFT could include the originating clients, introducing brokers, clearing brokers, and a central counterparty,” said David Nowell, head of regulation and industry affairs at UnaVista, the regulatory reporting arm of the London Stock Exchange Group (LSEG).
Should multiple counterparties be expected to report, this has the potential to cause significant challenges at the trade repositories. The rules are unlikely to make much headway in policymaking circles until 2015 and they will not come into effect until 2018 or 2019.