Background
The European Union (EU) Securities Financing Transaction Regulation (SFTR) is intended to enhance the transparency of the securities financing markets by requiring those who enter into securities financing transactions (SFTs) to report the SFT to a trade repository.
The SFTR is the product of work carried out by the Financial Stability Board (FSB) and the European Systemic Risk Board (ESRB) to curb shadow banking. They identified SFTs as the creators of bank-like risks during and after the financial crisis period, which without transparency, prevented regulators and supervisors assessing such risks.
Overview
A securities financing transaction or SFT means:
- A repurchase transaction
- Securities or commodities lending and securities or commodities borrowing
- A buy-sell back transaction or sell-buy back transaction
- A margin lending transaction
Scope
The SFTR applies to:
- A counterparty to an SFT that is established:
- In the EU, including all its branches irrespective of where they are located
- In a third country, if the SFT is concluded in the course of the operations of a branch in the EU of that counterparty
- Management companies of undertakings for the collective investment in transferable securities (UCITS) and UCITS investment companies (in accordance with Directive 2009/65EC)
- Managers of alternative investment funds (AIFMs) authorised (in accordance with Directive 2011/61/EU)
- A counterparty engaging in reuse that is established:
- In the EU, including all its branches irrespective of where they are located
- In a third country, where either:
- The reuse is effected in the course of the operations of a branch in the EU of that counterparty or
- The reuse concerns financial instruments provided under a collateral arrangement by a counterparty established in the EU or a branch in the EU of a counterparty established in a third country
The Reporting Obligation
Details of any SFT entered into, as well as any modification or termination thereof, must be reported to a trade repository no later than the working day following the conclusion, modification or termination of the transaction.
Who is caught by the reporting obligation?
The reporting obligation covers all SFTs that are:
- Concluded on or after the reporting start date
- Were concluded before, and remained outstanding on the reporting start date and either:
- Had a remaining maturity exceeding 180 days after the reporting start date or
- Had an open maturity and actually remain outstanding for 180 days after the reporting start date
Reporting Timeline
Credit institutions and investment firms are required to start reporting SFTs as of 11 April 2020.
The reporting deadline is staggered as follows for other entities: CSDs and CCPs—11 July 2020, other financial counterparties—11 October 2020, non-financial counterparties—11 January 2021.
Delegation of Reporting
The SFTR does allow a counterparty, subject to the reporting obligation, to delegate such obligation to a third party.
