Shearman & Sterling LLP | FinReg | European Securities and Markets Authority Consults on Secondary Measures for Reporting of Securities Financing Transactions 
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  • European Securities and Markets Authority Consults on Secondary Measures for Reporting of Securities Financing Transactions 

    The European Securities and Markets Authority published a consultation paper on its proposed draft Implementing and Regulatory Technical Standards for the Securities Financing Transactions Regulation. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The purpose of the SFTR is to increase the transparency of such shadow banking activities. The SFTR will require both financial and non-financial market participants to report details of their SFTs to an approved EU trade repository. The draft RTS outlines the procedure and criteria for registration as a trade repository under the SFTR, the use of internationally agreed reporting standards, reporting logic and the main aspects of the structured content of SFT reports, the requirements regarding transparency of data, data collection, aggregation and comparison as well as access levels for different regulators. 

    The consultation follows a discussion paper that was published in March 2016 and builds on feedback received. ESMA has shortened the specific action types fields required in an SFT report, limiting the number of action types to “Modification of business terms” and “Other modification”. With regard to the content and structure of the SFT report, ESMA has proposed an additional clearing data field table to gather more data on SFTs and the reuse of collateral with counterparties to report information on the additional margin posted by the counterparties to SFTs to the CCPs that have cleared their SFTs. The discussion paper included a proposal to link different initial reports related to a single centrally cleared SFT using a common identifier. ESMA proposed to link the reports either by a prior unique transaction identifier (such as the UTI of the pre-novation transaction) or a transaction reference number similar to the one used in the European Market Infrastructure Regulation to group reports which relate to the same executed transaction. The purpose of such reporting is to assist in identifying financial stability risks and monitor the evolution of transactions over time. ESMA noted responses relating to the increased costs in making changes to infrastructure to implement the proposed reporting methods. ESMA has retained the linking proposal and in response has proposed that CCPs would not be required to report the Report Tracking Number in the case of cleared transactions, the prior-UTI would be reported by counterparties and clearing members only and would not have to be a matching field. This would avoid the need to transfer the Report Tracking Number through the whole chain but would still provide an audit trail. Regulators would, therefore, be able to reconstruct the linked trade without CCPs reporting the original UTI generated by one of the two counterparties.  

    ESMA is also proposing amendments to the existing RTS on registration and access levels of trade repositories under EMIR to streamline access levels for regulators under EMIR and the SFTR. Responses to the consultation are due by November 30, 2016. ESMA intends to finalize draft RTS and ITS for submission to the European Commission before April 2017.

    View the consultation page.

    View the discussion paper