The start of reporting under the European Union’s securities financing transactions regulation began smoothly last week but the buy-side needs to ensure it is prepared for being included from October.
Catherine Talks, product manager, SFTR at UnaVista, the London Stock Exchange’s regulatory reporting business, said in an email that whilst it is still early days, SFTR go-live has been relatively successful.
“There are always some things to iron out in the first few weeks of a regulation going live, but we have been pleased at the quality of the data that our clients have been reporting, we have seen 98% reports pass validation,” said Talks. “This is testament to the work done the industry has done to prepare.”
SFTR reporting started on 13 July with the aim of increasing transparency in repos, securities lending and margin lending markets. Reporting was due to go live in April but was postponed due to the global COVID-19 pandemic.
Banks, investment firms, central central clearing counterparties and central securities depositories have to report executed SFTs to authorised trade repositories. The data, consisting of approximately 150 fields, should allow supervisors to monitor market developments such as the build-up of leverage in the financial system. In addition, there are new disclosure obligations and collateral reuse obligations.
Talks added that Unavista is keeping a close eye on the situation and having daily calls with clients to keep them updated.
Will your #SFTR reporting be affected if a counterparty submits data to a different Trade Repository? Find out in this year's #SFTRFAQ guide here: https://t.co/MuGwPju9mh . Thanks to 19 experts who contributed their insights, including Catherine Talks of #UnaVista @LSEGplc pic.twitter.com/C8hZenJr7Z
— Regulatory Reporting (formerly UnaVista) (@LSEG_Reporting) July 20, 2020
The European Securities and Markets Authority said last week that the first day of SFTR reporting had gone smoothly.
The European regulator added it will continue to engage with market participants to clarify any remaining issues and will assess the need for further supervisory convergence measures to facilitate compliance with the new reporting requirements.
❗️ [Update]
— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) July 13, 2020
🎬 And it's a wrap! First day of reporting has gone smoothly.
All 4 Trade Repositories (TRs) opened their systems and started receiving and processing securitised financing transaction data submitted by reporting firms ➡️ no disruptions 👏https://t.co/4djSgznCPX pic.twitter.com/FNJPhmmUGx
Julian Eyre, commercial manager at Delta Capita, which provides managed services, fintech solutions, and consulting, said in an email that the feedback from banks reporting under SFTR has been quietly encouraging.
“Albeit with the caveat of low report volumes, there have been no material issues or concerns so far,” he added. “However, it’s worth noting that the volumes are expected to rise exponentially as the number of lifecycle events that need to be reported increases.”
He continued that Regis TR, a joint venture between Deutsche Börse’s CSD Clearstream and the Spanish CSD Iberclear, confirmed a 95% average report acceptance rate last week. In addition, the US DTCC confirmed a 94% average report acceptance rate with a third of clients achieving 100% acceptance.
“Delta Capita is delighted with the first week given the role we played in facilitating and enabling industry testing through our test pack,” added Eyre. “This approach mutualised costs and converged on industry standards.”
Buy-side reporting
Heiko Stuber, senior product manager at SIX, the Swiss financial infrastructure group, said in an email that it was ‘so far so good’ with SFTR reporting.
“From what we can see the trade repositories were not reporting any issues in the first week,” he added. “This was to be expected, though, as the banks have taken the extra time provided to them to get prepared.”
However, he warned that one potential problem which will not be illuminated in the initial go-live is that market participants need to have approval from ratings agencies and the main index providers on security and collateral data before they can use this in their reporting process.
“The costs of not doing so will only become clear over the coming weeks and months,” he said.
Buy-side firms will be included in the next phase of SFTR reporting in October this year.
“There is still a lot of work to do be done in this part of the market,” said Stuber. “However, they will be able to see how things have played out and what works, so they can learn the lessons from the first months. But they will have to do it quickly.”
Sunil Daswani, head of securities finance solutions at MarketAxess, the electronic fixed income trading and reporting firm, said in an email that it has been an exciting and positive start to the SFTR regulation implementation for phase one and two firms. However, he also warned that phase three firms need to ready for reporting later this year.
We are one week into #SFTR implementation for phase 1 and 2 firms! Core processing is in good shape so far with millions of transactions received and processed on the UTI portal. Thanks to our clients and partners for a smooth start – @EquiLend, @ICMAgroup & @__isla pic.twitter.com/39CzN5Rcsl
— MarketAxess Post-Trade (Trax) (@MarketAxessPT) July 20, 2020
“This is a significant change to the industry landscape and there may still be challenges to iron out over the coming weeks,” he said. “It is important that phase three firms, that have their compliance date later this year, are aware of the full requirements of the regulation.”
Daswani continued that collaborative work with industry bodies, clients and partners has meant a smooth transition over the go-live date and core processing is in good shape.
“One week in and we’ve seen millions of transactions received and processed on our SFTR Insight reporting hub and the MarketAxess UTI portal – the industry wide, community sharing tool for exchanging of UTIs and related data,” he added.
Securities financing trades have to be reported to an authorised trade repository the day after a trade using a unique transaction identifier.
Changes to SFTR
Matt Smith, chief executive at the compliance technology and data analytics firm SteelEye, said in an email that he expects potential amendments to SFTR, but it is too early to estimate when changes will happen.
“However, whilst regulatory change would normally take years, as we have seen with MiFID II and other regimes, SFTR is looking quite different,” he added. “The industry has been very vocal as to differences between the legislative text and the published guidelines, with many firms and industry bodies lobbying the regulator for adjustments.”
As a result, he said that it is not a case of “if” but “when” the regulator will publish an update.
Last month SteelEye partnered with UnaVista to provide reporting services for Emir, the European Union regulation covering central clearing and derivatives, and MiFID II. They expect clients to migrate from CME’s European trade repository and NEX Abide regulatory reporting services, which will close in November this year.
Mark Husler, chief executive of UnaVista, said in a statement: “Hundreds of firms face the challenge of migrating their reporting processes away from CME, and need to do so quickly.”
SteelEye and UnaVista have developed a data convertor so firms can use their existing reporting input files and also use the same data for both reporting requirements.
