Paris
31 March 2017
Reporter: Mark Dugdale

ESMA issues final SFTR standards


The European Securities and Markets Authority (ESMA) has issued its final report on standards for implementing the Securities Financing Transactions Regulation (SFTR).

The SFTR reporting requirements come as part of the EU’s bid for greater transparency in transactions resulting in a demand for a complete breakdown of their most intimate details.

Commenting on the final SFTR rules, Ben Challice, COO at Pirum Systems, said: “It’s good to see that ESMA has listened to the industry with regard to items such as collateral reporting moving to value date + 1, but it’s clear that a lot of the concerns raised by market participants and infrastructure providers have not been addressed.”

“The concept of an execution timestamp as a data field has not been removed, which is surprising given under the second Markets in Financial Instruments Directive, securities finance transactions are recognised as ‘non price forming transactions’ in relation to best execution. ESMA has, however, included a one-hour tolerance when subject to reconciliation.”

Challice added: “This has not addressed key concerns raised by market participants such as the fact that it is a principal level reporting requirement (but only the omnibus delivery would have a timestamp) together with the fact that the majority of transactions or lifecycle events (trade reallocations, corporate actions) are not executed on a trading venue and, therefore, within the securities finance industry there is no infrastructure to agree, record and maintain an execution timestamp.”

As a result, “running the transaction through a reconciliation process before reporting is the only way to achieve the expected matching at the trade repository,” Challice explained.

ESMA’s final standards provide detailed provisions on a ranges of issues, including the use of ISO 20022 methodology for reporting, validation and access to data, the use of standardised identifiers such as LEI, UTI and ISIN, defined access levels for different public authorities, and the registration and extension of registration of trade repositories.

In addition to SFTR, ESMA has proposed certain amendments to the existing standards implementing the European Markets and Infrastructure Regulation (EMIR), to ensure a level-playing field for market participants when it comes to registration and access rules.

The implementing measures are expected to enter into force by the end of 2017.

Market participants would have to start reporting their transactions to trade repositories 12 months after the publication in the Official Journal of the EU. The reporting obligation will be phased-in over nine months.

ESMA chair Steven Maijoor said: “Bringing transparency and oversight into the multi-trillion euro market of securities financing transactions is an important step in closing a regulatory gap. It is pivotal for financial stability that the risks associated with non-bank alternative credit provision are properly addressed.”

“The SFTR will provide transparency on the use of securities financing transactions, and will allow identifying risks associated with the collateral and its reuse.”

ESMA has sent its final draft technical standards under SFTR and the amended technical standards under EMIR for endorsement to the European Commission, which has three months to decide whether or not to endorse them.

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