European Commission adopts new rules to increase transparency in securities financing markets

European Commission adopts new rules to increase transparency in securities financing markets

In an important step towards increasing the transparency of securities financing markets, the European Commission announced earlier today that it has adopted a package new measures under the Securities Financing Transactions Regulation (SFTR). The SFTR requires all securities financing transactions to be reported to a central database called “trade repository”.

The delegated and implementing acts adopted today will specify the details for the authorisation of trade repositories as well as the rules they will be subject to, including reporting requirements. This compulsory reporting will lead to an improved surveillance of significant market developments, such as the build-up of leverage in the financial system.

Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union, said:

The package adopted today is a crucial element to ensure that, as risks move outside our highly regulated banking sector, they do not disappear from the radar screen of supervisors. It will make market-based financing activities more transparent and allow public authorities to better observe market developments. Supervisors will be able to act timely in order to mitigate potential risks related to securities financing transactions.

Val Wotton, Managing Director, Product Development & Strategy, Derivatives & Collateral Management, DTCC, commented on the news:

The approval of the technical standards for the reporting rules of SFTR fires the starting gun on the countdown to the implementation of this new regulation which we expect to take place in just over a year’s time.

In order to be ready in time, the securities financing industry has a significant amount of work to do, particularly around data availability and workflows. We know that large broker dealers and agent lenders have kicked off their preparations, however many of the smaller banks and buy-side firms have not yet initiated their response to the regulation and we would recommend that they begin these preparations as soon as possible.

Further, as market participants start to prepare, we urge them to take a more strategic approach to addressing the SFTR requirements, rather than viewing them as a compliance exercise. In doing so, they will have an opportunity to gain wider advantages such as increased levels of pre-trade matching, reducing trade fails and creating greater collateral efficiencies, which will result in significant benefits such as balance sheet optimisation.

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