SFTR – Transaction Reporting

Securities Financing Transactions Regulation (SFTR) is a European Union regulation, introduced in January 2016, that aims to reduce systemic risk in the Securities Financing Transaction (SFT) market by increasing transparency and surveillance. Transaction Reporting of SFTs will commence 11 July 2020 with a phased go-live depending on counterparty type.

Phase 1: Investments Firms & Credit Institutions
(11 July 2020)

Phase 2: CCPs & CSDs
(11 July 2020)

Phase 3: Other Financial Counterparties
(11 Oct 2020)

Phase 4: Non Financial Counterparties
(11 Jan 2021)

In terms of products, Repurchase Agreements, Securities Borrowing and Lending, Buy Sell Backs, and Margin Lending (in relation to Prime Brokerage business) are in scope for SFTR. There is a total of 155 data fields to be reported, however combinations will be dependent on product and report action type.

Please see our FAQs below for further information on SFTR  transaction reporting

SFTR FAQs (as at March 2020 )

 

Securities Financing Transactions Regulation (SFTR) is a European Union (EU) regulation which was introduced with the aim of reducing systemic risk in the Securities Financing Transaction (SFT) market by increasing transparency and surveillance.

Transaction reporting is a key part of the SFTR requirements and, in scope and content, is broadly aligned with EMIR transaction reporting (which applies in respect of derivative transactions).

SFTR transaction reporting has a wide industry scope in that it applies to both financial and non-financial counterparties, and generally, both sides of any transaction are required to be reported (ie it isn't a dealer-only style obligation) (see FAQ 10 for the exceptions to this rule). 

There is a phased go-live for SFTR transaction reporting, with phase 1 counterparties (primarily dealers) coming into scope as of 11 July 2020. 

The SFTR reporting obligation is phased in as follows:.

  • Phase 1: Investment firms and credit institutions (11 July 2020)
  • Phase 2: Central counterparties (CCPs) and central securities depositories (CSDs) (11 July 2020)
  • Phase 3: Other financial counterparties – i.e. Insurance, UCITS, AIF, pension funds (11 October 2020)
  • Phase 4: Non-financial counterparties (NFCs) (11 January 2021

The following products are in scope of SFTR:

a) repurchase transaction;

b) securities or commodities lending and securities or commodities borrowing;

c) buy-sell back transaction or sell-buy back transaction; or

d) margin lending transaction, related to prime brokerage activity

SFTR transaction reporting applies to all counterparties that are established:

  1. in the EU, including all its branches irrespective of where they are located; or
  2. in a third country, if the SFT is concluded in the course of the operations of a branch of that entity in the EU

Even if you do not fall into scope directly, if your counterparty does, you will need to provide them your classification for their reporting purposes.                                                                                                        

  1. Transaction reports: both new transactions and life cycle events
  2. Daily CCP Margin reports - reports to provide changes in initial and variation margin that a reporting counterparty posts with regards to CCP-cleared SFTs.
  3. Daily Collateral Re-use reports - reporting of the changes in the reuse of collateral, the reinvestment of cash or the margin lending funding sources.

It is key that all entities determine their SFTR classification and communicate this to their counterparties in order to facilitate timely and accurate market-wide SFTR reporting.

What is your SFTR Classification?

Financial Counterparty (FC) – You will be an FC if you are an authorised investment firm; credit institution; insurance undertaking or a reinsurance undertaking; UCITS and, where relevant, its management company; AIF managed by AIFMs; an institution for occupational retirement provision (i.e. pension scheme arrangement); CCP or CSD

Non-Financial Counterparty (NFC) – You will be defined as an NFC if you are an 'undertaking' established in the EU or in a third country and don't fall into the 'financial counterparties' definition

Small Medium Enterprise Non-Financial Counterparty (SME NFC) – You will be an SME NFC if you are a non financial counterparty which does not exceed the limits of at least two of the three following criteria:

(a) balance sheet total: EUR 20 000 000;

(b) net turnover: EUR 40 000 000;

(c) average number of employees during the financial year: 250.

These categories are then used for determining the SFTR Go-Live Phases: Please see FAQ 2 for details

SFTR not only requires new trades (or lifecycle events on those trades) to be reported from go-live, it also has a backloading element in that outstanding SFTs are also required to be reported if they:

a) have a remaining maturity that date exceeds 180 days; or

b) have an open maturity and remain outstanding 180 days after that date.

This population of trades will need to be identified and reported within190 days of SFTR go-live. The market approach is still being discussed at industry level and we'll align our approach accordingly.

All legal entities subject to SFTR are required to have a Legal Entity Identifier (“LEI”). There are a number of authorised providers of LEIs. Please refer to GLEIF for more information on how to obtain an LEI.

In addition, LEIs will be required for other parties involved in a transaction –

  • Counterparties (unless deemed a 'natural person')
  • Brokers
  • Beneficiaries
  • Agent Lenders
  • CSD Participants or Indirect Participants
  • Triparty Agents
  • CCP and Clearing Members
  • Security Issuers

Given this, if you don't have an LEI or transact or otherwise interact with anyone of these parties and they don't have an LEI you, or they, will need to obtain one.

In line with industry body recommendations, UBS will reach out to all clients and counterparties individually to pre-agree responsibilities for UTI generation and consumption and obtain confirmation of any decisions in writing.

 

There are two scenarios identified in SFTR where one entity has the regulatory obligation to report on behalf of another:

Scenario 1 – FCs on behalf of SMEs

Where an in-scope financial counterparty (FC) concludes an SFT with a SME NFC, the FC shall be responsible for reporting on behalf of both counterparties.

Where the SME concludes a SFT with an out of scope FC, the SME has the obligation to report themselves or delegate reporting to a third party.

See FAQ 6 which sets out when an entity qualifies an SME NFC.

Scenario 2 – Management Companies & AIFMs

The management company of 'undertakings for collective investments in transferable securities' (UCITS) or 'alternative investment fund manager' (AIFM) of an 'alternative investment fund' (AIF) is responsible for transaction reporting the SFTs that it's UCITS or AIF concludes.

A counterparty which is subject to the reporting obligation may delegate the reporting of the details of SFTs to another party, who have the capability to report SFTs on behalf of others.

UBS intend on offering a delegated reporting service. Please reach out to your usual UBS contact to discuss this further.

What action do I need to take now as a result of SFTR?

  • Where possible, join a trade association / vendor working group to benefit from the SFTR analysis already in progress
  • Establish whether each of your legal entities are in scope for SFTR in terms of both products traded and jurisdiction (see FAQs 3 and 4)
  • Obtain an Legal Entity Identifier (LEI) for each of your in scope legal entities (see FAQ 9)
  • Determine your SFTR classification and communicate to your counterparties (see FAQ 7)
  • Determine your SFTR go-live date – your classification will dictate the date on which your SFTR reporting obligation will commence (see FAQ 2)
  • Determine your Transaction Reporting solution, i.e. Delegated Reporting, in-house development or transaction reporting via Vendors
  • If building in-house choose your SFTR vendor(s) for pre-reconciliation, agent lender disclosure data and UTI generation / sharing   
  • Sign up to a European Union authorised or registered Trade Repository (if you have not done so already) or ensure you have sufficient delegated reporting arrangements in place
 

Contact us

Please do not hesitate to contact us if you have any further questions relating to SFTR. Alternatively, please reach out to your usual UBS contact.