The Role of SFTR in Collateral Management

The Securities Financing Transactions Regulation (SFTR) is influencing all aspects of the securities finance market in Europe including transaction activities and collateral management. SFTR is another effort by the European Commission to increase financial market transparency, improve execution and provide for greater harmonization across Europe.

The acts of the regulation were first proposed by the European Commission in January 2014 and have since included involvement from the European Securities and Markets Authority (ESMA). They require increased reporting through an approved European Union trade repository which will now allow for greater aggregation of data to be passed onto ESMA and further to the Financial Stability Board (FSB).

The Securities Financing Transactions Regulation (SFTR)


Introduced in January 2014, the European Commission’s SFTR will increase the transparency and improve the efficiency of securities finance markets throughout Europe. The regulation requires new types of reporting on all aspects of securities finance including collateral management. With the implementation of SFTR, firms will be required to submit reporting on securities finance to an approved European Union trade repository.

The new regulations for reporting include all types of transactions where securities and cash are exchanged for the purpose of long-term and short-term borrowing. These types of transactions include repurchase agreements (repos), securities lending activities and sell/buy-back transactions. These types of transactions are all backed by collateral and will require significantly enhanced analysis and reporting on collateral management.

SFTR Developments and Collateral Management

SFTR is another piece of legislation by the European Commission which seeks to develop broader harmonization and improved market efficiency throughout all of Europe. The legislation was enacted with the support of ESMA. Its introduction was primarily developed as a byproduct of the FSB Transparency Directive, an initiative for global markets.

In January 2016, SFTR regulation was entered into force and in March 2017 ESMA released a final report on standards for implementing SFTR. Final review of the implementation guidelines are still being addressed and Q1 2019 is the target for full obligation.

New regulations will require transactions to include trade and collateral position reporting to a registered trade repository on T+1 and S+1 respectively. SFTR also provides specifications around the reuse of collateral which has historically been a risk unaccounted for in collateral management reporting. An important factor for increased transparency of SFTR will be the new repository trade requirements which will then be passed to ESMA who will also report to the FSB.

The new reporting standards will allow for greater market transparency and greater data aggregation of reporting and analysis. Some exemptions do exist including reporting requirements for members of the European System of Central Banks (ESCB).

To integrate these changes many market experts are calling for straight through processing. Straight through processing can help to meet the new requirements with efficiency and reporting accuracy.

FInancial reporting standards

New Market Regulation for Securities Finance Collateral Management

Overall, all market participants transacting or involved with securities finance will be required to maintain new reporting standards. As part of broader efforts for harmonization and market transparency the European Commission and ESMA have followed directives from the FSB which outline the need for increased reporting standards in securities finance. The new standards requiring reporting to an approved trade repository will be in effect for all types of securities finance market transactions which encompass repos, securities lending activities and sell/buy-back transactions.

The broad scope and dependence on collateral for these transactions will make the reporting standards more complicated but they will also drastically improve the market efficiency.

The SFTR guidelines are currently being phased in with process and infrastructure changes being facilitated. Experts are reporting the use of straight through processing can give reporting entities an advantage since they are able to provide greater efficiency and reporting accuracy through technical systems.

Q1 2019 is currently the target date for firms to comply with the new obligations. Final review of implementation guidelines from ESMA are currently underway with some aspects of the guidelines still being addressed.