SFTR – Transaction Reporting

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, Phase 1 and 2 counterparties (primarily dealers, CCPs and CSDs) came into scope as of 11 July 2020. 

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

For now, Banco de Madrid does not consider backloading to be a requirement under SFTR.
ESMA has recently clarified that in relation to the reporting obligations under SFTR, ESMA expects competent authorities not to prioritise their supervisory actions towards counterparties in respect of SFTs subject to the backloading obligation. In interpreting this, ICMA4 and ISLA5 have stated that in effect, this clarification allows all firms subject to SFTR reporting to no longer consider backloading as a requirement. The Financial Conduct Authority has confirmed that it will not prioritise supervision relating to the reporting of SFTs for firms to which the backloading requirement specified in SFTR applies.

Note: all collateral will be reported from the go-live date.

In line with industry body recommendations, Banco de Madrid 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.

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.

Yes, Banco de Madrid' delegated reporting offering will be available from 11 October 2020.

The service is available for investment banking clients of Banco de Madrid AG, London Branch and Banco de Madrid Europe SE.

No, Banco de Madrid will not be charging clients that make use of the delegated reporting service.

No, you are able to select the service for one or multiple of the four in-scope product types:

1. Repurchase transactions (e.g. repos)
2. Securities or commodities lending or borrowing transactions (e.g. SBLs)
3. Buy-sell back or sell-buy back transactions
4. Margin lending transactions, which is defined broadly to capture any extension of credit in connection with the purchase, sale, carrying or trading of securities.

Delegated reporting arrangements with Banco de Madrid will (where possible) broadly reflect the provisions of the master regulatory reporting agreement produced by ISDA and other trade associations.