SFTR
SFTRAlso called securities Financing Transactions Regulation, EU SFTR
SFTR is the EU regulation that requires firms to report securities financing transactions, such as repos, securities lending and margin lending, to a registered trade repository. It also sets disclosure rules for funds that use these transactions and conditions for reusing collateral. The UK runs its own onshored version after Brexit.
How it works
Both counterparties to a securities financing transaction report its conclusion, any modification and its termination by the next working day. Each report carries a unique transaction identifier, the legal entity identifiers of both sides and details of the collateral. Firms often delegate reporting to the other side. Where a financial counterparty trades with a small non-financial counterparty, the financial counterparty is responsible for reporting for both. Trade repositories match the two reports and send back reconciliation breaks.
Regulators use SFTR data to see leverage and collateral flows in the shadow banking system, which were hard to track before the 2008 crisis. Poor data quality is the main supervisory concern. Unmatched reports, missing collateral data and late submissions show up quickly in repository statistics, and supervisors treat persistent breaks as a control failure in the firm's reporting process.
The rules
Requires reporting of securities financing transactions to trade repositories, fund disclosures on their use and conditions on the reuse of collateral.
EU financial and non-financial counterparties, UCITS management companies and AIFMsSets the details and fields of SFTR reports, with reporting phased in from 2020 for banks to January 2021 for non-financial counterparties.
Counterparties reporting securities financing transactionsKeeps SFTR reporting in UK law after Brexit, with reports sent to UK-registered trade repositories.
UK counterparties, supervised by the FCACommon questions
Which transactions does SFTR cover?
SFTR covers repurchase agreements, securities and commodities lending and borrowing, buy-sell back and sell-buy back transactions, and margin lending. Total return swaps are covered by its fund disclosure rules but are reported under EMIR as derivatives.
When did SFTR reporting start?
Reporting was phased in. Banks and investment firms began in 2020, with ESMA asking supervisors not to prioritise enforcement until 13 July 2020. Funds followed in October 2020 and non-financial counterparties on 11 January 2021.
Does SFTR still apply in the UK?
Yes. The UK onshored SFTR at the end of the Brexit transition period on 31 December 2020. UK firms report to UK-registered trade repositories and the FCA supervises compliance.
