The proposal on the Securities Financing Transactions (SFT) Regulation, which was adopted in January 2014 alongside the proposal for the structural reform of the EU banking sector, aims to improve the transparency of the securities financing markets. The Regulation will be formally adopted by the EU Council of Ministers in the near future. The Regulation will then be published in the Official Journal of the EU.
The Regulation enhances transparency in three ways:
- First, it introduces the reporting of all SFTs, except those concluded with central banks, to central databases known as trade repositories. Depending on their category, firms should start reporting at different stages from 12 to 21 months after the entry into force of the relevant regulatory technical standards;
- Second, investment funds will have to start disclosing information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents from the entry into force of the Regulation, while the existing funds will have 18 months to amend them; and
- Finally, the Regulation introduces some minimum transparency conditions that should be met on the reuse of collateral, such as disclosure of the risks and the need to grant prior consent. These will apply 6 months after the entry into force of the Regulation.