On March 11, 2016, the European Securities and Markets Authority published a discussion paper on its approach to developing technical standards required under the Securities Financing Transactions Regulation. The SFTR mostly came into effect on January 12, 2016. One exception is a new reporting obligation which is being phased in according to counterparty type. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buysell back or sell-buy back transactions and margin lending transactions. The new regulations are thought to help reduce the likelihood of such activities moving to the shadow banking sector.

The SFTR requires, amongst other things, all securities financing transactions to be reported to EU recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and haircuts applied. The reporting obligation will apply to financial and non-financial counterparties subject to exceptions for central banks and similar bodies. The reporting regime under the SFTR will build on the system already in place for the reporting of derivatives transactions under the European Market Infrastructure Regulation. In relation to the reporting obligation, ESMA is required to prepare technical standards on the registration process for trade repositories, the format of reporting and the operational standards for the collection of data. The discussion paper sets out ESMA’s proposed approach to those technical standards.

Comments on ESMA’s approach should be provided by April 22, 2016. ESMA intends to publish a consultation paper including the proposed technical standards in Q3 2016 and to submit the final draft technical standards to the European Commission by January 13, 2017.

The discussion paper is available at: https://www.esma.europa.eu/press-news/consultations/discussion-paper-draft-rts-and-itsunder-securities-financing-transaction and the SFTR is available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=OJ:JOL_2015_337_R_0001&from=EN