Main requirements
Two regulations
Types of transaction covered
Scope of application
Reporting requirements
Collateral reuse requirements
Disclosure requirements for UCITS and AIFS?
Non-compliance penalties
Next steps


On December 23 2015 the EU Securities Financing Transactions Regulation (2015/2365) was published in the Official Journal of the European Union. It applies from January 12 2016, subject to a number of exceptions.

Following the introduction of regulations to improve governance and supervision of the banking system in the aftermath of the 2008 global financial crisis, the European Union has now turned its attention to the shadow banking system. The new regulation stems from a wider initiative to extend the regulatory framework for over-the-counter (OTC) derivatives (as implemented by the EU OTC Derivatives, Central Counterparties and Trade Repositories Regulation (648/2012) (EMIR)) to include transactions that do not fall within the EMIR definition of a 'derivative contract'.

Main requirements

The new regulation introduces new rules on reporting securities financing transactions (SFTs), similar to the reporting requirement under EMIR. Trade repositories registered under EMIR will need to apply for registration under the new regulation. There are also new disclosure requirements for undertakings for collective investments in transferable securities (UCITS) and alternative investment funds (AIFs) that use SFTs and total return swaps and new collateral reuse requirements.

Two regulations

Although the new regulation has a broad reach, it does not include derivative contracts as defined in EMIR. However, it does cover transactions that are commonly referred to as liquidity and collateral swaps which do not fall within EMIR.

The new regulation also introduces certain amendments to EMIR.

Under EMIR, an 'OTC derivative contract' is a derivative contract which is not executed on a regulated market or a third-country market declared by the European Commission to be equivalent. To date, the commission has not declared any non-EU markets to be equivalent, so derivatives traded on non-EU exchanges fall within EMIR and count towards its clearing threshold.

The new regulation states that the same types of derivative should be identified as either OTC derivatives or exchange-traded derivatives irrespective of whether those contracts are traded inside or outside the European Union. It therefore introduces an amendment to the definition of 'OTC derivative' in EMIR whereby a third-country market will be considered equivalent where it complies with certain requirements, so that there is a clear delineation between OTC and exchange-traded derivatives irrespective of where the contracts are concluded.

Types of transaction covered

SFTs and, in certain respects, total return swaps are covered under the new regulation. An SFT is broadly one of the following:

  • repurchase transactions;
  • securities or commodities lending (and borrowing);
  • buy/sell-back transactions and sell/buy-back transactions; and
  • margin-lending transactions (widely defined to include transactions in which a counterparty extends credit in connection with the purchase, sale, carrying or trading of securities, but not including other loans that are secured by collateral in the form of securities).

Scope of application

The new regulation applies to:

  • a counterparty (defined as a 'financial counterparty' or 'non-financial counterparty'):
    • in the European Union (and its branches); and
    • in a third country, if the SFT is concluded in the course of the operations of an EU branch of that counterparty;
  • a UCITS management and investment company;
  • an AIF manager authorised in accordance with EU Directive 2011/61/EU; and
  • a counterparty engaging in collateral reuse that is established in a non-EU country, if:
    • the reuse is effected in the course of operations of an EU branch of that counterparty; or
    • the reuse concerns financial instruments provided under a collateral arrangement with a counterparty established in the European Union or an EU branch of a counterparty established in a non-EU country.

The definition of 'financial counterparty' in the new regulation is broader than the definition in EMIR and extends to central counterparties, central securities depositories or any third-country entity (if the SFT was entered into by an EU branch of such an entity) that would require registration if established in the European Union. A 'non-financial counterparty' is an undertaking established in the European Union or a third country that is not a financial counterparty.

Unlike EMIR, the new regulation does not distinguish between non-financial counterparties depending on the volume of trades conducted.


Members of the European System of Central Banks and other EU bodies dealing with the management of public debt and the Bank for International Settlements need not comply with the reporting requirement or the collateral reuse requirements.

In addition, the reporting requirements do not apply to transactions to which a member of the European System of Central Banks is a counterparty.

Reporting requirements

Counterparties to SFTs will need to report the details of SFTs that they have concluded and any modification or termination to a trade repository no later than the next working day of such conclusion, modification or termination.

The reporting obligation may be delegated and financial counterparties will be responsible for reporting on behalf of both counterparties where their counterparty is a non-financial counterparty. The European Securities and Markets Authority is tasked with drafting draft regulatory technical standards setting out the details to be included in the reports. These are expected to include:

  • the parties to the SFT;
  • the principal amount;
  • the currency;
  • the assets used as collateral and their type, quality and value;
  • the method used to provide collateral;
  • whether collateral is available for reuse and, if so, whether it has been reused;
  • any substitution of collateral;
  • the repurchase rate;
  • the lending fee or margin lending rate;
  • any haircuts;
  • the value date;
  • the maturity date;
  • the first callable date;
  • the market segment; and
  • details of cash collateral reinvestment and securities or commodities being lent or borrowed (where applicable).

Trade repositories registered or recognised under EMIR can complete a simplified registration process to become registered under the new regulation. The ability for a non-financial counterparty to delegate to a financial counterparty contrasts with the more rigid approach followed in EMIR where no such delegation is permitted.

The reporting obligation will be phased in starting from 12 to 21 months (depending on the nature of the relevant counterparty) after the date on which the regulatory technical standards on the reporting obligation enter into force.

The reporting obligation applies to all SFTs which:

  • are concluded on or after the relevant reporting start date; or
  • were concluded before the relevant reporting start date and remain outstanding on that date, if:
    • they have a remaining maturity of more than 180 days; or
    • they have an open maturity and remain outstanding for more than 180 days after the relevant reporting start date.

In addition, counterparties must also keep records of the concluded, modified or terminated SFTs for at least five years following termination.

Collateral reuse requirements

The new regulation sets out certain conditions that must be met before counterparties can reuse financial instruments (but not cash) received as collateral, including the following:

  • The collateral provider has been informed in writing by the receiving counterparty of the risks and consequences that may be involved in granting a right of reuse under a security collateral arrangement or of concluding a title-transfer collateral arrangement;
  • The collateral provider has provided its prior express written consent to the security collateral arrangement; and
  • Any financial instruments received under a collateral arrangement have been transferred from the account of the providing counterparty and any reuse is in accordance with the terms of the collateral agreement.

The obligations relating to the reuse of collateral are applicable to all collateral arrangements, not just SFTs, and apply equally to collateral provided by way of security and by way of title transfer.

These collateral reuse requirements will apply from July 13 2016 and will extend to collateral reuse arrangements already in existence on that date.

Disclosure requirements for UCITS and AIFS?

From January 13 2017 UCITS management companies, UCITS investment companies and AIF managers must disclose certain information regarding their use of SFTs and total return swaps in their annual reports and also, in respect of UCITS management companies or UCITS investment companies, half-annual reports.

In addition, they must include in the prospectus or other disclosure document certain information on their use of SFTs or total return swaps. These pre-contractual disclosure requirements apply from January 12 2016, although for AIFs and UCITS constituted before this date the applicable start date is postponed until July 13 2017.

Non-compliance penalties

Member states must introduce effective, proportionate and dissuasive administrative penalties and can impose criminal penalties in respect of any breach of the reporting obligation or collateral reuse requirements. As a minimum, member states should give their competent authorities the power to impose certain administrative measures including maximum fines of at least 10% of the total annual turnover for legal persons, public statements, withdrawal or suspension of authorisation and temporary bans for those with managerial responsibilities.

An infringement of the reporting requirement will not affect the validity of the SFT or the ability to enforce the terms of an SFT; nor will it give rise to compensation rights from a party to an SFT.

Next steps

The European Securities and Markets Authority has 12 months to develop detailed rules in the form of regulatory and implementing technical standards on the reporting requirement and submit these to the European Commission for adoption. The reporting requirement will be phased in once these rules have been adopted. The European Securities and Markets Authority may also develop regulatory technical standards in respect of the disclosure rules for AIFs and UCITS.

Counterparties are not immediately subject to all obligations under the new regulation as certain obligations will be phased in, depending on the nature of the counterparty. The table below sets out the implementation timeline.

The development and publication of the regulatory technical standards will shed further light on the obligations imposed by the new regulation. Market participants will be in a better position to make adjustments to operational procedures once there is more clarity on its potential implications.

December 23 2015

Regulation published in Official Journal of the European Union.

January 12 2016

Regulation comes into force:

  • Record keeping requirements apply.
  • AIFs or UCITS constituted after this date must comply with the pre-contractual disclosure requirements.

July 13 2016

Collateral reuse requirements apply to all collateral arrangements, including those already in existence on this date.

January 13 2017

Disclosure requirements in annual and half-yearly reports apply for UCITS and AIFs.

July 13 2017

Pre-contractual disclosure requirements apply for UCITS and AIFs in existence before January 12 2016.

April to June 2017

Regulatory technical standards on the reporting obligation expected to come into force.

April to June 2018

Trade reporting requirements for investment firms and credit institutions likely to apply.

July to September 2018

Trade reporting requirements for central counterparties and central securities depositories likely to apply.

October to December 2018

Trade reporting requirements for insurance and reinsurance firms, UCITS, AIF managers and pension funds likely to apply.

January to March 2019

Trade reporting requirements for non-financial counterparties likely to apply.

For further information on this topic please contact James Doyle or Isobel Wright at Hogan Lovells International LLP by telephone (+44 20 7296 2000) or email ( or The Hogan Lovells International LLP website can be accessed at

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