Securities Financing Transactions (SFTs)

SFTR – Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 came into force on January 12 th, 2016.

SFTR creates a Union framework under which details of SFTs can be efficiently reported to trade repositories and information on SFTs and total return swaps is disclosed to investors in collective investment undertakings. The definition of SFT in this Regulation does not include derivative contracts as defined in Regulation (EU) No 648/2012 of the European Parliament and of the Council (EMIR). However, it includes transactions that are commonly referred to as liquidity swaps and collateral swaps, which do not fall under the definition of derivative contracts in Regulation (EU) No 648/2012.

Key requirements covered by SFTR

Securities Financing Transactions Regulation covers three key requirements;

1. Transaction reporting – SFT reporting to TR registered by ESMA following article 5 of SFTR. Reporting can be delegated to third person.
2. Disclosure obligations – Information obligation-informing investors about how to use SFT and swaps for total returns in the half-yearly report, annual report and pre-contractual documents.
3. Collateral reuse obligations – Compliance with the conditions for re-use of collateral.

What is SFT?

Securities Financing Transactions (SFTs) are any transaction where securities are used to borrow cash, or vice versa. Practically, this mostly includes repurchase agreements (repos), securities or commodity lending activities, and sell/buy-back transactions, margin lending. In each of these, ownership of the securities temporarily changes in return for cash temporarily changing ownership. At the end of an SFT, the change of ownership reverts, and both counterparties are left with what they possessed originally, plus or minus a small fee depending on the purpose of the transaction.

According to paragraph 3(11) SFTR, „Securities Financing Transactions” or „SFT” means:

1. a repurchase transaction;
2. securities or commodities lending and securities or commodities borrowing;
3. a buy-sell back transaction or sell-buy back transaction;
4. a margin lending transaction;

Which firms will be affected?

Types of firms affected include banks, investment firms, insurance, reinsurance undertakings, pension funds, UCITs, AIFs and CCPs, CSDs, and non-financial counterparties.

The proposal also explicitly identifies UCITS funds and AIFs as being subject to the regulation in its final form. Where the SFT counterparty is a UCITS fund or an AIF, the reporting obligation applies to its management company instead of the fund itself.

In case SFT concludes a financial counterparty with a non-financial counterparty which does not exceed the limits of at least two of the criteria set out in article 3 (3) of Directive (EU) 2013/34 (Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC). i.e.a) balance sheet total: EUR 20 000 000; b) balance sheet total: EUR 20 000 000; or c) average number of employees during the financial year: 250, financial counterparty is responsible for reporting on behalf of both parties.

Reporting of SFTs can be also delegated to a third party and duplicate should be avoided.

Time to comply depends on counterparty type:

• for credit institutions, investment firms, 11 April 2020
• for CCPs and CSDs, 11 July 2020
• for other FCs, 11 October 2020
• for NFCs, 11 January 2021

Where to report?

SFTR transaction reporting requires financial and non-financial counterparties to report their SFTs to approved registered EU trade repository.

ESMA is processing new applications for registration from TRs. A list of TRs registered in accordance with EMIR and SFTR is available here.

Counterparties of SFT are reported with international identifier LEI (Legal Entity Identifier).

Legal entity uses LEI for transactions under reporting obligation.

Updated list of LEI issuing organizations are available here.

For transactions reporting is possible to use updated LEI only. LEI should be updated upon change, at least once a year.

This Regulation shall apply from 12 January 2016, with the exception of article 33 (2) (a) to (d) SFTR.

Please find Regulation and Implementing Regulation here.

Please see updated information on SFTR on ESMA website here.

Presentation on SFTR

NBS complies with the Guidelines on Reporting under Articles 4 and 12 SFTR as of the date of this notification.