The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has received reports from trade repositories (TRs) indicating that the first day of reporting by financial and no-financial market participants under the Securities Financing Transactions Regulation (SFTR), has gone smoothly.
Today, all four TRs opened their systems and start receiving and processing SFT data submitted by reporting firms. ESMA has not identified any major disruptions so far in the functioning of TRs. Over the coming days it will continue to monitor the availability of TR systems and data to both reporting firms and authorities.
Next steps
ESMA will continue to engage with market participants to clarify any remaining issues and will assess the need for further supervisory convergence measures to facilitate compliance with the new reporting requirements.
The focus of ESMA’s supervision will be on ensuring the availability of TR systems as well as resolving shortcomings in the quality of data provided by reporting entities to TRs. As with any new reporting regime ESMA expects that issues will be identified in the first months following go-live, in particular as reporting systems continue to be improved and stabilised.
A framework, implemented by ESMA, for monitoring and enhancing the quality of data available to NCAs, central banks and other authorities entitled to access transaction data under SFTR. ESMA will supervise the implementation of any corrective and/or remediation measures by TRs as well as coordinating targeted actions by NCAs towards reporting entities.
John Edwards, global head of BrokerTec At CME Group, said in an emailed statement: “Today acts as a catalyst for technology to play a much more prominent role in European repo trading, which is traditionally a phone-dominated market. The old manual approach to executing trades, particularly when it comes to dealer-to-client activity, could soon be a thing of the past. BrokerTec has seen robust transaction activity since the beginning of the year, which shows that the European repo markets remain strong. The go-live certainly focuses industry minds on speeding up the adoption of electronic execution.”
Heiko Stuber, senior product manager at SIX, said in an emailed statement: “It’s fair to say the regulation has been the outcome of the 2008 crisis, and firms have had a lot of time to prepare for this. We will now see how well they have done with their technology and data strategy to manage the new reporting obligations.”
“An important consequence of the regulation is that there are new permissions required for using data for security quality and security type in reporting. Market participants will need to have secured approval from ratings agencies on security and collateral quality data, and the main index providers on security and collateral type data before they can use this in their reporting process. The costs of not doing so will become clear over the coming weeks and months.”
“The buy-side should be looking closely at how this initial phase unfolds, as the SFTR go-live for this side of the market is coming up in October 2020. While this may seem like a long time away, there is the summer break in between and there won’t be much time to analyse the market effects and tweak the approach before then.”