These Guidelines are based on Article 16(1) of the ESMA Regulation. In line with that provision, they aim at “establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law” with regard to the requirements referred to in Section 1 under the heading ‘What?’ for the calculation of positions in SFTs by TRs. The Guidelines establish high-level principles that should be followed by the TRs for their position calculations. Those principles are complemented by specific procedures to be followed to ensure the timely and accurate reporting of positions by TRs.
These Guidelines also leverage on the requirement under Article 1(1) of RTS on reporting, according to which: “[a] report made pursuant to Article 4(1) of Regulation (EU) 2015/2365 shall include the complete and accurate details set out in Tables 1, 2, 3 and 4 of the Annex that pertain to the SFT concerned”. They also build upon Section 4.9. of the SFTR Reporting Guidelines, on timely reporting of the conclusion, modification and termination of an SFT, and on Section 4.3 of the same Guidelines, on the correct reporting of CCP- cleared positions by counterparties so that there is no double-counting between trade and position.
In order to promptly assess systemic risks to financial stability and quickly react in a crisis event, NCAs should be able to have an overview of entity level SFT exposures. However, the large volumes of data that ESMA expects to be reported will make it challenging for many authorities to swiftly process and analyse this data, preventing authorities from being able to evaluate risks.
In addition, the possibility for reporting counterparties to report their trades to different TRs poses a particular challenge for the establishment of a set of entity-level positions that is consistent, complete, and coherent across entities and SFTs.
Specifically, each individual TR may only hold partial information on an entity’s exposure with respect to any product and each of its counterparties. Hence, in some cases TRs can only calculate a partial TR-level position for any entity.
Therefore, the determination of an overall entity-level position requires an aggregation of the TR-level positions across several TRs. Overall entity-level positions should be determined by authorities and based on an aggregation of TR-level positions. Therefore, consistency in TR-level position calculation is essential. TRs should use common conventions, rules, and methodologies for their SFTR trade reporting determinations and calculations. It is worth noting that ESMA expects the application of the Guidelines to result in the following benefits:
– reduce efforts to request this information sporadically and ensure that no information is omitted;
– reduce processing time of information received;
– ensure a level-playing field in term of information to be provided by all TRs by establishing harmonised reporting;
– ensure consistent, harmonised and high standard of aggregate position data made available to relevant authorities;
– ensure complete information that is necessary for ESMA’s risk-based supervision.
The full report is available at https://www.esma.europa.eu/sites/default/files/library/esma74-362-2176_guidelines_on_calculation_of_positions_in_sfts_by_trade_repositories_amended_17.11.2021.pdf