In polite and diplomatic language, buy-side respondents to ESMA’s recent discussion paper on SFTR expressed their displeasure with both the amount of time allowed in the response as well as the specifics. There were some common themes across the comment letters including who reports, how much is reported and overlap with other regulation. The sell-side and related industry associations weren’t thrilled either.
The main themes of the responses are:
1) The European buy-side already has a slew of securities lending regulations to follow. According to EFAMA, “highly regulated investment funds already have to adhere to the reporting obligations of securities financing transactions as required by the UCITS/AIFM Directive and the National Central Bank and national regulators. We believe that there are already information available that should be used in the collection of data for securities financing transaction before requiring further reporting.”
Amundi (and several others) noted that ESMA did not appear to consider MiFID/R in their discussion paper. Amundi said “we insist on the necessity to capitalize on preexisting data collection processes and believe that the reference to EMIR and the use of TRs (that have been introduced under EMIR) in order to collect data on SFTs is commendable; however we are very disappointed to see that the MIFID/R reporting obligations are considered independently of the preexisting framework of other regulations; the fact that they have different objectives does not justify the absence of a transversal approach.”
2) Two-sided reporting is costly and ineffective. AIMA noted that “the most significant and – in our opinion – unnecessary operational cost associated with SFT reporting is the two-sided nature of the reporting requirement. AIMA has expressed on numerous previous occasions in response to both EMIR and SFTR that dual-sided reporting is a flawed model that has been proven to be both costly and inefficient. We note that under EMIR, the proportion of Trade Repository (TR) reports being matched in certain products is still extremely low, with the confusion surrounding poor matching rates materially detrimenting regulators’ ability to build an accurate picture of market exposures.”
3) ESMA gave market participants six weeks to respond to 145 questions. Multiple buy-side firms and associations were not pleased about this. Assogestioni said “we would like to point out that, due to the limited time available for the consultation, our members have not had sufficient time to assess the full operational impact of the regulation under discussion also due its highly technical content and our contribution at this stage can only be kept at a general level.”
Sell-side and technology provider responses had a different set of comments, many of which were technical. Some focused on using settlement instead of trade date as the point of data reporting (ISLA). BNY Mellon commented that they worked closely with ISLA on their letter and backed up their comments. Deutsche Borse’s letter focused on the mechanics of their own role as a CSD and trade repository operator.
The London Stock Exchange Group noted the biggest point on our minds: what will regulators do with all this data when they have it. According to the LSEG comment letter, “we believe that due consideration should be given to ensuring that reporting obligations are proportionate. We are concerned that the proposed reporting framework which encompasses transactions, lifecycle events, collateral (including value and substitutions), and settlement details will result in a significant amount of data that may not be practically reported. Together with the difficulties of linking all these elements together, the reported data may be difficult to interpret both for market participants and regulators, and may not proportionately contribute to the transparency objective of the SFTR.”
While the data elements of ESMA’s paper don’t seem to be hugely in dispute, the rationale behind them does not have market acceptance. It would probably be very helpful for ESMA to go back to the drawing board on what it is seeking to accomplish on SFTR.
All of the discussion paper responses can be found here: https://www.esma.europa.eu/press-news/consultations/discussion-paper-draft-rts-and-its-under-securities-financing-transaction
