The paper also highlights that SFTR is likely to significantly impact trade booking models and affect 60% of current processes resulting in the need to develop new processes. Furthermore, the new regime may create changes to sources of collateral supply within the market and the industry will need to make provisions to ensure that these unintended consequences do not result in collateral supply and liquidity issues.
“This paper highlights the significant impact that SFTR implementation will have on the financial industry,” said Val Wotton, Managing Director, Product Development and Strategy, Derivatives and Collateral Management at DTCC.“While SFTR will be phased in starting in 2020, market participants must act now to be ready for implementation and to avoid any issues around trade reporting volumes, liquidity and collateral supply.”
To ensure readiness for SFTR implementation, the paper recommends that market participants:
• Develop a reconciliation break strategy and ensure that efficient data management processes have been adequately reviewed. It is expected that matching rates will be very low on day one, due to the tolerances applied and current market practices, so breaks at trade repositories may be significant. Firms must ensure that reconciliation breaks can be managed appropriately;
• Assess the impact of higher levels of disclosure required by SFTR on appropriate financing and prime broker businesses. Agent lender disclosures may no longer be fit for purpose while hedge funds leveraging prime brokers may be required to provide wholesale disclosure to regulators; and
• Ensure greater levels of automation across the trading and operations functions to manage the expected increase in volumes. The securities financing industry has much higher levels of manual processes than other product areas, making automation critical.