Highlights from comment letters: the FSB’s proposal on Trade Repositories in securities finance (Premium Content)

The Financial Stability Board has released comment letters on its November 2014 document, “Proposed Standards and Processes for Global Securities Financing Data Collection and Aggregation.” Less technically, this is on trade repositories for securities lending and repo, and how they should work. We have reviewed all the comment letters and provide the highlights.

Amundi: Unhappy to see reverse repo transactions being called Securities Financing Transactions (SFT). Believes asset management industry is already highly regulated. Suggests hedge funds should be the only type of entity within the asset management industry that should be included in the scope of SFT regulations. Stresses that reporting should be a tool for better information, not new regulation. Believes that reporting should be organized at the entity level and not a transactional level – it is not important to capture transactions for identify and tracking systemic risk.

Angelo Ranaldo and Jan Wrampelmeyer: They find it unclear how, for instance, Eurex GC Pooling repos would need to be reported. Also unclear how GC pooling repos would be treated regarding ‘re-use’ of collateral. Stresses that exchange rates must be consistently used.

BVI: States highly regulated investment funds already adhere to reporting obligations as required by UCITS/AIFM directive and the national central bank – it would be better to use this information in the collection of data before require further reporting. Believes that, as highlighted via master agreement for securities repurchase transactions, that neither the purchase price nor the objects of a purchase under a repurchase agreement are part of collateral contributions and disagrees with the FSBs definition of repo transactions.

Canadian Bankers Association: Suggests the FSB draw a distinction between “firm finance” transactions, where transactions have the intent to generate liquidity or cover inventory requirements, versus “client finance” activity where reverse repo trades are used to provide leverage. They are also concerned with who will be aggregating the data on a national/regional basis and the confidentiality of their data being submitted to that entity.

Center for the Study of Financial Market Evolution: Suggests the FSB expand their informational capture to include risk mitigation and termination activities; adds that loan recalls, returns, and collateral redemptions should be tracked alongside position aggregates.

Global Financial Markets Association (GFMA): Suggests the FSB use the legal definition of securities lending and repo transactions because it would allow institutions to leverage their already existing systems to report on. Stresses the importance of data confidentiality, double counting errors, and the use of Legal Entity Identifiers for counterparty identification.

International Capital Market Association (ICMA): Believes that position level data is adequate to monitor systemic risk. Stresses the compiling of data through CCPs, TriParty Agents, and electronic trading platforms – in Europe over 80% of repo business accounts through these intermediaries. Believes it will be difficult to capture collateral re-use.

Japan Securities Dealers Association: Emphasizes that the required detail of reporting will require an arduous amount of work. To develop a national data aggregation system is estimated to cost US$844,000. Doubts the feasibility of reporting collateral re-use and re-investment.

RMA/ISLA/PASLA: Highlighted their main areas of concern rather eloquently in summary form: Position level data should suffice for data aggregation. Monthly aggregation frequency should be sufficient. Data standards should be consistent with the use of LEIs and ISINs.

SWIFT: Stresses the importance of rigorous and detailed specifications for data reporting. Suggests the use of ISO 20022 as a source of clarity and precision for the FSB. SWIFT goes further as to compare the data elements being proposed by the FSB directly to the ISO 20022 specifications.

The Banking Association of South Africa: Recommends the FSB include single stock futures and unlisted securities financing products (specifically for Contracts for Difference “CFDs”) as it is these unlisted products that are most likely to create systemic risk.

UnaVista: Questions the limitation of currencies required in the currency field of reporting elements, believes the FSB should support a full list of currencies in accordance to the ISO 4217 currency codes. Suggests the use of a Unique Trade Identifier to eliminate instances of double-counting and to help resolve cross-jurisdictional issues.

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