Securities finance vendors plan to test new data tools in the coming months as part of their efforts to aide market participants with an onerous set of reporting rules due in 2018.
SFTR, an extensive reporting regime for securities finance transactions (SFTs), including repo, margin loans and securities lending, is currently being finalised by European officials.
ESMA, Europe’s securities finance watchdog, is expected to submit a final draft of the technical standards next month after recent delays.
This would allow a host of vendors operating in the space to test their current SFTR solutions ahead of deadlines which force lenders and borrowers to report their SFTs to an approved EU trade repository.
“We are looking to proof our solution and work through issues with our clients as early as possible,” said IHS Markit’s Pierre Khemdoudi, speaking at an event hosted jointly by IHS Markit and Pirum where both firms laid out the details of their partnership to deliver an SFTR reporting solution.
“We expect to launch the solution shortly after the final regulatory technical standards (RTS) draft. SFTR is a big challenge. There are multiple areas to work on, lots to agree on and several data points to link. The earlier we start engagement the better placed we are to help our clients and perfect our model.”
Pirum’s Ben Challice opened the event by providing rationale for the partnership. He explained that the new service will combine Markit Securities Finance’s data capabilities with Pirum's post-trade reconciliation technology, resulting in a fully hosted, end-to-end solution to help firms report trades”.
Others in the space, such as EquiLend, have outlined a different approach to solving SFTR.
At a minimum, reporting must include the details of the parties involved in a trade, principal amount, currency, collateral assets, repo rate, lending fee, margin lending rate, haircut and maturity date.
Earlier this month Jonathan Lee, EMEA regulatory reporting manager at JP Morgan and chair of the ICMA’s SFTR task force said the reporting requirements look “highly prescriptive and somewhat daunting from a repo perspective.” He added that the data requirements are “less consistent with the nuances of the securities lending and prime brokerage.
Meanwhile, ISLA’s Andy Dyson suggested that Europe’s agent lending construct combined with predominance of non-cash collateral in the region “compound the difficulties” associated with SFTR. Both Lee and Dyson called on the SFT vendor community to find streamlined and efficient ways of taking the industry forward into the new reporting regime.
On Wednesday, IHS Markit’s Khemdoudi said SFTR challenges fall into four buckets – data aggregation and enrichment, doubled-sided reporting, building functionality and operational resources.
He also outlined more details on IHS Markit and Pirum’s solution. “First we will consume client data, standardize it, create a golden copy and enrich the information. We will then apply rule based logic to reduce the scope of mismatching, reconcile the data, create a Unique Trade Identifier (UTI) and report it to the trade repository.”
Khemdoudi and Challice made the point that the solution is fully hosted and already connected to tri-party agents, agent lenders, brokers, PB’s and CCP’s with well-established trade repository connectivity. It can also operate as an end-to-end tool or modular solution, meaning firms can pick and choose which parts of the SFTR reporting process they wish to outsource.