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This is the second and final consultation on SFTR technical standards, following up on an ESMA discussion paper issued earlier this year to which the ICMA ERCC responded in April 2016.
ICMA ERCC members strongly believe that it is a shared interest of both industry and supervisors that the SFTR reporting regime is both effective in its ambition to increase the transparency of SFT markets and efficient in achieving its goals without disproportionately burdening reporting firms. We would point out that the latter is an objective that has been repeatedly stressed by European legislators, most recently in the Commission’s follow-up communication on the Call for Evidence. The ICMA ERCC is keen to support ESMA in the most constructive way possible to help achieve both of these objectives. We welcome the progress made by ESMA since the DP, but would like to highlight that there is still significant scope for further improvements that would lead to a more effective reporting regime for regulators without disproportionately burdening the industry. First and foremost, ICMA ERCC believes that this requires a significant reduction of both reporting fields and reconciliation fields, as well as a substantial increase in the applicable tolerance levels. The current proposals risk undermining the effectiveness of the SFTR regime while at the same time disproportionately burdening the industry and supervisors alike.
There is significant scope to reduce the number of required reporting fields, without reducing the level of transparency. Many of the proposed fields can be derived in a straightforward way from other reported items or are readily available from central data sources, which should be leveraged whenever this is reasonably possible. If ESMA is unwilling to allow such derivation to be performed by trade repositories, it should be possible to delegate this task to the ESCB SFT Datastore.
ICMA ERCC would also like to point out that this does not preclude ESMA and/or the co-legislators from increasing the number of reporting fields and, probably even more importantly, reconciliation fields over time, where this is deemed necessary. Starting with less fields and getting the process working well would seem to make far more sense than overburdening all concerned and finding that it is simply not possible to establish a robust process. In case data analysis subsequently highlights that there are still important gaps needing to be suitably addressed to properly inform policymakers, it will of course always remain possible to introduce additional required reporting fields.
Collecting information directly from the relevant market infrastructures, such as CCPs and tri-party agents, would be another way to increase significantly both accuracy and timeliness of the reporting, as well as reducing the aggregate reporting burden for the industry. This would be particularly relevant in those instances where the relevant infrastructures are themselves subject to a reporting obligation. The most obvious example would be CCPs in the case of the reporting of margining of CCP-cleared SFTs, which can be far more efficiently and accurately collected from CCPs directly, given the complications introduced by netting and the fact that only these institutions see the whole process.
On a related issue and as already pointed out in our response ESMA’s DP, ICMA ERCC would like to reiterate that in our view it is unnecessary and misleading to require bilateral repo trades that are intended for registration with CCPs post trade to be reported twice. Given that these are contractually contingent on the CCP accepting the trade and given the generally very short timeline of the process any trades intended for CCP clearing will only exist for reporting purposes as trades with the CCP as counterparty.
As the ICMA ERCC has highlighted repeatedly, the required reporting of re-use is a particularly problematic aspect of the proposed reporting regime, which in itself will cause substantial implementation costs.
In the ICMA ERCC’s view, the current framework for the reporting of margin data needs further adjustments. In the case of CCP-cleared SFTs, the separate margin data table currently does not support margin in the form of securities. In the case of bilateral repo trades, in order to avoid confusion, it seems preferable to split the reporting of margining more clearly from the reporting of collateral updates. This could be achieved by defining another report specifically for the margining of bilateral trades, separate from the template for the margining of CCP-cleared trades, which would allow firms to report bilateral margining on a position level. The Repo industry is predominantly governed by the Global Master Repurchase Agreement (GMRA) which dictates that business is conducted in this way, with a clear distinction between trade collateral and portfolio level margin collateral.