Seven similarities between SFTR and EMIR

The final ESMA report on Securities Financing Transaction Regulation (SFTR) is yet to be endorsed and published in the EU Official Journal however, firms trading in securities would do well to start preparing to comply with SFTR by looking at the live European Market Infrastructure Regulation (EMIR) regime for similarities in the reporting obligations.

What is SFTR?
Securities Financing Transactions (SFTs) can be used to describe any transaction where securities are used to borrow cash, or vice versa. Repurchase agreements (repos), securities lending activities, and sell/buy-back transactions are all covered by this description. In all of these instances, ownership of the securities temporarily changes in return for cash temporarily changing ownership.

Like the EMIR regime, SFTR has also been introduced to monitor risk and enhance transparency in the finance industry. With the financial industry nearing its MiFID II implementation run-in, SFTR is the next highly anticipated regulation focused on the financing and reuse of securities that is starting to gain momentum.

7 ways SFTR is similar to EMIR

Two-sided reporting to an EU trade repository EMIR and SFTR follow the same structure where both counterparties to the derivative or SFT contract are required to fulfil their transaction reporting requirements to an EU trade repository no later than the following business day after the transaction (T+1).
Similar counterparty classification SFTR will require financial counterparties and non-financial counterparties to comply following the same classification as it currently does under EMIR. Financial counterparties include UCITs, AIFMs, investment firms, credit institutions, insurance, reinsurance, assurance and institutions for occupational retirement. Non-financial counterparties exclude financial counterparties and CCPs.
Granularity of reporting requirement The reporting requirement applies at the same level for both regulations. Under SFTR, the reporting requirement applies at the level of the individual SFT and under EMIR the reporting requirement applies at the level of the individual derivative contract.
One report containing the full data set required by ESMA The SFTR regime will rely on counterparties submitting the complete set of data elements pertaining to their SFT/TRS contract in one report. Similarly, the EMIR regime relies on counterparties submitting the complete set of data elements pertaining to their derivative contract in one report.
While this may seem obvious, some other regulations have alternatives to the ‘one contract report’. MiFIR transaction reporting for example, recommends firms to either submit their transaction reports through an ARM (Approved Reporting Mechanism), or directly to an NCA (National Competent Authority).
Counterparties to keep transaction reports for at least five years Under SFTR, counterparties to an SFT will be required to keep record of the transactions that have concluded, been modified or terminated for at least five years following the termination of the transaction, as is currently required under EMIR.
Confidentiality restriction not applicable during transaction reconciliation The obligation of trade repositories to reconcile transactions reports when they are reported to different trade repositories automatically removes any potential confidentiality restrictions regarding the exchange of data between the TRs and the counterparties or the submitting entities.
2-way key applied to every contract In addition to the potential confidentiality restrictions, trade repositories will apply a 2-way key (LEI+UTI) regardless of whether or not both counterparties to each SFTR contract have reported to the given trade repository as is currently the case with EMIR.

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