Securities Financing Transaction Regulation: Implementation and impact on the securities finance post-trade reconciliation

Abstract

As part of the policies identified by the Financial Stability Board (FSB) to increase transparency across Securities Financing Transactions (SFTs), the European Union (EU), under the guidance of the European Securities and Markets Authority (ESMA), introduced the Securities Financing Transaction Regulation (SFTR). The regulation includes a number of new rules for market participants, including a requirement to report all SFTs to an approved trade repository (TR). The transaction reporting regulation mandated under article 4 of the draft SFTR legislation will compel the securities finance industry to radically restructure its data architecture — integrating numerous and often disparate data sources to enhance transparency — and challenge some of the industry practices. This paper provides an overview of the SFTR regulation, focusing on the trade reporting (article 4) along with highlighting the challenges faced by the securities finance industry when implementing this regulation. It outlines as well the impact such regulation will have on the securities finance trade reconciliation and matching.