Published: 30th June 2016

Of Relevance to:

Firms concluding Securities Financing Transactions

Securities Financing Transactions Regulation: Disclosure Obligation

A reminder that, as advised in Regulatory Roundup 72, the ‘risks and consequences’ disclosure obligation arising under the Securities Financing Transactions Regulation (2015/2365) (“SFTR”) applies from 13 July 2016.

A Securities Financing Transaction (SFT) is defined as per Article 3(11) of the SFTR as:

  • a repurchase transaction;
  • securities or commodities lending and securities or commodities borrowing;
  • a buy-sell back transaction or sell-buy back transaction; or
  • a margin lending transaction.

For the avoidance of doubt, recital 7 informs us that the definition of a SFT does not include derivative contracts that are reportable under EMIR (648/2012).

The ‘risks and consequences’ obligation refers to Article 15 of the SFTR on the reuse of financial instruments received under a collateral agreement.

Any right of counterparties to reuse financial instruments, as defined in Section C of Annex I of Directive 2014/65 (‘MiFID II’), must be subject to at least the following conditions:

  • the providing counterparty has been informed in writing by the receiving counterparty of the risks and consequences of one of the following:
    • granting consent to a right of use of collateral
    • concluding a title transfer collateral arrangement
  • the providing counterparty has granted its prior express consent, as evidenced by a signature in writing or in a legally equivalent manner, to the reuse of such collateral or has expressly agreed to provide collateral by way of a title transfer collateral agreement.

Any exercise by counterparties of their right to reuse must only be undertaken in accordance with the arrangement referred to in the second bullet above and the financial instruments involved must be transferred from the account of the providing counterparty.

The ‘reuse’ obligation applies to

  • a counterparty established in the EU (including all its branches irrespective of where they are located); and
  • third-country established entities where either the reuse is effected by an EU branch of that counterparty or the reuse concerns financial instruments under an arrangement by a counterparty established in the EU or a branch in the EU of a third-country counterparty.

See Article 15 for further details.

The SFTR is concerned with the reporting and transparency of SFTs and the above is simply one of the provisions coming into force shortly – see Regulatory Roundup 72 for an overview of the SFTR as a whole.

Key Dates

The requirement applies from 13 July 2016, including for collateral arrangements existing on that date (Article 33(2)(d)).

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