SFTR Corporate Actions Working Group #8 International Securities Lending Click to edit Master title style James Langlois, Lewis Nicholson Association Click to edit Master subtitle style 9 Oct 2019 1
SFTR Corporate Actions: Approach for this Working Group 1- Review of SFTR Corporate Actions Working Group 2- Best Practice discussion: • Execution Timestamp • Non-Tradable Securities 3- Next Steps
SFTR Corporate Actions: Overall Scope and Plan 1- Define Corporate Actions Universe (Q2 2019) • Form a distinct list of all CAs • Align with the ISO 15022 (SWIFT) and 20022 (STP) standards • Determine attributes and effects of each CA on SFTs 2- Stratify the CAs into Clusters by their effects on SFTs & booking models (Q2 2019) • Review groups of CAs which can be processed similarly • Confirm CAs which have no material effect on SFTs • Confirm booking models for clusters • Define the SFTR reports that each Cluster of CAs affects 3- Agree an SFTR related Best Practice for each CA Cluster (Q3 2019) • Reach agreement on specific booking models which enable SFTR compliant reporting • Determine universal procedures (Best Practice) for processing and communicating CAs on SFTs 4- Connect the SFTR CA WG’s output with the wider industry discussion (Q4 2019) • Contribute to the Securities Lending industry’s general policy (beyond of SFTR)
SFTR Corporate Actions: Timeline JUL 19 OCT 19 JAN 20 APR 20 APR 19 1-2-1s Membership & Workshops, SFTR Report Testing, Responsibilities Reaching out for Surveys, Direct Developing Solutions not Objectives & Scope Industry-wide best Methodology & Plan Member Firm defined in 2019, Support for practice acceptance Baselining Meetings SFTR GO LIVE Information
SFTR Corporate Actions: Best Practice Evolution Internal ISLA Approval Working Group Packs ISLA Member Firm Approval Best Practice PowerPoint Best Practice European Industry Review SFTR CA Draft Universe Document ECB Best Practice Global Review Harmonisation Proposal Doc Industry Adoption European Standards Global Standards
SFTR Corporate Actions: Key SFTR Reporting Requirements • SFTR is a two-sided reporting requirement: both Borrower (collateral provider) and collateral receiver (lender) required to report their side of the SFT to an approved TR on trade date +1 (T+1). • All new SFTs, modifications of open SFTs and terminations of existing SFTs must be reported daily. • Collateral is reported on T+1 or value date +1 (S+1) dependent on method of collateralisation used. • As part of the two-sided reporting obligation a Unique Transaction Identifier (UTI) must be included by participants in their reports to the TRs. This value will be used by the TRs to match separately received reports from each counterpart to an SFT. • Participants must also use Legal Entity Identifiers (LEIs) to identify their counterparts along with a number of other parties involved in the SFT (e.g. Agent Lenders, CSDs, CCPs). • For agency loans with multiple underlying principals both borrower and lender will need to report each allocation to a principal as an individually reportable transaction. • The SFTR reporting must also include any collateral linked to the SFTs including the LEI of the counterparty with whom the collateral was exchanged and the master agreement under which it was agreed.
SFTR Corporate Actions: Issues for review in this WG Execution Timestamp Non-Tradable Securities SFTR Report: ETRM/ NEWT ETRM ETRM/ MODI NEWT NULL NULL Return and New Full or Partial Addition Sec on Economic Non-Economic CA Cluster/ Issue Full Return Trade Return Loan outside SFT or Information Execution Timestamp Y N N Y N N Non-Tradable Securities Y N N Y N N
SFTR Corp Acts: Execution Timestamp Issue: o All new trades will require a NEWT message to be sent which includes an Execution Timestamp to be applied. o The execution timestamp must be matched to within an hour to the timestamp on the opposite side. o Currently (and foreseeably) CA bookings are created at the times that the separate CA teams are processing them – in isolation from each other. o There is no execution time for a CA booking because it is a downstream effect of an event and not a new ‘trade’ – however these effects are reported as trades to the TR Best Practice: ✓ OPTION 1- All mandatory CA bookings are have the timestamp overwritten with a time as agreed between the two firms – e.g. this could be standardised to be 10:10:10 ✓ OPTION 2- The UTI generator also sends a timestamp to the other firm to enrich their trade with for reporting purposes. ✓ OPTION 3- A hybrid of the above is detailed on the next slide.
SFTR Corp Acts: Execution Timestamp Best Practice Option 3 The 4 scenarios presented under a hybrid best practice: BORROWER LENDER Both parties report with 10:10:10 overwritten 10:10:10 10:10:10 as the Execution Timestamp Borrow will accept the Timestamp from the Lender, 10:10:10 Enrich therefore the Borrower matches the Lender’s 10:10:10 The Lender will report with their own booking time Enrich 10:10:10 - the Borrower must be able to accept this The Lender sends their Timestamp to the Enrich Enrich Borrower who is prepared to accept
SFTR Corporate Actions: Non-Tradable Securities Issue: o ESMA is due to respond on the securities without ISINs (see question on next page). The Level 3 due to be released in a few weeks time may require these positions to be reported. o The greater percentage of firms do not book the ineligible securities in their systems, accounting for them in other ways. o Some firms do book the ineligible securities and if this is reported to the TR, there will be a single sided trade. Best Practice: ✓ Firms may be required to change their existing processes with regards to booking or representing non-tradable securities as a result of corporate actions. Next Steps: ▪ We should formalise, as a group, the diversity of these corporate actions related non- exchange traded securities, CDIs have already been raised. ▪ Once we have formed an holistic view of the issue, we can discuss what should be reported and agree a best practice.
SFTR Corp Act: Non-Tradable Securities – ESMA Consultation Question 41 “ISIN’s may not on occasion be available where private placements occur or where a new security has been issued and a temporary ISIN has been provided. Members still require instruction as to whether fields #41 ‘Security identifier’, #78 ‘Identification of a security used as collateral’ in Table 2 as well as #7 ‘Collateral component’ should be reported blank for securities without an ISIN, or those lines should be omitted to ensure transmission of the rest of the submission?”
SFTR Corporate Actions: Non-Tradable Securities – Next Steps ▪ Detail the booking model for members firms which do book the non-tradable securities and those which do not book them – two examples for each method to be volunteered by member firms. ▪ Prepare a list of all types of non-tradable securities from member firms – can these be provided by your CA teams or by the Data Officer? ▪ Determine the effects on reporting as to whether or not each type of non-tradable security requires reporting. ▪ Link this is research with the Level 3 response from ESMA on securities without ISINs.
ISLA SFTR Corporate Actions Working Group 1- ISLA to produce Best Practice Presentation for Firm member internal review in WG #9 2- Prepare to circulate the Best Practice (for SFTR) to the local Industry 3- Start to review the non- SFTR related issues…
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