ICMA ICM ICMA ERC C Operatio ions se semin inar: Th The fu - - PowerPoint PPT Presentation

ICMA

International Capital Market Association

ICM ICMA ERC C Operatio ions se semin inar: Th The fu futu ture challe allenges in in post-trade process ssin ing for r repo “Can we join the dots” 8 April ril 2015, , Lo London

Agenda

• Introductions – why are we here today? - Godfried De Vidts (ICAP)
• The landscape today & Problem statements – Nicholas Hamilton (JPM)
• Trade matching and affirmation – a starting point - Adam Bate (MS)
• Panel discussion – Moderator – Nicholas Hamilton
• Richard Comotto – ICMA centre
• Godfried De Vidts (ICAP) – Chairman European Repo Council
• Alex Dockx (JPM) – JPMorgan T2S program manager
• Sanjiv Ingle (SG) – Co- Chair European Repo Council Operations
• Round up, next steps & concluding comments

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Welcome from the Chairman of the ERC

• Godfried De Vidts, ERC Chairman and ICAP

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

An outline of the problem statements related to the repo life-cycle

• Nicholas Hamilton, JP Morgan and Chairman of the ERC Operations Group

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

European Repo Council Operations Committee structure

18 members: Chairs Nicholas Hamilton (JPM) & Sanjiv Ingle (Soc Gen)

• 3 working groups:
• Matching & Affirmation – Adam Bate (MS)
• Target 2 Securities
• Rob Mason (RBS)
• Repo Data Repository - Jonathan Lee (JPM)
• 2 focus groups:
• ICSD / CCP Tri-party interoperability
• COGESI - operations matter
• Contributions
• CSDR article 7 – Buy in and settlement
• Repo Best Practice Guidelines

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Repo post Trade - Key themes

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London TMA T2S ECB SFTR

CSDR

Trade matching & affirmation - Key process in T-zero trade capture, UTI creation and trade reporting Target 2 Securities - Single market interoperability between European CSDs European Central Bank reporting - Daily trade level reporting of securities financing, money market & other financing transactions for Top 50 Euro area banks – April 2016 (more to follow in 2017) Securities & Financing Transaction Regulation - Pan-EU daily trade level reporting of repo, sec lending & prime brokerage securities financing trades (2017) Central Securities Depository Regulation - Single market harmonisation of securities settlement cycles, processes, introducing greater settlement discipline through measures such as mandatory buy-ins

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Key themes timetable

Trade Matching and Affirmation Working Group (TMA)

Overview

• Clear need to have a comprehensive market standard of mandatory/voluntary matching

fields

• Push for a consistent automated matching/affirmation product at the vendor level
• Support the industry in the move towards automated matching/affirmation

Focus areas

• Appropriate vendor engagement to bring together the market offerings
• Creation of a standard template that all vendors can support
• Using the market move to T+1 as a driver towards automation
• Encouraging the industry to T0 affirm and match
• Reduce settlement risk advance CSDR and the introduction of Fail Fines/Mandatory Buy-

Ins

• Reduce Incorrect Risk Weighted Capital applied to trades booked inaccurately

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

T2S survey - Summary findings

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

High feeling of awareness and understanding of T2S

• bjectives in

respondents Both Sell Side and Buy Side firms felt that T2S will have a significant impact T2S will have a positive to very positive impact across most areas Most respondents have plans in place – Network Mgmt & Custody Services are the priorities High number of respondents will connect indirectly but many plan to review this decision Payments and Cash Management departments doing the most preparation Main impacts seen as collateral pooling, increased liquidity,

• pportunity to

rationalise agents Technology changes require the highest level

• f investment

Respondents unsure whether T2S should be modified for Repos Hold and Release functionality reasonably well understood Majority are undecided and are not planning to implement new hold & release processes T+2 Settlement will have an impact Phased approach to CSD implementation seen as having an Ops impact by some

Infrastructure and Planning Connectivity Commercial Impact Other Impacts

Repo in T2S: a missed opportunity?

T2S will improve settlement efficiency, timeliness and remove complexity a) Complex and inefficient cross-border settlement will no longer be required for assets held in T2S. Batch processing and differing settlement deadlines will be removed. This should result in fewer fails, later settlement times, more

• pportunity to trade late in the day and more collateral optimisation opportunities.

b) There is an opportunity to reduce the number of agents (even to a single agent) to handle the settlement of assets in T2S. c) Participants will have the opportunity to manage a single DCA account which will improve liquidity and reduce

• perational overhead

T2S will NOT improve repo end leg settlement nor lifecycle events a) T2S will not provide matched ‘off’ leg trade economics (accrued etc.) at the time of ‘on’ leg instruction b) ‘Off’ leg proceeds calculation will have to be provided by the participant c) Automatic ‘off’ leg settlement on term repo was not built into T2S d) ESES in France will no longer support submission of Repo trades as a single instruction e) Repo tracking will not be available: corporate action events will have to processed by participants f) Repo tracking will not be available: coupons/redemptions will have to manually processed by participants and chains

• f payments will continue to be needed

g) T2S does not offer a trade repository: the industry will have to find and fund an alternative solution h) Repo legs cannot be linked within T2S: legs must be linked by participants in their own systems

ICMA European Repo Council Operations Committee “Joining the dots!”

Potential for future development?

1. Introduce transaction type in T2S (repo, cash, buy/sell back, Triparty etc.) in order to: a) Provide the ability to track beneficial owner of coupons/redemptions and ensure cash reaches beneficial

• wner on payment date, removing risk and effort

b) Ensure the beneficial owner receives corporate action notifications immediately, removing risk that the beneficial owner does not receive their rights to elect c) Provide functionality for T2S to act as a repository for repo trades data, providing transparency to parties who desire more information, such as the Financial Stability Board (FSB) 2. Introduce a common repo ID to link ‘on’ and ‘off’ legs to ensure all firms can explicitly track closure of multi-leg trades 3. Provide central interest calculation facility to reduce risk of exceptions between parties on multi-leg trades at off-leg settlement and reduce failed trades

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

European Securities Financing Reporting Requirements

• 3 distinct requirements from the European Union (ESMA), European Central Bank (ECB) and Financial

Stability Board (FSB) have started to firm up but are still not finalized

• ECB from April 2016: The European Central Bank require daily trade level reporting on Securities Financing,

Money Market, Callable/Puttable Bond issuance and other financing transactions from the Top 50 Euro area Domiciled Monetary Financial Institutions (others to follow from 2017)

• European Union Securities Financing Transaction Regulation from 2017 (date TBC): Requirements are for

trade level data, with emphasis on collateral substitution, re-use and haircuts – attempting to track the path a particular security takes through the market and interconnectedness. The parliamentary text is about to enter Trilogue prior to ESMA Level 2 technical implementation texts and a timeline for implementation in 2017.

• Financial Stability Board 2017 (date TBC): Requirement is for globally aggregated reporting, supplied by

each respective competent authority. The expectation here is that this will be met by ESMA and ECB reporting provisions with no further FSB reporting requirements for member firms. This will be dependent

• n ESMA and/or ECB settling on a format that can be readily aggregated.

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

European SFT Reporting Operational Challenges

• ECB requirements coming into force in April 2016 are likely to put pressure on non-Euro area firms to affirm

and lock down their trades facing major € players on Trade Date. The pressures will grow as the reportable universe grows in 2017.

• Trade matching / electronic affirmation to meet SFTR will also need to facilitate the adoption of Legal Entity

Identifiers (LEIs), Unique Trade Identifiers (UTIs) and Unique Product Identifiers (UPIs).

• Booking conventions, deal rate quotation, collateral haircuts and other key economic and non-economic

fields should also be subject to new ISDA messaging standards to ensure accurate, consistent, aggregatable reporting.

• We feel Industry should use this opportunity to significantly improve risk capture on trade date, introduce

transaction lifecycle efficiencies through great automation and to focus on capping and reducing cost per trade. ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Central Securities Depository Regulation

• Currently undergoing validation of level 2 text
• Mandatory buy in regulations
• Significant increase in buy in’s (est. move from 100’s to 1000’s of executed events)
• Exclusion of short dated repo
• Product differentiation needed to indentify repo vs. cash trades
• No automated buy in messaging has been identified
• Process design required to service demands – ICMA – Secondary market practices proposals underway

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

ERC Operations – Observations

• Work has commenced in the top layer of post trade lifecycle to establish standards/consistency in Trade level

matching / affirmation

• Existing standards are incomplete and fragmented – ISDA / ICMA /ISLA
• Existing infrastructures have developed different treatments of product & process
• In-flight regulatory demands require a level of product differentiation and recognition of new attributes

(CSDR / SFTR)

• There is no target operating model designed to recognise these elements
• There is limited usage of specific repo messaging today and will this be further reduced post T2S

implementation. ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Opportunities – areas for collaboration

• De-risk elements of post trade processing with a product standard incorporating new attributes (TMA /

SFTR / CSDR)

• Further develop a consistent repo message incorporating these new demands
• ISO20022 ?
• Validate & link existing work together to indentify an efficient operating model
• TMA – standards
• CSDR - buy in /settlement discipline requirements
• ECB/SFTR - attribute and product definitions
• Work as a product community on solutions initially with TMA agenda
• Publish updates on ICMA website
• Run design workshops to develop target operating model

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Addendum

• SFTR – additional headlines

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

EU Proposal To Bring Transparency To SFTs | Reporting To Trade Repositories - The Story Continues Intended to draw on existing infrastructure and processes already being developed as part of EMIR implementation, counterparties will be required to report Securities Financing Transactions (SFTs) to trade repositories on a T+3 basis. historical trades may also be captured. ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

SFTR - Repo Trade Repository

Reporting Requirements

• While the exact detail, format and

frequency of reports will be developed by the European Securities and Markets Authority (ESMA), reported information will include the parties to the SFT, the collateral used, the repo rate or lending fee, whether the trade has been rehypothecated, the haircut and relevant dates.

Reporting Delegation

• Reporting could be delegated.

Regulators and the market have been surprised by the hesitancy of firms to

• ffer a delegated reporting service to

help their clients meet the EMIR reporting requirements.

• However, specifying that any

enforcement action would fall on the counterparty as opposed to a firm that undertakes delegated reporting may lead to a different outcome for SFTs.

Implementation Timeframe

• The proposed Regulation will pass to the

European Parliament and Council for negotiation and adoption.

• The implementation timeline is difficult

to predict at this stage, but entry into force before 2015 would be ambitious.

• The reporting requirements would apply

18 months after entry into force.

ICMA European Repo Council Operations Committee Trade Matching and Affirmation (TMA) Working Group

• Adam Bate, Morgan Stanley

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

TMA Working Group – Context

• Effective Risk Management
• Increasing need to appropriately capture trading risk on T0
• Impact to CFP where Term Funding Repos do not settled due to trade mismatch/DK
• Clear need to have a comprehensive market standard of mandatory/voluntary matching fields
• Settlement Discipline
• T2S does not support specific classification of Repo
• Settlement Fail Fines and Mandatory Buy-Ins
• TMA becoming increasingly linked with SFT Reporting requirements
• Central Banks increasing their focus on SFTs and their ability to identify SFTs
• Key regulatory requirements include:
• ECB Trade level reporting (from April 2016): Could increase T0 pressure to match on T
• EU Trade level reporting to Trade Repository (TBC during 2017): Detail re granularity TBC
• FSB global aggregated Position level reporting by local competent authorities (TBC during

2017)

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

TMA Working Group – Context

• 2014 Progress
• Have been able to bring together the matching/affirmation service providers as a central group
• Partnership with ISLA to share best practices
• Industry better understands the need to match/affirm as close to Trade Date as possible
• 2015 Targets
• Consolidated template is shared with vendors having been approved by ICMA/ERC
• Was approved at ERC Ops Committee on 10 Mar 15
• Create a market standard that also meets CSDR requirements
• Collaboration across vendor platforms to establish some form of interoperability
• Look for synergies between matching/affirmation and transaction reportin
• T2S does not support specific classification of Repo
• Repo Data Repository Working Group providing on-going market updates

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

TMA Working Group – Template

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

CATEGORY NAME OF MATCHING FIELD MANDATORY OR OPTIONAL Transaction Details Agreement Type O Start / Close or Maturity O Collateral Type O Reference O Source of booking O Clearing location O Economic Details Security Description O Cash Collateral Currency O Haircut / Initial Margin O Termination/Extension features O Allocation and Settlement Details Fund ID O Buyer Settlement Details 4 - Beneficiary / Custodian account number O Seller Settlement Details 4 - Beneficiary / Custodian Account number O CATEGORY NAME OF MATCHING FIELD MANDATORY OR OPTIONAL Transaction Details Transaction Type M Direction M Vs Payment Indicator M Open / Term M Economic Details Trade Date M Start Date M End Date M Nominal M Security ID Type M Security ID M Contractual Currency M Open Price M Close Price M Rate Type M Pricing Rate M Rate Index / Spread M Day Code M Net Onside Amount M Net Off-side Amount M Allocation and Settlement Details Place of Settlement M Counterparty Name M Legal Entity ID M Buyer Settlement Details 1 - Local Agent BIC Code M Buyer Settlement Details 2 - Local Agent Account Number M Buyer Settlement Details 3 - Beneficiary / Custodian BIC Code M Seller Settlement Details 1 - Local Agent BIC Code M Seller Settlement Details 2 - Local Agent Account Number M Seller Settlement Details 3 - Beneficiary / Custodian BIC Code M

Panel discussion: The future challenges in Post trade processing for Repo – “Can we join the dots?”

Moderator:

• Nicholas Hamilton, JP Morgan

Panellists:

• Godfried De Vidts, Chairman, ERC
• Sanjiv Ingle, Societe Generale
• Richard Comotto, ICMA Centre
• Alex Dockx, JP Morgan

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Summary of the discussions and next steps

• Nicholas Hamilton, JP Morgan and Chairman of the ERC Operations Group

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London

Closing remarks

• Nicholas Hamilton, JP Morgan and Chairman of the ERC Operations Group

ICMA ERC Operations seminar: The future challenges in post-trade processing for repo 8 April 2015, London