ICMA ICM ICMA ERCC CC Opera ratio ions Se Semin inar r 2016: - - PowerPoint PPT Presentation

ICMA

International Capital Market Association

ICM ICMA ERCC CC Opera ratio ions Se Semin inar r 2016: : Future challenges in the management of securities financing transactions – discovery & delivery

10 10 Febr February 2016 2016

Welcome by the Chairman of the ERCC

Godfried De Vidts, Director of European Affairs, ICAP

ICMA ERCC Operations Seminar 2016

10 February 2016

Results from the latest European Repo Market Survey (published in Feb 2016)

Richard Comotto, Senior Visiting Fellow, ICMA Centre

ICMA ERCC Operations Seminar 2016

10 February 2016

European Repo Council

30th European repo market survey conducted in December 2015

30th European repo market survey conducted in December 2015

Survey overview

• outstanding value of contracts at close of business
• n Wednesday, 9th December 2015
• 72 responses (+7)

Headline numbers

• December 2015

EUR 5,608 billion

• June 2015

EUR 5,612 billion

• December 2014

EUR 5,500 billion

• June 2014

EUR 5,782 billion

• December 2014

EUR 5,499 billion

• June 2013

EUR 6,076 billion

• December 2012

EUR 5,611 billion

• June 2012

EUR 5,647 billion

• December 2011

EUR 6,204 billion

• June 2011

EUR 6,124 billion

• December 2010

EUR 5,908 billion

• June 2010

EUR 6,979 billion

• December 2009

EUR 5,582 billion

30th European repo market survey conducted in December 2015

Comparable market growth

• headline number -0.8% since June 2015
• for 65 respondents participating in last 3 surveys
• -1.4% since June 2015
• +3.1% year-on-year

30th European repo market survey conducted in December 2015

ICMA survey v FRBNY primary dealer reports

30th European repo market survey conducted in December 2015

USD 3,996bn

Jun-08

Lehman

Dec-09

LTRO

trading analysis

Lehman LTRO

30th European repo market survey conducted in December 2015

trading analysis

30th European repo market survey conducted in December 2015

geographical analysis

Lehman LTRO

30th European repo market survey conducted in December 2015

Lehman LTRO

30th European repo market survey conducted in December 2015

collateral analysis --- core eurozone

Lehman LTRO

30th European repo market survey conducted in December 2015

collateral analysis --- peripheral eurozone

collateral analysis

Lehman LTRO

30th European repo market survey conducted in December 2015

maturity analysis

short dates = 56.7% (60.2%)

30th European repo market survey conducted in December 2015

maturity analysis

30th European repo market survey conducted in December 2015

maturity analysis

Lehman LTRO

30th European repo market survey conducted in December 2015

product analysis

repo 86.3% lending 13.7%

30th European repo market survey conducted in December 2015

next survey Wednesday, 8th June 2016

30th European repo market survey conducted in December 2015

Update from the ERCC Operations Group: Working towards “joining the dots”

Nicholas Hamilton, Executive Director, J.P. Morgan Chair of the ERCC Operations Group

ICMA ERCC Operations Seminar 2016

10 February 2016

Agenda

ICMA ERCC Operations Seminar 2016

10 February 2016

09.45 Welcome by the Chairman of the ERCC Godfried De Vidts, Director of European Affairs, ICAP 09.50 Results from the latest European Repo Market Survey (published in Feb 2016) Richard Comotto, ICMA Centre 10.00 Update from the ERCC Operations Group: Working towards “joining the dots” Nicholas Hamilton, Executive Director, J.P. Morgan (Chair of the ERCC Operations Group) 10.30 Regulatory update: Upcoming requirements in relation to SFTs David Hiscock, Senior Director, ICMA 10.45 Ongoing work on data requirements & reporting fields Jonathan Lee, EMEA FI Regulatory Reporting Manager, J.P. Morgan (Chair of the SFT Reporting Working Group) 11.00 Panel discussion: Continued evolution in securities financing markets – What’s next? Moderator: Adam Bate, Executive Director, Morgan Stanley (Co-Chair of the ERCC Operations Group) Gregg Bromberg, Managing Director, BRM, Morgan Stanley Godfried De Vidts, Director of European Affairs, ICAP Andrew Dyson, Chief Operating Officer, ISLA Olivier Grimonpont, Global Head of Collateral Management and Securities Lending, Euroclear SA/NV Sanjiv Ingle, Managing Director, Societe Generale Jean-Robert Wilkin, Executive Director, Head of Product Management, Clearstream Banking SA 11.45 Summary of the discussions and next steps Nicholas Hamilton, Executive Director, J.P. Morgan (Chair of the ERCC Operations Group) 12.00 Event Close

ICMA ERCC Operations Seminar 2016

10 February 2016

Did we join the dots?

ICMA ERCC Operations Seminar 2016

10 February 2016

The ICMA TMA template and a supplementary Glossary of Terms were published on 8 December 2015 and can be downloaded from the ICMA website!

(1) Identification and reporting of SFTs: Pre-ISD

Pre-Trade Trade execution & matching Clearing

Purchase leg Lifetime

• f trade

Repurcha se leg

Settlement Buyer Seller

Documentation (e.g. GMRA)

Custodia n B Custodia n S Trade reporting TR CSD

3 3 4 4 4 4 5 5 5 5

 OTC  No CCP

6 6 6 6 Broker

Matching system

2 1 1 2

# Process Relevant requirements and reference

GMRA documentation in place

• GMRA (to be modified to account for buy-ins) [section 1*]
• ICMA Secondary Markets R&R (to be modified to account for buy-ins)
• ERC Repo Best Practice Guide (incl. TMA template) [section 1]
• Collateral re-use risk disclosure to be established (SFTR) [section 2.1]

1

Trade execution

N/A

2

Confirmation & affirmation process

• Trade confirmation rules (CSDR) [2.4]
• Needs to capture all information required for reporting purposes (see 3)
• Needs to cover at least all fields required in the settlement instruction (see 4)
• Based on ERC TMA template

3

Trade reporting

• Reporting under EU SFTR [2.1]
• ECB MMSR [2.2]
• BoE sterling money market reporting [2.3]
• FSB work on SFT data [2.5]
• MiFIR transaction reporting (tbc) [3.2]
• See the Data Items Overview table for more details on the required fields
• Tight reporting timeline may require reporting prior to trade affirmation/confirmation

& subsequent procedures to identify and report adjustments

• Treatment of confidential data items (e.g. haircuts)

4

Settlement instruction

• Mandatory matching fields (CSDR) [2.4]
• Needs to allow CSD to correctly determine SFT exemption under CSDR [2.4]
• Needs to fulfil CSD (fails) reporting requirements under CSDR [2.4]

5

Matching & settlement status

• CSD to provide participants real-time access to settlement/matching status and daily

information on penalty calculations [2.4]

6

Lifecycle management

• Tracking of re-use under SFTR [2.1]

Regulatory impact

 OTC  No CCP

* All references are to the ERCC Ops SFT regulatory overview paper, which is available here.

(2) CSDR settlement discipline and SFTs: Post-ISD

Pre-Trade Trade execution & processing Clearing

Purchase leg Lifetime

• f trade

Repurcha se leg

Settlement

Buyer Seller Trading venue/ OTC Custodian B Custodian S

Trade reporting

CSD

1

 No CCP  Fail (delivery) Post ISD Buy-in agent

2a 1 1 1 3a 4 3b 3b 6 6 6 7 7 7 7 6 2b 4

# Process Relevant requirements and reference

Contractual arrangements for buy-ins

• CSDR requires all parties in the chain to have appropriate contractual arrangements in

place ensuring that the buy-in obligation is enforceable (including with non-EU counterparties) [art. 25, draft RTS]

1

Information on fails and penalty calculation

• CSD to provide real-time access to status of instructions and fails, as well as daily

information on the calculation of penalties for each failed transaction [art.17, draft RTS]

2

Initiate buy-in process

• As soon as the extension period is over, receiving trading party to appoint the buy-in

agent (2a) and send buy-in notification to the failing party (and CSD) (2b) [buy-in process specified in art.30-31, draft RTS]

• A correct application of the SFT exemption requires the identification of repos at

instruction level (“transaction type field”) as well as terms (maturity etc)

3

Buy-in execution and notification

• Buy-in agent to execute (3a)
• Receiving trading party to notify failing trading party of the result (3b)

4

Payment of cash compensation or buy-in price difference

• If buy-in is successful: Failing trading party pays difference between buy-in price and
• riginal transaction price and buy-in costs to the receiving counterparty
• Custodian of failing trading party liable for the price difference in case the trading party

does not pay

• If buy-in is not successful: Failing trading party pays cash compensation to receiving

party

• Both payments are asymmetric (ie payment is 0 if the price difference is in favour of the

failing party) [art.32-35, draft RTS]

6

Cancel settlement instruction (and reinstruct)

• Buy-in successful: Instructions to be cancelled and new instruction to be sent
• Buy-in not successful: Settlement instructions to be cancelled

7

Charge/ credit penalties (monthly billing)

• CSD to charge/ credit participants cash penalties on a monthly (net) basis (based on

gross calculation) [art.16-17, draft RTS]

Regulatory impact

 No CCP  Fail (delivery)

ICMA ERCC Operations Seminar 2016

10 February 2016

Securities Industry Standards Roadmap – FIX, ISO/SWIFT, FpML

Function Cash Equities & Fixed Income FX Listed Derivatives OTC Derivatives Funds Pre-Trade Trade Post-Trade Clearing / Pre- settlement Asset Servicing N/A Settlement Pricing/Risk/Reporting Trade Association ICMA/ISLA/AFME GFMA FIA ISDA IA/AIMA

FIX ISO FpML FIX, ISO ISO

ICMA ERCC Operations Seminar 2016

10 February 2016

ICMA ERCC Operations Seminar 2016

10 February 2016

Regulatory update: Upcoming requirements in relation to SFTs

David Hiscock, Senior Director, ICMA

ICMA ERCC Operations Seminar 2016

10 February 2016

Regulatory alphabet soup…..

ICMA ERCC Operations Seminar 2016

10 February 2016

DGSD CRAR I/II/III / CRAD MiFIR / MiFID II MAD / MAR MMFR S II BSRR ESFS – ESRB / ESAs ICSD FCD SSR MCD CRD III EVCF AIFMD FROD QE ESEF SAR / SAD PRIIPS IORP Omnibus II NFRD AMLD / AMLR VLTRO UCITS V SSM FBR EMIR LTRO ELTIF CRR / CRD IV:

LCR/NSFR/ Leverage

TLTRO BRRD CSDR TD SFTR SMR OMT IMD

EU SFT Regulation (SFTR): Timeline

SFTR proposed by Commission 29.01.2014 SFTR entry into force 12 12.01.2016 Reuse requirements apply 13 13.07.16 UCITS & AIFs begin periodic reporting 13 13.01.17 Transparency in pre-contractual documents for UCITS & AIFs 13 13.07.17 Up p to to one ne ye year ar for ESMA to develop proposed technical standards for reporting Published standards April ‘17 (est) Banks & investment firms April ‘18 18 (est) UCITS, AIFs & pension funds October ‘18 18 (est) Required repor

• rti

ting of SFTs to to trad ade repos

• sit

itories CCPs & CSDs July uly ‘18 18 (est) Non-financial counterparties Jan anuary y ‘19 19 (est) ICMA ERCC Operations Seminar 2016

10 February 2016

SFTR Article 15 Risk Disclosure SFTR Article 15 includes a requirement to inform a collateral provider of “the risks and

consequences” of granting consent to a right of use or entering into a title transfer collateral arrangement

 ICMA, ISLA, AFME and ISDA are working on a generic information statement to assist members

in satisfying this disclosure requirement

 Publication expected shortly

Reuse requirements apply from 13 July 2016 For further information, contact legalhelpdesk@icmagroup.org

ICMA ERCC Operations Seminar 2016

10 February 2016

Revised Markets in Financial Instruments Directive (MiFID) & new Regulation (MiFIR) MiFID was focussed on equities markets, but is now being extended to fully cover non-equities

This new EU legislation was agreed in 2014, but work to finalise required implementation standards is ongoing – whilst there still needs to be more detailed work to fully clarify details, ICMA understands that ESMA proposes that:

 For SFTs both pre- and post-trade transparency requirements will apply to on venue (RM, MTF, OTF) trading of

SFTs; but to avoid confusion in post-trade reporting from trading venues, SFT trades will be flagged as “non- price forming trades”

 For SFTs traded OTC there is no pre-trade requirement and post-trade transparency will not be applied  Repo activity will not count in determining if a firm is a systematic internaliser (SI) in a security  Where they are fulfilling client orders investment firms must publish annual information on the identity of

execution venues and on the quality of execution – with SFTs required to be separately reported from client

• rder flow in non-SFTs

MiFIR also requires transaction reporting: ESMA proposes that this be dis-applied in the case of SFTs, where these are (or will be) reportable to a TR under the SFTR:

 But this leaves an issue with SFTs specifically exempted from SFTR TR reporting

ICMA ERCC Operations Seminar 2016

10 February 2016

EU CSD Regulation (CSDR): Mandatory Buy-ins 1 Feb 2016: Draft RTS for buy-ins published – implying that in May 2016 (est) the final RTS is

expected to be passed into EU law; and hence that in May 2018 (est) mandatory buy-ins, and cash penalties, are expected to be implemented Level 2 RTS are required to be “consistent with” the Level 1

 Level 1 Regulation highly unlikely to be changed at this time, but review of CSDR - due 2019 - opens the

possibility for future Level 1 changes

 But, ESMA has tried to find flexibility to ease operability concerns re mandatory buy-ins  Nonetheless, some problems inevitably still persist  Proposal is essentially a trading level buy-in, but still some risks to settlement agents/custodians  SFTs for < 30 business days are exempt (start & end legs), limiting the scope of impacted SFTs  Payment of the buy-in or cash compensation is asymmetric – & hence unfairly penalising to sellers  Volume of buy-ins is likely to prove unmanageable, leading to fall-back to cash compensation  And most fundamentally, buy-in is mandatory (rather than if invoked by the failed against party)

European Commission, in conjunction with the Parliament & the Council, must now decide whether to accept ESMA’s draft RTS and finalise text ready for adoption into EU law

ICMA ERCC Operations Seminar 2016

10 February 2016

EU CSD Regulation (CSDR): Selected Other Provisions Late settlement penalties

 To be applied by (I)CSD based on standard daily reference price for each instrument – e.g. corporate bonds

0.2bp daily (0.50% p.a.) / Government bonds 0.1bp daily (0.25% p.a.)

 Paid by the failing counterparty, and received by the failed-to counterparty (intermediaries in chain both

penalized and compensated)

Trade confirmations

 Investment firms to require professional clients to send allocation and written trade confirmation on trade

date, and

 Offer possibility to confirm electronically using “international open communication procedures and standards”

Mandatory matching fields

 CSDR introduces a list of harmonised matching fields, including “transaction type” which would allow for the

identification of repos

ICMA ERCC Operations Seminar 2016

10 February 2016

EU Bank Recovery and Resolution Directive (BRRD): Bank Resolution Stays SFT Annex to the ISDA Stay Protocol published 12 November 2015

 Signed at launch by 21 banking groups categorized as systemically important  Retroactive and universal in application  Announcement by the FSB at the November G-20 Meeting

Regulations requiring wider recognition to be proposed/implemented 2015-16 (PRA consultation published in May 2015):

 Other banks  Buy side

For further information, contact legalhelpdesk@icmagroup.org

ICMA ERCC Operations Seminar 2016

10 February 2016

Thank you, Ladies and Gentlemen

• Contacts and information:

 David Hiscock: Senior Director – Market Practice and Regulatory Policy

– David.Hiscock@icmagroup.org – Tel: +44 (0)20 7213 0321 (Direct Line) / +44 (0)7827 891909 (Mobile) – ICMA Ltd, 23 College Hill, London EC4R 2RP www.icmagroup.org

 ICMA ERCC Ops overview of regulatory initiatives on the identification and reporting of SFTs; and other

related ICMA ERCC materials

 ICMA quarterly report provides detailed updates on these matters and ICMA’s broader work

• For further information, contact regulatoryhelpdesk@icmagroup.org

ICMA ERCC Operations Seminar 2016

10 February 2016

Ongoing work on data requirements & reporting fields

Jonathan Lee, EMEA FI Regulatory Reporting Manager, J.P. Morgan Chair of the SFT Reporting Working Group

ICMA ERCC Operations Seminar 2016

10 February 2016

BOE & SFTR Reporting

 23rd December 2015 - SFTR published in the official journal of the European Union  8th January 2016 - Bank of England Annual Survey 1st submission due  12th January 2016 - SFTR Articles 4(4), 14 and 24(3) into force  February 2016 - Bank of England Money Market – Tactical Go-live for “Early Submitters” Daily

Reporting

 April 2016 - ECB Money Market Statistical Reporting Go-live for Top 50 EUR Repo participants  July 2016 - Bank of England Money Market reporting Go-live – Daily Reporting on T+1  13th July 2016 - SFTR Articles 15 (Reuse requirements)  December 2016 - SFTR Level 2 Regulatory Technical Standards (RTS) Published  Q1 2018 - SFTR Reporting Obligation Go-live

ICMA ERCC Operations Seminar 2016

10 February 2016

Intro – Securities Financing Initiatives

 At least 5 different Securities Financing Reporting Regimes in the process of going live in Europe  Financial Stability Board – Global Securities Financing Data Collection & Aggregation  European System of Central Banks – Secured Financing Transaction Data Store Project  EU Securities Financing Transaction Regulation  ECB Money Market Statistical Reporting  Bank of England – Sterling Money Market Data Collection

ICMA ERCC Operations Seminar 2016

10 February 2016

Bank of England – Sterling Money Market Data Collection

Daily, trade date reporting, delivered by 7am on T+1

Secured Activity:

 UK Government Debt Repos / Reverse Repo & Equivalent (>= £1 million)  Basket Transactions secured against Unstripped Gilts, sterling Treasury bills, sterling BOE bills (e.g. Crest

DBV)

 Triparty Repo in which sterling is borrowed or lent against any fixed income securities

Unsecured Activity:

 Cash deposit transactions (>=£1 million) with an original maturity <= one year – Borrowing Only  27 Reportable Fields  (3 optional – UTI, Counterparty Proprietary Transaction ID, Special collateral indicator)

ICMA ERCC Operations Seminar 2016

10 February 2016

Bank of England – Sterling Money Market Data Collection Continued

Fields

 Triparty agent ID  Trade date, Settlement date, Maturity date  Transaction type (Repo/Reverse)  Nominal  Rate type, Deal rate (Fixed), Reference Rate Index, Basis Point Spread  Brokered deal  Collateral ISIN, Collateral Pool Status, Collateral Type (if no ISIN), Collateral Issuer Sector (if no individual

ISINs), Collateral Nominal Amount

 Collateral Haircut.  Principal Amount, Currency

ICMA ERCC Operations Seminar 2016

10 February 2016

BoE Sterling Money Market Data Collection – Challenges & Opportunities

 Short Dated – manually intensive “tactical” reporting for many “Early adopters”  Effective pilot for other securities financing reporting  Phased delivery, optional fields  Aspects of the reporting remain a work in progress (ISIN codes for reference rate indices for example)

ICMA ERCC Operations Seminar 2016

10 February 2016

EU SFT Regulation

Scope: EU SFT counterparties, EU branches (irrespective of location), 3rd country branches operating in the EU, collective investment management companies, alternative investment fund managers, other counterparties engaging in re-use – established in the EU or with EU branches. ESCB & BIS are excluded.

 Daily T+1 Trade Level reporting to a Trade Repository (New, Amend, Cancel)  Historic transactions to be reported at go-live with term 180 days + / open and outstanding 180 days after

date of application

 Securities / Commodities Lending/Borrowing  Buy-Sell back / Sell-Buy back  Repurchase (Repo) / Reverse Repurchase  Margin Lending

ICMA ERCC Operations Seminar 2016

10 February 2016

EU SFT Regulation Continued

Fields

 Principal Amount, Currency  Collateral Asset, Collateral Type, Collateral Quality, Collateral Value  Trade Type  Availability for Re-use, Whether it has been Re-used  Substitution of the Collateral  Repo Rate, Lending Fee/Margin Lending Rate  Haircut  Value Date, Maturity Date, 1st Callable Date  Market Segment

ICMA ERCC Operations Seminar 2016

10 February 2016

SFTR Level 2 – RTS – Challenges & Desirable Outcomes

 Trade Level Reporting – All Attributes at the Trade Level  Little Consideration for Non-Trade Level Activities  In particular, Security Lending (Agent Lending Arrangements), Margin Lending (Prime Brokerage)  Also difficulties with Repo Margining and Netted Transactions  Question marks over bond vs. bond transactions, collateral swaps, liquidity swaps  Iterative reporting to reflect EU Trade Date Reporting vs FSB and internal requirements to capture actual

collateral assigned to a trade. This would require every non-sameday Triparty & basket type trade to be amended

ICMA ERCC Operations Seminar 2016

10 February 2016

SFT Reporting Standards – Driving the Industry Agenda

Joining the Dots – Driving Market Development

 Booking Standards  Identification of Reference Index Rates with ISINs  Identification of basket transactions by collateral specification  Electronic Affirmation (UTIs)  SWIFT ISO 20022 Messaging Developed for SFTs

ICMA ERCC Operations Seminar 2016

10 February 2016

Panel discussion: Continued evolution in securities financing markets – What’s next?

Moderator: Adam Bate, Morgan Stanley, Co-Chair ERCC Operations Panellists: Gregg Bromberg, Managing Director, BRM, Morgan Stanley Godfried De Vidts, Director of European Affairs, ICAP Andrew Dyson, Chief Operating Officer, ISLA Olivier Grimonpont, Global Head of Collateral Management and Securities Lending, Euroclear Sanjiv Ingle, Managing Director, Societe Generale Jean-Robert Wilkin, Executive Director, Head of Product Management, Clearstream Banking

ICMA ERCC Operations Seminar 2016

10 February 2016

Summary of the discussions and next steps

Nicholas Hamilton, JP Morgan, Chairman of the ERCC Operations Group

ICMA ERCC Operations Seminar 2016

10 February 2016

Concluding remarks & Next steps

2016

 Trade Matching Affirmation – socialise requirements and encourage usage especially in OTC non CCP flows  Best practice – publish market practices and support consistent usage and develop current practices as

markets processes mature.

 Education – extend and align existing repo and collateral courses to focus on business drivers and new

business processes for efficient collateral management

 Product definition and development - work with ISLA/ISDA to establish common definitions of collateral

products and identify standards or key attributes for E2E to transmission

ICMA ERCC Operations Seminar 2016

10 February 2016

Links:

ICMA ERCC Operations Seminar 2016

10 February 2016

• ICMA ERCC Operations Group webpage
• SFT identification and reporting: Regulatory overview paper and Impact assessment slides
• ICMA ERC Guide to best practice in the European Repo Market
• ICMA ERCC Operations Group TMA template of repo matching fields and Glossary of Terms

Contact:

Alexander Westphal – Secretary ERCC Operations Group

• Email: alexander.westphal@icmagroup.org
• Tel: +44 (0)20 7213 0333 (Direct Line) / +44 (0)7469 159961 (Mobile)