SFTR opens door to corporate actions reform, says ISLA
23 October 2019 Miami
Image: Shutterstock
The Securities Financing Transactions Regulation (SFTR) represents an opportunity for the securities lending industry to resolve long-running challenges around the handling of corporate actions, according to Andrew Dyson, CEO of the International Securities Lending Association (ISLA).
“Corporate actions have been problematic for many years but SFTR is forcing us to finally look at this,” he told audience members during the association update panel at the Risk Management Association's conference last week.
Dyson outlined after the session that previous work undertaken by ISLA suggests that around 50 percent of
all corporate actions relate directly to securities lending activities.
“Not surprisingly, corporate actions relating to returns and additional on-loan securities figure heavily,” he explained.
“Consequently, it is vitally important that all market participants deal with specific corporate actions in a consistent way across the market.”
Dyson added that failing to do this or to set the necessary standards will mean that the market will find it difficult to reconcile and report trades under SFTR.
ISLA is embracing the opportunity that SFTR provides and has set out four steps with which to provide value for its members around corporate actions.
ISLA will start its work in this area by defining the corporate actions universe and then group corporate actions by securities financing transactions/booking model outcome, Dyson explained.
It will then look to work with its members to agree SFTR best practices for each corporate actions group.
According to Dyson, ISLA will aim to have this project completed before SFTR goes live in April 2020.
Elsewhere, Dyson noted that the level three SFTR guidance is expected to be released in Q4 and that industry participants will have to work hard to finalise their reporting solutions ahead of the go-live.
The remaining uncertainty around SFTR that will be clarified in the final guidance relates to article four, which includes reporting obligations and safeguarding for securities financing transactions.
“Corporate actions have been problematic for many years but SFTR is forcing us to finally look at this,” he told audience members during the association update panel at the Risk Management Association's conference last week.
Dyson outlined after the session that previous work undertaken by ISLA suggests that around 50 percent of
all corporate actions relate directly to securities lending activities.
“Not surprisingly, corporate actions relating to returns and additional on-loan securities figure heavily,” he explained.
“Consequently, it is vitally important that all market participants deal with specific corporate actions in a consistent way across the market.”
Dyson added that failing to do this or to set the necessary standards will mean that the market will find it difficult to reconcile and report trades under SFTR.
ISLA is embracing the opportunity that SFTR provides and has set out four steps with which to provide value for its members around corporate actions.
ISLA will start its work in this area by defining the corporate actions universe and then group corporate actions by securities financing transactions/booking model outcome, Dyson explained.
It will then look to work with its members to agree SFTR best practices for each corporate actions group.
According to Dyson, ISLA will aim to have this project completed before SFTR goes live in April 2020.
Elsewhere, Dyson noted that the level three SFTR guidance is expected to be released in Q4 and that industry participants will have to work hard to finalise their reporting solutions ahead of the go-live.
The remaining uncertainty around SFTR that will be clarified in the final guidance relates to article four, which includes reporting obligations and safeguarding for securities financing transactions.
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