ESMA firms up guidelines for SFT position calculation by trade repositories
26 May 2021 France
Image: stock.adobe.com/Nomad_Soul
The European Securities and Markets Authority (ESMA) has released its final report and guidelines to trade repositories for calculating positions in securities financing transactions (SFTs) under the Securities Financing Transactions Regulation (SFTR).
These guidelines are intended to promote a consistent approach to position calculation across trade repositories, focusing particularly on the scope of data used in position calculations, the timing of calculations, data preparation, record keeping and calculation methodologies.
ESMA's goal is also to ensure that a uniform methodology for position calculation is applied under the European Market Infrastructure Regulation (EMIR) and STFR, while meeting the specific demands of SFT reporting.
The benefits of the guidelines will be wide-reaching, ESMA says, in strengthening the ability of EU authorities to monitor systemic risk across EU markets. Financial supervisors will have access to SFT position data from trade repositories which can be used to support their daily monitoring and to inform their strategy in crisis situations.
The guidelines build on existing requirements for trade repositories, including use of ISO 20022 XML file format, secure file transfer protocol (SFTP) for file transmission, and specifying consistency in data cut off times and use of European Central Bank currency conversion rates.
Given that the setting up of the calculation process at the trade repository is typically the most costly part of the project, ESMA also concluded that trade repositories would experience little benefit, in cost terms, through using weekly, rather than daily, position calculations.
The report integrates feedback provided to public consultation which ran from 9 July to 15 September 2020. The consultation attracted responses from four trade repositories.
As part of this review process, ESMA assessed the impact of using a weekly, rather than a daily, regime for position calculation. It concluded that, in crisis situations, “having position data that could be up to a week old would not be desirable and would diminish the relevance of the position data”.
Two trade repositories asked in their responses for the application date of the guidelines to be delayed. In response to these requests, ESMA has postponed the application date to 31 January 2022.
These guidelines are intended to promote a consistent approach to position calculation across trade repositories, focusing particularly on the scope of data used in position calculations, the timing of calculations, data preparation, record keeping and calculation methodologies.
ESMA's goal is also to ensure that a uniform methodology for position calculation is applied under the European Market Infrastructure Regulation (EMIR) and STFR, while meeting the specific demands of SFT reporting.
The benefits of the guidelines will be wide-reaching, ESMA says, in strengthening the ability of EU authorities to monitor systemic risk across EU markets. Financial supervisors will have access to SFT position data from trade repositories which can be used to support their daily monitoring and to inform their strategy in crisis situations.
The guidelines build on existing requirements for trade repositories, including use of ISO 20022 XML file format, secure file transfer protocol (SFTP) for file transmission, and specifying consistency in data cut off times and use of European Central Bank currency conversion rates.
Given that the setting up of the calculation process at the trade repository is typically the most costly part of the project, ESMA also concluded that trade repositories would experience little benefit, in cost terms, through using weekly, rather than daily, position calculations.
The report integrates feedback provided to public consultation which ran from 9 July to 15 September 2020. The consultation attracted responses from four trade repositories.
As part of this review process, ESMA assessed the impact of using a weekly, rather than a daily, regime for position calculation. It concluded that, in crisis situations, “having position data that could be up to a week old would not be desirable and would diminish the relevance of the position data”.
Two trade repositories asked in their responses for the application date of the guidelines to be delayed. In response to these requests, ESMA has postponed the application date to 31 January 2022.
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