Deadlines loom
03 July 2020
Iain Mackay of EquiLend and Sunil Daswani of MarketAxess explain how buy-side firms will benefit from their SFTR connectivity ahead of the reporting deadline in October 2020
Image: lassedesignen/shutterstock.com
With the first phase of the Securities Financing Transactions Regulation (SFTR) go-live imminent for securities finance market participants, certain questions continue to be asked, and some firms are behind on their preparation. The aim of achieving full transparency for regulators within the EU has driven a significant data requirement for impacted market participants. The requirements demand an avalanche of data to be collated across multiple systems and may even include data which is not yet digitised.
As we have seen so far, stand-alone solutions may offer a short-term resolution but may be more costly in the long term. A staggered start to reporting and a further delay to enforcement has done little to further ensure data quality, with time pressures for those managing the data on a daily basis further impacting on the underutilisation of interoperable systems sector-wide.
To address these market concerns, EquiLend and MarketAxess have partnered to offer an end-to-end SFTR solution which brings together the highest-quality trading and post-trade data, along with filtering, validation, enrichment and reporting in ISO 20022 format, resulting in a simple yet comprehensive solution for firms of all types and sizes. As the financial and credit institutions are set to begin reporting via the EquiLend and MarketAxess SFTR Solution in July, the industry focus now turns to the remainder of the financial institutions, generally referred to as the “buy side”, who are next up to begin reporting.
The announcement in June that the UK treasury will no longer require UK non-financial counterparties (NFCs) to report under SFTR will have an unknown impact on certain firms, although the regulation itself will continue to have a considerable impact across the wider global market.
New regulation
SFTR comes at a time when regulation fatigue has set in for many financial market players. The first two versions of the Markets in Financial Instruments Directive (MiFID I & II), the European Market Infrastructure Regulation (EMIR) and the Central Securities Depositories Regulation and ongoing updates to ESMA’s guidelines—although well-intended in their efforts to bring transparency—have consumed budget, energy and goodwill.
Questions such as “what if I’m not ready?”, “Will fines be implemented from day one?” and “Do I need to provide all 155 fields?” are continuously raised, just weeks out from the commencement of reporting.
SFTR will impact banks, broker-dealers, exchanges and central counterparties from July with buy-side firms including asset managers and hedge funds reporting from October. While it may limit the instant impact for some, this is a complex industry, and each market participant books trades, manages collateral, holds records and identifies trades differently. Early on, firms had to decide whether to buy, build or enhance what they had in order to deliver on such complex reporting requirements on a daily basis.
It is estimated by industry sources, that the European Securities and Markets Authority will receive over 150 million reportable transactions per day via approved trade repositories (TR) across the industry. Automation is widely appreciated as the only way to deliver on the true essence of SFTR: accurate, complete and timely reporting. Such automation can best be deployed seamlessly, where tried and tested links, processes and relationships are already in place with potential users.
Many individual market providers have offered up solutions to deliver SFTR compliance, and with each solution comes the additional consideration of how well the solution integrates with a firm’s systems now and in the future. The option of partnership solutions from third-party providers such as EquiLend and MarketAxess offer an alternative for firms of all types and size on both the buy side and sell side to ensure compliance regardless of the complexity of their business.
Building blocks
As fintech businesses facilitating access to liquidity across the globe, together EquiLend and MarketAxess have been able to draw on and enhance their existing technology platforms and expertise on the securities finance and repo markets to deliver an all-inclusive SFTR reporting solution.
On the EquiLend and MarketAxess SFTR Solution, EquiLend’s trading and both firms’ post-trade platforms link seamlessly into the MarketAxess system, supplying required trading and lifecycle event information. Then, MarketAxess enriches the data with further required fields and offers full reporting services directly to multiple trade repositories (TRs). The partner solution supports both principal-to-principal and principal-to-agency traders of all sizes in meeting their obligations, thus ensuring that user firms experience a seamless transition to the new reporting regime driven by straight-through automation.
EquiLend
EquiLend’s premium SFTR solution combines the resources of NGT, the securities finance industry’s most active trading platform, and Unified Comparison, the nucleus of EquiLend’s Post-Trade Suite (PTS), which covers all trade lifecycle events. With EquiLend’s proprietary trading and post-trade technology at the core of the SFTR solution, full SFTR support is ensured for clients including unique transaction identifier (UTI) generation and execution time stamps, in addition to full lifecycle management, including loan and collateral allocation data.
With UTIs and execution timestamps generated right at the point of trade on NGT and accompanying data points consistently applied for both counterparties throughout the lifecycle of the transaction on PTS, the result is a clean data set that serves as the base of an SFTR report.
Using this service, EquiLend pre-matches client data, which ensures greater accuracy in a client’s reporting. Data is compared ahead of submission to the respective TR, securing an optimal match rate for TR reconciliation and a more efficient settlement process.
Some firms may want to handle more of the required data collation themselves. As a result, EquiLend also offers a lighter-touch solution which includes NGT trading data only, including UTIs and a range of optional other fields as desired by a client.
MarketAxess
Seamless connectivity between EquiLend and MarketAxess, built and tested over the past three years, means these files automatically flow in near real time from EquiLend to the MarketAxess Insight reporting hub. From there, the data is validated for accuracy and any syntax errors are picked up early. MarketAxess continues to enrich data primarily on static table information already provided or for counterparty and security-level information as part of the validation and enrichment process. Transactions are then filtered out if they are not eligible for SFTR—for example, if the counterparty is a central bank, the transaction is reportable under MiFIR.
In the MarketAxess UTI Portal, ‘pairing’ takes place optionally and UTIs are generated and shared, along with key data, with clients’ counterparties who may have developed SFTR solutions outside of the EquiLend and MarketAxess ecosystem. This is generally applicable to transactions which have neither been traded on-venue nor are pre-matched. Accepted transactions are sent to the TR, and where transactions are two sided—that is, if both counterparties are in scope for reporting under SFTR—the transaction status will be flagged as matched or unmatched. Clients can further view and optionally manage exceptions in MarketAxess Insight. Where eligible, clients may also benefit from consolidating their regulatory reporting on MarketAxess Insight, adding SFTR to EMIR, ARM, APA and RTS28.
Within MarketAxess Insight, clients can also override transactions or do so in their source systems where incorrect data may be creating an unmatched trade, bringing the transaction to a matched status. Unmatched transactions, termed exceptions within SFTR, should be resolved by either counterparty by the SFTR reporting deadline, which is T+1 at close of business. MarketAxess Insight also provides detailed decision trees to manage exceptions and key management information reports to understand how to improve reporting.
Bringing together the best of trading, matching, reporting and UTI sharing systems creates a full front-to-back and seamless solution from EquiLend and MarketAxess, two leading platform providers each leveraging their respective industry expertise.
The bigger picture
The costs of SFTR are considerable, in both manpower and resources. The industry has called out many of the challenges that will come with meeting the regulatory obligations by firms that are in scope, particularly for the buy side. Confusion and data inconsistencies are anticipated in the early days of SFTR, and, particularly for firms that have opted for an imperfect post-trade-only solution, such issues will likely extend well beyond the first days. Additionally, the broad scope of SFTR threatens to highlight industry inefficiencies over creating an accurate view of the market for regulators.
On the eve of SFTR, recent market turbulence has once again highlighted the benefits of drawing on a cross-business and interconnected view. Influenced by the cathedral thinking of SFTR that is motivated toward long-term industry advancement, the sector could see greater efficiencies at scale where there is an appreciation that the decision-makers of the moment may not be the immediate beneficiaries of the change.
The EquiLend and MarketAxess partnership leverages expertise and technical capacity from both providers. The result is a single, tried-and-tested industry solution that both serves clients and serves to highlight the advancements needed to streamline industry processes, deliver greater efficiencies in execution and satisfy regulators’ reporting obligations.
As we have seen so far, stand-alone solutions may offer a short-term resolution but may be more costly in the long term. A staggered start to reporting and a further delay to enforcement has done little to further ensure data quality, with time pressures for those managing the data on a daily basis further impacting on the underutilisation of interoperable systems sector-wide.
To address these market concerns, EquiLend and MarketAxess have partnered to offer an end-to-end SFTR solution which brings together the highest-quality trading and post-trade data, along with filtering, validation, enrichment and reporting in ISO 20022 format, resulting in a simple yet comprehensive solution for firms of all types and sizes. As the financial and credit institutions are set to begin reporting via the EquiLend and MarketAxess SFTR Solution in July, the industry focus now turns to the remainder of the financial institutions, generally referred to as the “buy side”, who are next up to begin reporting.
The announcement in June that the UK treasury will no longer require UK non-financial counterparties (NFCs) to report under SFTR will have an unknown impact on certain firms, although the regulation itself will continue to have a considerable impact across the wider global market.
New regulation
SFTR comes at a time when regulation fatigue has set in for many financial market players. The first two versions of the Markets in Financial Instruments Directive (MiFID I & II), the European Market Infrastructure Regulation (EMIR) and the Central Securities Depositories Regulation and ongoing updates to ESMA’s guidelines—although well-intended in their efforts to bring transparency—have consumed budget, energy and goodwill.
Questions such as “what if I’m not ready?”, “Will fines be implemented from day one?” and “Do I need to provide all 155 fields?” are continuously raised, just weeks out from the commencement of reporting.
SFTR will impact banks, broker-dealers, exchanges and central counterparties from July with buy-side firms including asset managers and hedge funds reporting from October. While it may limit the instant impact for some, this is a complex industry, and each market participant books trades, manages collateral, holds records and identifies trades differently. Early on, firms had to decide whether to buy, build or enhance what they had in order to deliver on such complex reporting requirements on a daily basis.
It is estimated by industry sources, that the European Securities and Markets Authority will receive over 150 million reportable transactions per day via approved trade repositories (TR) across the industry. Automation is widely appreciated as the only way to deliver on the true essence of SFTR: accurate, complete and timely reporting. Such automation can best be deployed seamlessly, where tried and tested links, processes and relationships are already in place with potential users.
Many individual market providers have offered up solutions to deliver SFTR compliance, and with each solution comes the additional consideration of how well the solution integrates with a firm’s systems now and in the future. The option of partnership solutions from third-party providers such as EquiLend and MarketAxess offer an alternative for firms of all types and size on both the buy side and sell side to ensure compliance regardless of the complexity of their business.
Building blocks
As fintech businesses facilitating access to liquidity across the globe, together EquiLend and MarketAxess have been able to draw on and enhance their existing technology platforms and expertise on the securities finance and repo markets to deliver an all-inclusive SFTR reporting solution.
On the EquiLend and MarketAxess SFTR Solution, EquiLend’s trading and both firms’ post-trade platforms link seamlessly into the MarketAxess system, supplying required trading and lifecycle event information. Then, MarketAxess enriches the data with further required fields and offers full reporting services directly to multiple trade repositories (TRs). The partner solution supports both principal-to-principal and principal-to-agency traders of all sizes in meeting their obligations, thus ensuring that user firms experience a seamless transition to the new reporting regime driven by straight-through automation.
EquiLend
EquiLend’s premium SFTR solution combines the resources of NGT, the securities finance industry’s most active trading platform, and Unified Comparison, the nucleus of EquiLend’s Post-Trade Suite (PTS), which covers all trade lifecycle events. With EquiLend’s proprietary trading and post-trade technology at the core of the SFTR solution, full SFTR support is ensured for clients including unique transaction identifier (UTI) generation and execution time stamps, in addition to full lifecycle management, including loan and collateral allocation data.
With UTIs and execution timestamps generated right at the point of trade on NGT and accompanying data points consistently applied for both counterparties throughout the lifecycle of the transaction on PTS, the result is a clean data set that serves as the base of an SFTR report.
Using this service, EquiLend pre-matches client data, which ensures greater accuracy in a client’s reporting. Data is compared ahead of submission to the respective TR, securing an optimal match rate for TR reconciliation and a more efficient settlement process.
Some firms may want to handle more of the required data collation themselves. As a result, EquiLend also offers a lighter-touch solution which includes NGT trading data only, including UTIs and a range of optional other fields as desired by a client.
MarketAxess
Seamless connectivity between EquiLend and MarketAxess, built and tested over the past three years, means these files automatically flow in near real time from EquiLend to the MarketAxess Insight reporting hub. From there, the data is validated for accuracy and any syntax errors are picked up early. MarketAxess continues to enrich data primarily on static table information already provided or for counterparty and security-level information as part of the validation and enrichment process. Transactions are then filtered out if they are not eligible for SFTR—for example, if the counterparty is a central bank, the transaction is reportable under MiFIR.
In the MarketAxess UTI Portal, ‘pairing’ takes place optionally and UTIs are generated and shared, along with key data, with clients’ counterparties who may have developed SFTR solutions outside of the EquiLend and MarketAxess ecosystem. This is generally applicable to transactions which have neither been traded on-venue nor are pre-matched. Accepted transactions are sent to the TR, and where transactions are two sided—that is, if both counterparties are in scope for reporting under SFTR—the transaction status will be flagged as matched or unmatched. Clients can further view and optionally manage exceptions in MarketAxess Insight. Where eligible, clients may also benefit from consolidating their regulatory reporting on MarketAxess Insight, adding SFTR to EMIR, ARM, APA and RTS28.
Within MarketAxess Insight, clients can also override transactions or do so in their source systems where incorrect data may be creating an unmatched trade, bringing the transaction to a matched status. Unmatched transactions, termed exceptions within SFTR, should be resolved by either counterparty by the SFTR reporting deadline, which is T+1 at close of business. MarketAxess Insight also provides detailed decision trees to manage exceptions and key management information reports to understand how to improve reporting.
Bringing together the best of trading, matching, reporting and UTI sharing systems creates a full front-to-back and seamless solution from EquiLend and MarketAxess, two leading platform providers each leveraging their respective industry expertise.
The bigger picture
The costs of SFTR are considerable, in both manpower and resources. The industry has called out many of the challenges that will come with meeting the regulatory obligations by firms that are in scope, particularly for the buy side. Confusion and data inconsistencies are anticipated in the early days of SFTR, and, particularly for firms that have opted for an imperfect post-trade-only solution, such issues will likely extend well beyond the first days. Additionally, the broad scope of SFTR threatens to highlight industry inefficiencies over creating an accurate view of the market for regulators.
On the eve of SFTR, recent market turbulence has once again highlighted the benefits of drawing on a cross-business and interconnected view. Influenced by the cathedral thinking of SFTR that is motivated toward long-term industry advancement, the sector could see greater efficiencies at scale where there is an appreciation that the decision-makers of the moment may not be the immediate beneficiaries of the change.
The EquiLend and MarketAxess partnership leverages expertise and technical capacity from both providers. The result is a single, tried-and-tested industry solution that both serves clients and serves to highlight the advancements needed to streamline industry processes, deliver greater efficiencies in execution and satisfy regulators’ reporting obligations.
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