22 April 2016

ICMA ERCC responds to ESMA consultation on SFTR

There will need to be clarity regarding the overall reporting process and in particular regarding what must be reported. The Level 1 text inevitably sets some specific requirements in this regard, but it will be important to evolve clear, workable and consistent definitions of required reporting elements, as well as other relevant terms applicable across all reporting entities and scenarios. In order to avoid any ambiguities, these definitions should be explicitly set out in the SFTR technical standards. Importantly, the terminology used needs to be consistent with established market practice and the applicable legal documentation, such as the GMRA. The ICMA ERC Guide to Best Practice in the European Repo Market includes agreed definitions for all relevant terms used in relation to repo transactions. We have highlighted a number of inconsistencies in terminology throughout our responses to this consultation.

A more expansive approach risks complicating the situation and delaying the point at which useful information can start to be derived from this new regime. In this spirit, wherever a given data element can be derived from other reported or static data elements, the former should be derived by the Trade Repository (TR). In order to avoid unnecessary burden for firms and ensure data quality, firms should not be required to report these elements. It is important to keep in mind that any additional element to be reported increases the risk of data inconsistencies and matching fails.

Wherever possible, data should be collected directly from the relevant financial market infrastructures including electronic trading platforms, tri-party agent repo systems, CCPs and CSDs.

In the European market, these may account for over 80% of repo business. Huge economies of scale and timing advantages are therefore available. Such data also comes without double-counting and with greater consistency and accuracy.

ESMA and other regulators should work with the industry to integrate this initiative into the development of data reporting. Encouraging the use of trade matching could notably improve data quality and consistency while providing a positive outcome for risk management in the industry. We also note that making better use of automated TMA facilities could remove the arguments for dual-sided reporting and would allow for the implementation of less complex and costly single-sided reporting regimes which ICMA, alongside other industry associations, has consistently called for in the past.

Full response

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