SFTR ‘ish’ USA

New daily reporting obligations for bilateral repo trades have been proposed in the US. Our regulatory subject matter expert Jonathan Lee looks at the background to the announcement and reviews what’s being proposed. 

It’s been a long time coming…

The G20 Financial Stability Board agreed a mandate to enact securities financing reporting at the end of 2015 as a direct result of the last financial crisis. There were significant concerns stemming from the crisis about the role played by ‘shadow banks’ (non-banks offering credit intermediation) and the repo, securities lending and margin lending markets. Given how opaque the US repo market remains, recent market episodes and rising rates have raised alarm within the US Treasury and have heightened the need to implement Dodd Frank Act responsibilities. Finally we’re starting to see signs of SFTR USA, albeit a rather piecemeal, fragmented affair in comparison with the European regulation. The US approach is also significantly more pragmatic and cost-focused.

Since November 2019, the only SFT data collection taking place was a process where the Office of Financial Research (OFR) of the US Treasury department took details of centrally cleared funding transactions in the US repo market directly from the DTCC, together with tri-party repo activities facilitated by Bank of New York acting as tri-party agent. In March 2022, the SEC released a consultation to start to tackle reporting requirements for the US securities lending market (Regulation 10c-1) but further feedback on the results of that consultation remain imminent. This leaves a significant gap for reporting of the US uncleared bilateral repo market.  

Reporting regime for US uncleared bilateral market proposed

On 5 January 2023, the OFR published a 60-day consultation on implementing a reporting regime for the US uncleared bilateral repo market. Responses to this consultation are due on 6 March 2023 (OFR reserve the right to extend this). This follows a pilot data collection study conducted by the OFR over three days in June 2022, in which nine dealers volunteered to take part. This new proposal, in conjunction with the SEC proposals covering securities lending will start to bridge the significant regulatory gaps in the US SFT market reporting coverage. The OFR found that the gap represents 60% of total repo lending by primary dealers and 37% of total repo borrowing.

Approximately 40 US repo counterparties in scope

At present, the proposals will focus on a reporting requirement for US brokers, dealers and other financial counterparties whose extended guarantees in the uncleared repo market exceed $10 billion, with these approximately 40 market counterparties accounting for more than 90% of the market by volume. In addition, they propose to capture any other financial companies with over $10 billion in extended guarantees where non-cleared borrowing from non-broker, non-dealer lenders takes place to prevent any data gaps now or in the future.

ISO 20022 – field definitions ‘too broad’

The OFR is considering reporting in either its own data elements format or the existing definitions under the ISO 20022 format. However, its initial thought is that ISO 20022 field definitions are too broad for its purposes. For example, the OFR wants all rates to be quoted on an Act/360 day-count basis, not using the 14 permissible conventions in ISO 20022 schemas. Primary focus is on reporting by borrowers (collateral givers).

Current proposals include:

• Trade executed under (but not limited to) Master Repurchase Agreements (MRA) and Global Master Repurchase Agreements (GMRA)
• To potentially exclude sell-buyback as well as any securities lending transactions
• Collection of in-scope transactions settled internationally or denominated in currencies other than USD would be included to prevent regulatory avoidance and to provide greater insight into cross-border activities.

OFR repo reporting looks set to establish LEI and UTI as truly global standards

• To adopt Legal Entity Identifiers (LEIs) to identify market participants
• To adopt Unique Transaction Identifiers (UTIs) for ease of systemic risk monitoring.

Required fields currently limited to 33 (vs. 155 in Europe)

33 Reportable fields are proposed

The consultation in full, together with its supporting documents, can be accessed here.

Responses to the consultation can be submitted online or by mail to: Office of the Chief Counsel, Office of Financial Research, 717 14th Street NW, Washington, DC 20220.

• For a confidential discussion about the quality of your existing SFT and money market reporting obligations or impending US obligations, please get in touch.