How-to Guide: SFTR repo day-count conventions

Day-count conventions – a land of confusion

Anecdotal evidence from regulatory testing, reported data, questions we’re asked and the helpdesk queries we receive indicate that confusion reigns when it comes to repo market day-count conventions. This is an issue both in terms of ensuring SFTR reports are accurate but also an issue as a matchable field reconcilable at the Trade Repository (TR).

Market craves standards and best practice

The problems arise primarily from two factors:

1) A tendency to report the underlying collateral bond interest accrual day-count convention instead of the correct repo interest convention.

2) The prevalence of a large number of irrelevant conventions (in the context of SFTs) on the ESMA/FCA validation rules list of options including many bond coupon conventions and derivative interest conventions too.

Very tellingly, the latest proposals from the Office of Financial Research in the US state that they believe the ISO 20022 definitions to be too broad and that they were going to insist on everything being reported on the US market convention Actual/360 basis.

Until now, there simply has not been a definitive guide to which day-count conventions to use in which markets.

Only two repo day-count conventions in regular use

In the vast majority of cases, we foresee only two of the listed day-count conventions being relevant and correct when reporting repo transactions. While not all market participants will necessarily follow the market convention associated with the particular market in question, nevertheless, they tend to abide by Actual/360 or Actual/365. In rarer cases, we see Actual/Actual (notably in Russia). We would also expect these to be repo market specific conventions and not derivatives related ISDA ones for example. Indeed, if the SFTR reported convention is not A004 or A005 and it is a major market, the reported convention is quite probably incorrect.

Actual/360 covers Euro, USD, JPY (international) and CHF

In the Euro, USD, CHF and international repo markets in Japan, Canada, Australia and New Zealand, the standard convention is Actual/360 , the actual number of days interest (the numerator), divided by an assumed 360 days in a year (the denominator). This is denoted under SFTR as A004.

Actual/365 covers Euro, USD and JPY (domestic) 

In the UK and Japanese, Canadian, Australian and New Zealand domestic markets the convention is Act/365 Fixed, the actual number of days interest divided by 365 days in a year, regardless of leap-years. This is denoted by A005.

Japan, Australia, New Zealand and Canada conventions differ between international and domestic. Do not be surprised to see repo trading under the international (Actual/360) convention in the repo markets in any of these jurisdictions.

There are some smaller markets such as Brazil (that uses a business day convention) and Burundi, Ethiopia and Rwanda that use an Actual/364 convention that would need to be reported using the free-text option. This option should only be used when reporting activities in smaller, non-standard markets. The ICMA provide some guidance on the reporting of unlisted conventions in recommendation 5.17 of its recommendations for reporting under SFTR. Using this as a context for the reporting of non-standard conventions should limit instances of TR reconciliation breaks on this field too.

NB: When referencing domestic repo markets, this relates to trades between two onshore counterparties, potentially on a domestic platform or venue, settling in the domestic location, often using a domestic interest rate, e.g. Tibor in Japan. International repo trades are typically cross-border, off-exchange (although some is now exchange traded), cleared through an  International Central Securities Depository (iCSD) such as Euroclear and executed using an internationally recognised common rate standard.

Day-count conventions and SFTR codes per jurisdiction

• If you have any concerns about the quality of your firm’s SFTR reporting or require training, please contact us to discuss your requirements.
• Many thanks to Richard Comotto for his assistance in compiling this list.