SFTR to impact trade booking models
25 July 2018 New York
Image: Shutterstock
Securities Financing Transactions Regulation (SFTR) is likely to significantly impact trade booking models, according to a white paper jointly published by The Depository Trust & Clearing Corporation (DTCC) and The Field Effect.
The regulation is likely to affect 60 percent of current processes resulting in the need to develop new processes.
The paper also predicted that the industry must cope with five times more reports than actual trades once the regulation takes effect.
Additionally, the new regime could create changes to sources of collateral supply within the market.
According to the paper, the industry will need to make provisions to ensure that these unintended consequences do not result in collateral supply and liquidity issues.
To ensure readiness, the paper recommended that market participants should develop a reconciliation break strategy and ensure that efficient data management processes have been reviewed.
Meanwhile, market participants should also assess the impact of higher levels of disclosure required by SFTR on appropriate financing and prime broker businesses.
In addition, greater levels of automation across the trading and operations functions should be ensured in order to manage the expected increase in volumes.
Val Wotton, managing director, product development and strategy, derivatives and collateral management at DTCC, said: “This paper highlights the significant impact that SFTR implementation will have on the financial industry.”
“While SFTR will be phased in starting in 2020, market participants must act now to be ready for implementation and to avoid any issues around trade reporting volumes, liquidity and collateral supply.”
Simon Davies, senior consultant at The Field Effect, commented: “Given the complexity and challenges around implementing the regulation and the impacts that it has on both market participants and the industry, firms should now be well underway with their planning and implementation.”
He added: “The role of the trade repository is pivotal to the success of the implementation of the regulation, and firms should look to leverage this in their reporting function.”
The regulation is likely to affect 60 percent of current processes resulting in the need to develop new processes.
The paper also predicted that the industry must cope with five times more reports than actual trades once the regulation takes effect.
Additionally, the new regime could create changes to sources of collateral supply within the market.
According to the paper, the industry will need to make provisions to ensure that these unintended consequences do not result in collateral supply and liquidity issues.
To ensure readiness, the paper recommended that market participants should develop a reconciliation break strategy and ensure that efficient data management processes have been reviewed.
Meanwhile, market participants should also assess the impact of higher levels of disclosure required by SFTR on appropriate financing and prime broker businesses.
In addition, greater levels of automation across the trading and operations functions should be ensured in order to manage the expected increase in volumes.
Val Wotton, managing director, product development and strategy, derivatives and collateral management at DTCC, said: “This paper highlights the significant impact that SFTR implementation will have on the financial industry.”
“While SFTR will be phased in starting in 2020, market participants must act now to be ready for implementation and to avoid any issues around trade reporting volumes, liquidity and collateral supply.”
Simon Davies, senior consultant at The Field Effect, commented: “Given the complexity and challenges around implementing the regulation and the impacts that it has on both market participants and the industry, firms should now be well underway with their planning and implementation.”
He added: “The role of the trade repository is pivotal to the success of the implementation of the regulation, and firms should look to leverage this in their reporting function.”
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Ipes receives regulated status in Ireland and obtains its depository licence in Luxembourg
Ipes receives regulated status in Ireland and obtains its depository licence in Luxembourg
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