SFTR Corporate Actions Working Group #7 International Securities Lending Click to edit Master title style James Langlois, Lewis Nicholson Association Click to edit Master subtitle style 30 Sep 2019 1
SFTR Corporate Actions: Approach for this Working Group 1- Review of SFTR Corporate Actions Working Group 2- Best Practice discussion: ✓ UTIs for CA bookings ✓ Omni Bookings ✓ Booking Dates 3- Next Steps
SFTR Corporate Actions: Overall Scope and Plan 1- Define Corporate Actions Universe (Q2 2019) • Form a distinct list of all CAs • Align with the ISO 15022 (SWIFT) and 20022 (STP) standards • Determine attributes and effects of each CA on SFTs 2- Stratify the CAs into Clusters by their effects on SFTs & booking models (Q2 2019) • Review groups of CAs which can be processed similarly • Confirm CAs which have no material effect on SFTs • Confirm booking models for clusters • Define the SFTR reports that each Cluster of CAs affects 3- Agree an SFTR related Best Practice for each CA Cluster (Q3 2019) • Reach agreement on specific booking models which enable SFTR compliant reporting • Determine universal procedures (Best Practice) for processing and communicating CAs on SFTs 4- Connect the SFTR CA WG’s output with the wider industry discussion (Q4 2019) • Contribute to the Securities Lending industry’s general policy (beyond of SFTR)
SFTR Corporate Actions: Timeline JUL 19 OCT 19 JAN 20 APR 20 APR 19 1-2-1s Membership & Workshops, SFTR Report Testing, Responsibilities Reaching out for Surveys, Direct Developing Solutions not Objectives & Scope Industry-wide best Methodology & Plan Member Firm defined in 2019, Support for practice acceptance Baselining Meetings SFTR GO LIVE Information
SFTR Corporate Actions: Best Practice Evolution Internal ISLA Approval Working Group Packs ISLA Member Firm Approval Best Practice PowerPoint Best Practice European Industry Review SFTR CA Draft Universe Document ECB Best Practice Global Review Harmonisation Proposal Doc Industry Adoption European Standards Global Standards
SFTR Corporate Actions: Key SFTR Reporting Requirements • SFTR is a two-sided reporting requirement: both Borrower (collateral provider) and collateral receiver (lender) required to report their side of the SFT to an approved TR on trade date +1 (T+1). • All new SFTs, modifications of open SFTs and terminations of existing SFTs must be reported daily. • Collateral is reported on T+1 or value date +1 (S+1) dependent on method of collateralisation used. • As part of the two-sided reporting obligation a Unique Transaction Identifier (UTI) must be included by participants in their reports to the TRs. This value will be used by the TRs to match separately received reports from each counterpart to an SFT. • Participants must also use Legal Entity Identifiers (LEIs) to identify their counterparts along with a number of other parties involved in the SFT (e.g. Agent Lenders, CSDs, CCPs). • For agency loans with multiple underlying principals both borrower and lender will need to report each allocation to a principal as an individually reportable transaction. • The SFTR reporting must also include any collateral linked to the SFTs including the LEI of the counterparty with whom the collateral was exchanged and the master agreement under which it was agreed.
SFTR Corporate Actions: Issues for review in this WG UTIs for CA bookings Omni Bookings Booking Dates SFTR Report: ETRM/ NEWT ETRM ETRM/ MODI NEWT NULL NULL Return and New Full or Partial Addition Sec on Economic outside Non-Economic or CA Cluster/ Issue Full Return Trade Return Loan SFT Information UTIs for New CA Bookings Y N N Y N N Omni Bookings Y Y Y Y Y N Booking Dates Y Y Y Y Y N
SFTR Corporate Actions: Omni Bookings Platform Vendors BEN. OWNER LENDER BORROWER FUND A 1,000 3,000 FUND B 1,000 Agency Lending Disclosure FUND X 1,000 1,000 1,000 1,000 1,000 TR 1,000 1,000 Issue: o Often, corporate actions are booked at ‘block level’ or as a ‘shell’ trade where the individual funds split is not applied. o This saves time if the bookings are manual and is simpler as splits do not need to be calculated. o When SFTR reporting is required, the block bookings will not match on quantity with the beneficial owner. Best Practice: ✓ SFT’s Corporate Actions must now be reported to the TR at the beneficial owner or LEI Level ✓ Where allocations are not known: block booking can be used temporarily or no report sent until clarified. ✓ However, all efforts should be made to book and report accurately on time.
SFTR Corp Act: Omni Bookings - Example Pre-SFTR model The flow diagram below shows the existing (pre-SFTR) model for booking SFTs. The next page shows the SFTR model. BEN. OWNER LENDER BORROWER LEI 1 Agent 1 FUND A Agency Lending Disclosure 1,000 FUND B 2,000 Bulk Booking FUND C 8,000 1,000 10,000 LEI 2 8,000 FUND R 3,000 FUND S 1,000 Agent 2 LEI 3 2,000 FUND Y 2,000 2,000 Agency Lending Disclosure
SFTR Corp Act: Omni Bookings – SFTR Compliant Booking Model BEN. OWNER LENDER BORROWER LEI 1 Agent 1 Agency Lending Disclosure FUND A 1,000 4,000 FUND B 2,000 FUND C 1,000 Bulk Booking 8,000 LEI 2 FUND R 4,000 3,000 FUND S 1,000 Platform Vendors Agent 2 LEI 3 2,000 FUND Y 2,000 2,000 Agency Lending Disclosure 4,000 2,000 4,000 4,000 TR 2,000 4,000
SFTR Corporate Actions: UTIs for CA Bookings Issue: o Some Corporate Actions will require an Unique Trade Identifier to be assigned to the new trade for SFTR reporting. o This applies to all new trades which are then subsequently reported under a NEWT message to the Trade Repository. Best Practice: ✓ The same practices applied to the creation of a UTI on the parent SFT trade, are to be applied to the corporate action. ✓ If a firm has created the UTI for the parent, they will be responsible for the UTI on the new corporate action effected trade. ✓ SUGGEST: The CA’s NEWT is enriched by the same process as the parent trade so there is not a bifurcated approach.
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