Although there is an overlap between products reported under EMIR and MiFID II’s transaction reporting regulation, SFTR won’t experience the same dual reporting obligation. The current SFTR framework was created in that Security Financing Transactions (SFTs) under scope are exempt from needing to be reported under other regulation.
As such, when SFTR goes into effect on April 11th, 2020, Security Financing Transactions (SFTs) such as repos and securities lending agreements only need to be reported once and won’t trigger reporting obligations for either MiFID II or EMIR. Nonetheless, some firms may see additional reporting requirements under MiFID II when SFTR goes live.
Exempted under SFTR but not MiFIR
Under SFTR, reporting exemptions were created for certain trade types. The exemptions are based on counterparties involved, systemic risk and financing type. Among the exempted trades are SFTs concluded with members of the European System of Central Banks (ESCB). This currently numbers central banks of 28 European countries (both Euro and non-Eurozone constituents) plus the ECB.
Despite exemptions existing under SFTR, a quirk of the new regulation is that although transactions with ESCB counterparties aren't reported for SFTR they become obligated under MiFIR. The rationale being that SFTs don’t have a dual reporting obligation, but all of them still must be reported. In the case of ESCB transactions, since they don't fall under SFTR they get reported via MiFIR.
Primarily affected by these additional MIFIR reports are banks transacting with ESCM members under the ECB’s asset purchase programs (APP). As of November 2019, the balance of outstanding securities lent to the ECB reached €30.9 billion.
Firms captured by these trades will need to put into effect a mechanism that identifies them as out of scope SFTs for SFTR but in-scope for MiFIR. This could prove challenging for firms that use separate trade records for SFTs which aren't connected to their current systems of capturing data of in-scope MiFIR trades.
If you have a reporting obligation under SFTR, we recommend that you start testing your your SFTR trade files to ensure you have available data to comply with the regualtion. Contact us to learn more.