Does the EU's SFTR Mandatory Reporting Apply To Your Margin Lending Transactions?

Author:Mr Alban Caillemer du Ferrage, Qian Hu, Marie-Fleur Rautou and Nadège Debeney
Profession:Jones Day
 
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The mandatory reporting of securities financing transactions is designed to enhance transparency on shadow banking activities.

The European Union's new reporting requirement under Regulation (EU) 2015/2365 of November 25, 2015—known as the Securities Financing Transactions Regulation ("SFTR")—will go into effect beginning on April 11, 2020, for credit institutions and investment firms and on January 11, 2021, for non-financial counterparties. The mandatory reporting of securities financing transactions ("SFT") to authorized or recognized trade repositories constitutes the third and final pillar of the SFTR, designed to enhance transparency on shadow banking activities.

The in-scope SFTs encompass repurchase transactions, securities or commodities lending transactions, and buy-sell backs. They also include margin lending transactions, which are defined as an extension of credit "in connection with the purchase, sale, carrying or trading of securities, but not including other loans that are secured by collateral in the form of securities." Given this equivocal definition, market participants have expressed strong concern that the new reporting requirement could potentially apply to a substantial number of transactions—such as private banking lending, corporate lending collateralized by securities, and merger and acquisition finance—that have no or limited relation to shadow banking.

In its latest guidelines and the related Final...

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