Featured Product

    ISDA Proposes Collaboration Between Derivatives and SFT Markets

    October 05, 2020

    ISDA is proposing ways to achieve greater collaboration between derivatives and securities financing transaction, or SFT, markets. The proposal has been set out in a recently published whitepaper, which highlights the significant efficiencies that could be achieved by closer coordination and alignment between the two markets, resulting in reduced costs for market participants. The proposal sets out that institutions operating in both derivatives and securities financing transaction markets could benefit from greater harmonization in documentation as well as from improvements in post-trade processing and automation.

    ISDA has highlighted several areas where greater standardization and collaboration could be achieved, including:

    • Developing common legal definitions across the derivatives and  securities financing transaction markets, documenting derivatives and  securities financing transactions under a common master agreement and procuring one set of legal opinions in jurisdictions around the world on close-out netting for both derivatives and securities financing transactions
    • Implementing consistent solutions across the derivatives and  securities financing transaction markets that enable market participants to more seamlessly adapt and migrate when key changes (such as the interbank offered rate transition) occur
    • Developing common standards and taxonomies to facilitate automation and interoperability across derivatives and  securities financing transaction markets and to enable a consistent trade record for confirmation and reporting on a broad scale

    The paper highlights that ISDA has developed a Common Domain Model (CDM), which serves as a blueprint for how derivatives are traded and managed across the trade lifecycle. The CDM has the potential to cover other financial markets, including  securities financing transactions. By providing a single data representation of trades across the derivatives and  securities financing transaction markets, CDM could provide significant cost savings and address the market need for an efficient solution to this issue. With a single documentation platform and CDM for the repo, securities lending, and derivatives markets, there will be a single entry point for other service providers. This allows pre-trade service providers and post-trade providers (such as analytics, optimization, and compression platforms as well as regulatory reporting services) to integrate their systems with just one standard, increasing the scalability of the solutions they can provide. 

    The paper also sets out a proposal for how the ISDA Master Agreement could be expanded to cover  securities financing transactions as well as derivatives. The paper proposes a set of securities financing transaction provisions to be added to the schedule of the ISDA Master Agreement, along with publication of a securities financing transaction definitional booklet. The paper also considers certain key issues that would need to be addressed in such an exercise and includes a granular analysis of key terms from the different documents to identify specific potential synergies as well as those key product terms where specificity would need to be maintained.

    The EU Capital Requirements Directive and Regulation contain various provisions related to financial instruments, including derivatives. Securities financing transactions are not financial instruments as such, although where they relate to securities, those securities would be financial instruments. There are also provisions related to repurchase transactions, securities, or commodity lending or borrowing transactions and other capital-market-driven transactions other than derivatives. The change of documentation would not affect the characterization and treatment of securities financing transactions for the purposes of this legislation. Similarly, the change of documentation would not affect the characterization and treatment of securities financing transactions under the various US capital regimes (which differ based on the type of US regulated entity involved).

     

    Related Links

    Keywords: International, Banking, Securities, Derivatives, Securities Financing Transactions, Common Domain Model, Interest Rate Benchmark, IBOR Transition, Reporting ISDA

    Featured Experts
    Related Articles
    News

    FED Proposes to Extend Data Collection Under Stress Testing Guidance

    FED proposed three-year extension, without revision, of the information collection FR 4202, titled "Recordkeeping Provisions Associated with Stress Testing Guidance."

    March 08, 2021 WebPage Regulatory News
    News

    FCA Proposes Updates to Guidance on Mortgage Repossessions

    FCA updated the draft guidance for firms to ensure that mortgage customers whose homes may be repossessed are treated fairly and appropriately, particularly where there are risks of harm to customers who are vulnerable as a result of the COVID-19 pandemic.

    March 05, 2021 WebPage Regulatory News
    News

    FCA Announces Cessation Timeline for Certain LIBOR Benchmark Settings

    FCA issued a statement on the cessation or loss of representativeness of the 35 LIBOR benchmark settings published by ICE Benchmark Administration or IBA.

    March 05, 2021 WebPage Regulatory News
    News

    EBA Publishes Reporting and Disclosures Framework for Investment Firms

    EBA published a package that includes the final draft implementing technical standards on supervisory reporting and disclosures of investment firms.

    March 05, 2021 WebPage Regulatory News
    News

    BIS Examines Use of Big Data and Machine Learning at Central Banks

    BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.

    March 04, 2021 WebPage Regulatory News
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.

    March 02, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6659