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Securities Lending Market Report | March 2022

Exploring SFTR Data

Introduction >>> Pledge Collateral

Securities Financing Transactions Regulation (SFTR) is now, more than a year and half after its COVID induced
belated go-live, very much a part of everyday procedures. However, with new a schema and validation rules
introduced this year, SFTR is by no means a completed project. Fig 9 - DTCC EU, DTCC UK, REGIS-TR, KDPW

Working groups in trade associations, vendors and trade repositories are as well attended now as they were a
year ago. This simple measure reveals the ongoing resources still being applied by firms, echoed by the multiple Percentage of Collateral Reported as Pledge (EU vs UK)
press articles noting firms still viewing SFTR, compared to other regulations, as having the largest impact
on them. That impact will grow again with the upcoming SFTR review, which ISLA are working towards with 18%
members to identify and describe outstanding issues, clarifications, and potential logic traps in the schema, which 16%
we hope will be considered in that review.
14%
Thinking of other jurisdictions, the recent news from The European Free Trade Association (EFTA) of their SFTR 12%
adoption, the potential for further divergence between the EU and UK, and the SEC Rule 10c-1 transparency
proposal are all very much on our radars. The public response to the SEC highlight multiple challenges, and our 10%
hope is that the valuable experience of SFTR can help guide the next steps of that process. 8%
In the following pages we explore some of the trends revealed by the publicly available trade repository data. 6%
Of course, this data set doesn’t expose the whole story, as aside from the multiple outstanding questions to Jan 2021 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021
be clarified, we look forward to the public SFTR reports due from regulators. Those reports will perhaps have
another story to tell about the shape and trends of SFT markets. EU UK

Using the most recent data made available through the their own collateral management platforms. In looking at
SFTR Trade Repositories, it is clear that security interest these outputs, we have seen the same pattern of growth
arrangements in respect of collateral are now a permanent in pledge collateral arrangements in the past twelve
feature of our markets. Although some of the initial growth months, with their combined data suggesting that security
seen in earlier reporting periods appears to have tailed off, arrangements over collateral account for circa 18%, or
this is likely only to be temporary as the rolling impacts approaching one in five of all collateral transactions held in
of Basel IV are felt more fully across the industry. As their systems. Although recognisable from the perspective
borrowers in particular adjust to the changing prudential of the publicly available data from the TRs, we do note
capital environment, we expect to see further expediential that the tri-party agents are reporting a slightly higher
growth in pledge collateral arrangements. concentration of pledge collateral arrangements. Reasons
for this marginal divergence are likely to be varied but could
In the latest period, both EU and UK TR data suggests that simply relate to the fact that the tri-party agents are seeing
the level of security interest transactions was between pledge collateral related transactions that fall outside of the
circa 13% and 16% in both markets. Similarly, we have also scope of SFTR from a counterparty perspective.
been working with a number of our tri-party member firms
who increasingly track this same data point, but through