Insufficient Granularity Within Primary Key For Collateral

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Status: For Review, Last Updated: 31/08/2023

Question:
Validation field(s) in scope – 1.03, 1.11 & 2.09

The current Primary Key for Net Exposure Collateral is insufficient for Trade Repositories to distinguish between netting sets where the “Reporting Counterparty” (1.3), “Other Counterparty” (1.11) and “Master Agreement Type” (2.9) are the same.  This regularly leads to the first netting set submissions being overwritten by subsequent submissions, due to “latest is greatest” treatment of Collateral Updates (COLU). 

Netting sets may be unique in a number of ways, all of which need to be considered when ingesting the COLU report 

•”Triparty Agent” (1.14) - Lenders and Agent Lenders employ a number of Triparty Agents in the collateralisation of their loan books.  If the Lender uses one Triparty Agent to manage their equity collateral (HPFHU0OQ28E4N0NFVK49) and a different one to manage Bond collateral (549300OZ46BRLZ8Y6F65), the use of both between the same Reporting Counterparty, Other Counterparty and Master Agreement will create two netting sets.  When reported to the Trade Repository, the later of the two submissions will automatically overwrite the earlier one and the data for the initial netting set will be lost in the Trade State Report.

•Agent Lender (1.18) - Some Lenders employ more than one Agent Lender to manage different assets within their portfolios.  Those Agent Lenders are likely to transact with the same borrowers and under the same Lending Master Agreement Type (GMSLA).  Where both Agent Lenders report COLU reports, the Reporting Counterparty, Other Counterparty and Master Agreement Type will therefore be identical.  Again, the Agent Lender that submits their COLU report last will be treated by the Trade Repository as the latest update, with the earlier report being overwritten.

•“Branch of Reporting Counterparty” (1.7) and “Branch of Other Counterparty” (1.8) – Where entities operate out of different branches, this can also create separate COLU netting sets.  Where those branches do not have their own LEI and only identify themselves with an ISO Country code for reporting purposes, the current primary key at the Trade Repository cannot differentiate between them.  Again, the latest reported COLU will overwrite any earlier one, causing data to be lost from the Trade State Report.”

Best Practice:
ISLA members propose that:

Key reporting fields require additional and explicit Counterparty data fields so that Trade Repositories might distinguish and identify the reports uniquely and accurately.

Members have identified five (5) additional reporting fields and have proposed three (3) options to facilitate the above proposal: (SFTR-451)