16 November 2020 - We are pleased to launch today ICMA’s new Repo and Collateral newsletter which will provide you on a monthly basis with updates on the key initiatives and workstreams undertaken by ICMA’s European Repo and Collateral Council (ERCC) as well as other relevant repo market developments.
We hope that you find our new newsletter useful. Any feedback or suggestions on both the format and the content would of course be highly appreciated. Similarly, if you have any questions please don’t hesitate to get in touch with us directly by email at firstname.lastname@example.org.
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ICMA ERCC initiatives and workstreams
Securities Financing Transactions Regulation (SFTR) implementation
The buy-side goes live: On 12 October, the third phase of SFTR went live with the reporting start for investment funds, pensions funds and (re-)insurance undertakings. Feedback from the first weeks indicates that this has again been a smooth start, replicating the success of the initial sell-side go-live on 13 July. Acceptance rates reported by trade repositories have hardly been impacted and remain well over 95%. With the buy-side on board, we have seen an expected improvement in pairing rates, and matching also continues to increase gradually, although challenges remain. The ERCC’s SFTR Task Force continues to track the main reporting issues and has put together a list of problems and inconsistencies encountered by members. The list has been shared with ESMA and a number of National Competent Authorities (NCAs).
Fifth version of the ICMA SFTR Recommendations published: On 29 October, ICMA released the fifth edition of its detailed SFTR Recommendations. Compared to the previous version, the new edition of the guide includes further updates to address reporting issues encountered by members in the first months of reporting, and it also covers a number of specific buy-side questions and important lessons learnt since the buy-side reporting go-live on 12 October. The ICMA recommendations are complemented by a number of additional best practice documents, including the ICMA SFTR sample reports, which are available on the SFTR webpage. ICMA members can furthermore access a range of additional internal documents on the SFTR members’ page (ICMA member login required).
First set of ESMA Q&As released: On 5 November, ESMA released the first batch of SFTR Q&As to provide additional guidance on the implementation of the rules. This first version of the Q&As covers 13 questions across 5 different topics, including the reporting of settlement fails, which has been a contentious issue since the publication of the ESMA Guidelines back in January. ICMA is currently reviewing the latest guidance with members and will follow up with ESMA as needed. The Q&As will of course also be reflected in future updates of the ICMA SFTR Recommendations.
SFTR and Brexit: On 10 November, ESMA published a number of Brexit related statements, including a statement on Issues affecting EMIR and SFTR reporting following the end of the UK transition period on 31 December 2020, assessing the implications across the different aspects of SFTR. A detailed breakdown of the post-Brexit reporting obligations under SFTR and MiFIR for UK, EU and non-EU counterparties is included in the latest edition of the ICMA SFTR recommendations (section 1.16).
ICMA SFTR checklist for non-European firms: ICMA has published a checklist for non-European firms to help them assess if and what they are obliged to report under the EU’s SFT Regulation (and its UK counterpart). The document looks at the geographical scope of SFTR, but also the different instruments that it applies to.
Central Securities Depositories Regulation (CSDR) mandatory buy-ins
General approach: The ICMA CSDR Settlement Discipline Working Group remains focused on implementation challenges of the SD regime, in particular mandatory buy-ins, with respect to cash bond and repo markets. The work being undertaken includes solutions, best practices, and advocacy for in-scope repos, while also recognising that out-of-scope SFTs will be impacted indirectly.
ICMA is currently preparing for the anticipated CSDR Review, which is expected to include Settlement Discipline. ICMA views this as an opportunity to drive meaningful change to the SD provisions, particularly the mandatory buy-in regime.
Impact on legal documentation: The impact of CSDR on ICMA’s standard documentation is the focus of the CSDR Legal Working Group. In order to assist the market with the contractual requirements of CSDR, work has been done to produce (i) an amended form of the ICMA Rules and Recommendations for the Secondary Market; and (ii) an SFT CSDR Settlement Discipline Annex. In addition, ICMA has also considered legal opinion coverage to support enforceability diligence in relation to both forms of documentation. Substantive work on the CSDR document solutions has been paused until we have a better understanding of the scope of the aforementioned CSDR review. ICMA remains conscious of the document remediation time constraints.
Intraday liquidity management: The challenges for firms around the management of intraday liquidity have been an important focus area for the ERCC for a number of years, driven in particular by the ERCC Operations Group. Over the past months, an ERCC Ops sub-group has been undertaking some detailed analysis around the topic and is working on concrete proposals and related best practice recommendations. The work has been discussed at a recent meeting between the ERCC Committee and the ECB and was also presented at the ERCC Annual General Meeting on 7 October (presentation and recording are available here).
Collateral management harmonisation: A number of ERCC Ops members are actively involved in the ECB’s extensive effort to drive further harmonisation in the area of collateral management. This work is coordinated by the ECB’s Collateral Management Harmonisation Task Force (CMH-TF) and is an important pre-requisite for the launch of the Eurosystem Collateral Management System (ECMS), which has just been postponed to November 2023. For a more detailed overview of the ECMS, the related harmonisation work and the ERCC Ops involvement, check out the latest ICMA podcast with Nicholas Hamilton, co-chair of the ERCC Operations Group.
Repo market data
SFTR Public Data: Under SFTR, all authorised trade repositories are required to provide, on a weekly basis, public access to a set of summary statistics based on the transactions that have been reported to them in the previous week. Since the start of reporting on 13 July, ICMA has been collecting this data from the TRs and publishes the information in an aggregated and more user-friendly format along with some charts and trends. The SFTR public data complements existing ICMA publications, such as the semi-annual European Repo Survey, and further contributes to the transparency of the repo market. More details can be found on ICMA’s SFTR Public Data page.
Results of the 39th European Repo Survey: On 11 November, ICMA released the results of its 39th semi-annual survey of the European repo market, based on repo business outstanding on 10 June 2020. The survey, therefore, captures the aftermath of the market turbulence triggered by the COVID-19 pandemic and shows clear traces of the impact of central bank asset purchases and other demand for high-quality assets during the crisis.
Second ICMA/ASIFMA Asian Repo Survey: On 11 November, along with the European Repo Survey, ICMA also released the results of a second survey of the Asia-Pacific repo market, undertaken jointly with ASIFMA. Using a similar methodology to the European repo market survey, the latest Asia-Pacific survey reports the value of repos and reverse repo on 10 June 2020.
Repo best practice
ERCC Guide to Best Practice: On 24 September, the ERCC released an updated version of its Guide to Best Practice in the European Repo Market. The latest version introduces a number of new guidelines intended to address issues that have arisen since the last publication (in December 2018) as the market continues to evolve and develop. These include best practices for the termination of open repos late in the day, the calculation of transaction exposure for forward dated trades, and defining stale prices.
UK Money Markets Code: The Bank of England is currently reviewing the UK Money Markets Code, initially published in April 2017. The ERCC is involved in the review and has provided detailed feedback on the latest draft, in particular, to ensure full alignment between the Code and established market best practices set out in the ERCC’s Repo Guide.
GMRA Legal Opinions: On 16 April 2020, ICMA published updates to the GMRA legal opinions (available to ICMA members only) for 64 jurisdictions, as well as a new legal opinion for Argentina. Since then interim update memos have been published alongside the opinions for (i) Argentina with respect to FX regulations; (ii) England in relation to the Corporate Insolvency and Governance Act; (iii) Russia in relation to moratorium issues; and (iv) Slovakia in relation to COVID-19 measures.
BRRD II: Earlier this year, the EBA launched a consultation in relation to the recognition of stay powers under Article 71 of BRRD II. Given the near term impacts of this regulation on SFT master agreement documentation, ICMA submitted a response (in conjunction with colleagues in relation to primary market documentation).
Other repo and collateral market developments
Commission Report on pension funds and CCP-clearing: On 23 September 2020, the European Commission adopted its report to the European Parliament and Council on the central clearing exemption for Pension Scheme Arrangements (PSAs), which analyses issues and potential solutions discussed in the context of the temporary exemption for PSAs from the central clearing obligation under EMIR. The Report draws on feedback from the Commission’s PSA Expert Group, in which ICMA is represented, and also cites the ERCC report on how the European repo market performed during the COVID-19 crisis.
Latest ECB SESFOD survey: On 4 November, the ECB published its latest quarterly survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD) for the period between June 2020 and August 2020. The survey is part of an international initiative aimed at collecting information on trends in the credit terms offered by firms in the wholesale markets and insights into the main drivers of these trends.
Meetings and events
ERCC virtual AGM: On 7 October, the ERCC held its Annual General Meeting. The virtual (livestreamed) event was supported by Equilend, and covered a broad range of relevant topics, including the latest repo market trends, important regulatory developments and relevant legal updates. A highlight this year was a panel discussion of market practitioners who discussed the state of the European repo market in 2020 and the key underlying trends. The presentation slides as well as a recording of the event are available on the ICMA website.
ERCC Committee: The ERCC Committee is the governing board of the ERCC and is elected on an annual basis. The 19 members of the Committee meet on a regular basis, at least once every two months. The formal minutes of the meetings are published on the ICMA website (once approved at the subsequent meeting). As in previous years, the annual election process will kick off in early December with a call for nominations which will be sent to all ERCC member firms.
ICMA Education: upcoming repo and collateral courses
Understanding the GMRA – 19, 20, 23, 26 and 27 November 14:00-17:30 CET
For an overview of the full suite of ICMA Education courses, available online in livestreamed or self-study format please check our website.