15 December 2020 - We are pleased to share ICMA’s latest Repo and Collateral newsletter focusing on the key initiatives and workstreams undertaken by ICMA’s European Repo and Collateral Council (ERCC) as well as other relevant repo market developments.
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ICMA ERCC initiatives and workstreams
ERCC elections 2021: The ERCC Committee is the governing board of the ERCC consisting of 19 individuals drawn from member firms. Committee members are elected on an annual basis and the procedure for the 2021 elections has just been launched. In the first stage, member firms are called upon to nominate, by 12 January, a candidate to stand in the election. An email with instructions has been sent to the named repo contact at each member firm. Following nominations, members will proceed to voting which is due to open on 19 January. The composition of the new Committee should be announced by mid-February. The ERCC Committee meets every 6-8 weeks and minutes of the meetings are published on the ICMA website (see meetings and events section below).
CSDR mandatory buy-ins
CSDR Review: ICMA is in the process of consolidating its response to the European Commission’s consultation paper as part of its targeted CSDR Review. ICMA’s response is focused specifically on settlement discipline, and in particular the controversial mandatory buy-in requirements, expected to come into force in February 2022. The response is being driven by ICMA’s relevant market-facing committees, including the ERCC, with an emphasis on the impacts for bond and repo market efficiency, liquidity, and stability. Implementation challenges with regard to repo documentation also continues to be an important consideration. The deadline for the response is 2 February 2021, and members interested in contributing to this important workstream, particularly from a trading perspective, are encouraged to participate in the CSDR-SD Working Group.
ESMA statement on SFTR and Brexit: On 10 November 2020, ESMA published a statement on issues affecting EMIR and SFTR reporting following the end of the UK transition period on 31 December 2020, including scope, reporting, reconciliation and TR portability. Annex 3 of the statement includes a useful summary table of the SFTR implications. ICMA has reviewed the document and updated the ICMA SFTR recommendations accordingly which include a detailed breakdown of the post-Brexit reporting obligations under SFTR and MiFIR for UK, EU and non-EU counterparties.
SFTR reporting in the UK: As we are approaching the end of the Brexit transition period, the market is preparing for the split of SFTR reporting into an EU and a UK version. In this context, the FCA published on 26 November a UK version of the validation rules. The document replicates the ESMA version but also includes a few minor modifications to reflect their UK-specific scope. Along with the validation rules, the FCA also released a statement on UK SFTR which explains in more detail what TRs and their UK clients should do to ensure compliance with UK SFTR from 1 January 2021. More information is available on the FCA’s SFTR webpage.
ICMA comments on XML schemas and validation rules: Following a request by ESMA, the ERCC has put together a list of outstanding issues identified in relation to the validation rules and the XML schemas which still need to be addressed. The feedback has been shared with ESMA and the FCA and is available to ICMA members on the internal (member-only) section of the SFTR webpage along with all prior ICMA comments submitted to ESMA since the publication of the Guidelines back in January, as well as the related responses.
MiFIR reporting and SFTs: On 20 November 2020, ICMA submitted a response to ESMA’s consultation on MiFIR transaction reporting and reference data which forms part of the ongoing review of MiFID II/R. The ERCC contributed to the broader ICMA response, focusing specifically on the reporting of SFTs with EU central banks. These are exempted from SFTR reporting but have in turn been included in the scope of MiFIR reporting. This inconsistency has been a long-standing concern for the industry as it raises numerous practical problems and does not produce meaningful information for regulators. In its response, ICMA therefore strongly recommends ESMA to reconsider the current approach and to exclude all SFTs from the scope of MiFIR transaction reporting (see question 29 of the response for details).
Intraday liquidity: Understanding and optimising the industry’s usage of intraday liquidity remains a key focus for the ERCC Operations Group. Over the past months, a sub-group has undertaken some detailed analysis on the topic. The work has led to a set of new best practice proposals around the use of shaping, partial settlement and a number of other issues. The proposals have been discussed at a joint meeting with the ERCC’s Best Practice Working Group on 25 November and will eventually be incorporated into the ERCC Guide to Best Practice. The group aims to finalise the intraday liquidity analysis over the next weeks and to publish it in Q1 2021 along with the final best practice recommendations.
Repo market data
SFTR Public Data: ICMA continues to collect, aggregate and publish the SFTR public data on a weekly basis. Looking at the first 5 months of SFTR data, the trends in terms of both loan value and transaction volume seem to be relatively stable. On average per week, firms have reported new SFTs with a loan value of EUR 17.6 trillion. Out of those, repos (both repurchase transactions and buy/sell backs) accounted for over 95% of the total value. The charts below show the loan values for total SFTs and repos for both new and outstanding transactions. For a more detailed breakdown of the public data, please visit our webpage.
Repo best practice
ERCC Guide to Best Practice: Since the publication of the latest version of the Guide to Best Practice on 24 September, a number of new suggestions have already been raised and are being considered by the ERCC Best Practice Working Group. As mentioned above, one set of proposals relate to the work on intraday liquidity. These have been agreed by the group and will be incorporated into the next edition of the Guide. One additional topic on the agenda of the group is the question of compensation for settlement fails with negative interest rates. This has been a contentious issue on which a consensus may be difficult to find. The discussion continues.
Other repo and collateral market developments
Research paper on repo and sustainability: The sustainable finance market has grown and advanced in recent years as policymakers, regulators and market participants shifted their attention to incorporate the ESG considerations into their policy decisions, regulatory frameworks and investment activities. ICMA has been leading numerous initiatives in this area through its support of the Green and Social Bond Principles and with its Sustainable Finance Committee. As the market develops, ICMA’s European Repo and Collateral Council (ERCC), as the principal representative body of the European repo and collateral market, is keen to take up the responsibility and drive the development of the sustainable repo and collateral market. The ERCC is working on a research paper as a starting point - exploring potential ESG dimensions in the repo and collateral world. It will look at existing opportunities and challenges, and in particular, areas where ICMA could establish specific workstreams to guide and steer. The paper is aimed to be published early next year and the ERCC will use this as a basis for future discussion among its members.
Common Domain Model (CDM) for repo and bonds: ICMA, in collaboration with ISDA and Regnosys, is in the process of extending ISDA’s derivative-focused Common Domain Model (CDM) to repo and bonds and we are setting up a committee and governance structure to oversee this work stream. If you would like to join the working group of sell-sides, buy-sides, trading venues and technology providers, please get in touch. Further information, including supporting materials from the workshops and a webinar can be found here.
Meetings and events
ERCC Committee meetings: The last ERCC Committee meeting of an extraordinary year, 2020, was held on 9 December. At the meeting, members approved the minutes of the previous Committee meeting, held on 20 October, which are available on our website.
Frontclear Africa webinar series: ICMA & Frontclear were delighted to host a webinar on the development of Ghana’s repo market on 25 November, an opportunity to showcase the benefit of meaningful inter-agency collaboration to drive legislative reform and establish market standards. The next in the series entitled, ‘Accelerating Uganda’s repo market development’ is scheduled for 11 February 2021.