15 January 2021 - We are pleased to share with you the third edition of ICMA’s 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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With best wishes for a healthy and successful 2021!
ICMA ERCC initiatives and workstreams
ERCC elections 2021: The procedure for the 2021 elections to the ERCC Committee was launched in December with the call for member firms to nominate a candidate. By the deadline on 12 January, 24 candidates had been nominated by their respective firm to stand in the upcoming elections. The final list of candidates has been circulated to ERCC members and published on the ICMA website. In terms of next steps, voting will open on 26 January. From that date, members will have 2 weeks to submit their votes. Voting instructions will be circulated to the named repo contact in each ERCC member firm shortly before the opening of the vote. The composition of the new Committee will be announced in mid-February.
CSDR mandatory buy-ins
CSDR Review: ICMA is in the process of responding to the European Commission’s Consultation Paper on the targeted review of CSDR. ICMA’s response to the Consultation Paper will focus almost exclusively on the Settlement Discipline section, in particular the buy-in provisions, which are viewed by the industry to be problematic, not only from an implementation perspective, but in terms of the expected impacts on bond and repo market efficiency, liquidity, and stability. The response is being driven by ICMA’s relevant market-facing committees, including the ERCC, and is being coordinated through its dedicated CSDR-SD Working Group. The CSDR Review is seen as the last opportunity to bring about the much-needed amendments to the mandatory buy-in regime before implementation is attempted in February 2022. The deadline for responses is 2 February 2021.
SFTR post-Brexit: The post-Brexit transition period ended on 31 December 2020. From an SFTR perspective, the end of the transition period means that reporting is now split into two separate regimes, UK SFTR and EU SFTR. Over the past months ICMA’s SFTR Task Force has reviewed the implications for reporting firms and has updated the ICMA recommendations for reporting under SFTR accordingly. Separately, authorities in both the EU as well as the UK have issued helpful guidance to support firms in their preparations. From an EU perspective, ESMA published a series of statements on the impacts of Brexit on reporting. On the UK side, useful material is available on the FCA’s SFTR page, including a note with further guidance for UK TRs and counterparties.
SFTR go-live phase 4: On 11 January, the fourth and final phase of SFTR reporting went live as non-financial counterparties started reporting. This concludes the phased implementation process which started in July 2020, although it is important to note that the fourth phase only applies in the EU, as non-financial counterparties based in the UK are exempt from reporting requirements under UK SFTR. ICMA continues to closely monitor progress made in relation to SFTR reporting and to track any significant reporting issues encountered by firms which remain to be resolved.
Updated ESMA guidance: With all four phases of SFTR reporting now live, ESMA is reviewing its existing Level 3 guidance on SFTR. A slightly updated version of the SFTR Guidelines has already been published on 21 December. Updated versions of the validation rules and the XML schemas are expected to follow in due course, addressing a number of pending issues within those documents that are still causing reporting issues. Based on member feedback, ICMA has submitted comments on both documents to ESMA.
Repo & sustainability
ERCC discussion paper: ICMA is an industry leader in sustainable finance, spearheading initiatives in this area through its support of the Green and Social Bond Principles and working with its Sustainable Finance Committee. ICMA’s ERCC, as the principal representative body of the European repo and collateral market, is looking to build on this platform to help drive the development of the sustainable repo and collateral market. The ERCC is currently 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. An ERCC discussion paper on this important topic is due to be published in the very near future.
Common Domain Model (CDM) for repo and bonds: Over the last few months, ICMA has established a Steering Committee to manage the development of the CDM for repo and bonds and ensure we have the right level of resources. The initial modelling phase is expected to start in the near future, focusing on standard fixed-term repo transactions, including trade execution, clearing and settlement (and outright bond transactions). The duration of the initial phase is approx. 8-12 weeks, followed by a showcase event. Background information, including supporting materials from workshops, a webinar and a presentation at the ERCC AGM in October 2020 can be found on ICMA’s dedicated CDM webpage. Member firms who would like to contribute to this cross-industry initiative are welcome to get in touch.
Repo market data
Repo year-end report: On 13 January, the ERCC published a report on the performance of the European repo market at year-end 2020, focused on the euro, sterling, US dollar and Japanese yen markets and based on market data and accounts provided by market participants (both sell-side and buy-side). After the past three relatively uneventful year-ends, concerns about potential year-end dislocations began to build as early as October 2020, following the largely unexpected drop in rates at the September quarter-end and concerns of a potential collateral squeeze.
In fact, the general view is that the turn was relatively subdued, with the buy-side looking to execute as much of their funding requirements as early as possible, while the banks went into year-end with more balance sheet than usual to play with. A common concern, however, relates more to conditions over the next twelve months, particularly in the case of the EUR market, given the widening of the PEPP envelope and the prospect of an even smaller EGB collateral pool; more so than the perennial uncertainty related to banks’ balance sheets and dealer capacity.
SFTR Public Data: ICMA continues to collect, aggregate and publish the SFTR public data on a weekly basis. The end of the post-Brexit transition period on 31 December has had a significant knock-on impact on the data, which is now split into separate EU and UK segments. Unfortunately, it is not possible to simply aggregate the numbers across both regimes given the significant overlap. As a result, going forward ICMA will be publishing separate figures for UK SFTR and EU SFTR. On 14 January, ICMA published for the first time separate data sets for both jurisdictions, covering transactions concluded in the week starting 4 January. For a more detailed breakdown and related charts, please visit our SFTR public data page.
Other repo and collateral market developments
ESMA statement on TLTRO III: On 10 December, the ECB announced among other measures an extension to its existing TLTRO III programme. Focusing on the accounting treatment of TLTRO III, on 6 January, ESMA issued a public statement encouraging firms to provide an adequate level of transparency in relation to these transactions in their financial statements.
Meetings and events
ERCC General Meeting: On 30 March, the ERCC will hold its next Annual General Meeting. The virtual event will be hosted by LCH and will be an opportunity for all interested market participants to catch up on the latest developments in the European repo market and the ERCC’s related initiatives. More details and a link to register for the event are available on the ICMA website.
ERCC Committee meetings: With the ERCC elections approaching, the current ERCC Committee will have one more meeting, scheduled for 27 January. As usual, members will be asked to approve the minutes from the previous meeting, held on 9 December, which will then be made available on our website.
ICMA Education: upcoming livestreamed repo and collateral courses
SFTR: repo reporting in practice, 28-29 January, 10.00-13.30 CET
Collateral management, 22-23 February, 1-2 March, 14.30-18.00 CET