18 February 2021 - We are pleased to share with you the February 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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ICMA ERCC initiatives and workstreams
Results of the 2021 ERCC elections: The annual elections to the ERCC Committee were concluded last week. On 10 February, ICMA announced the names of the 19 candidates who were elected to form the new ERCC Committee. The term of office of the new Committee will be approximately one year starting immediately and ending on the day the results of the 2022 ERCC elections are announced. The outcome is based on valid votes received from 79 out of the total 109 ICMA ERCC member firms, a new record in terms of participation! ICMA would like to thank all members, particularly the 24 candidates standing in the election as well as the voting delegates, for the continued support and active engagement. We look forward to another busy year working with the Committee and will of course keep all other ERCC members updated.
CSDR mandatory buy-ins
CSDR Review: On 2 February 2021 ICMA submitted its response to the Targeted consultation on the review of CSDR. ICMA’s response focuses exclusively on the section relating to Settlement Discipline, in particular the provisions relating to mandatory buy-ins, which ICMA points out is market regulation, not post-trade regulation. In its response ICMA provides data and analysis to illustrate the expected impacts of the mandatory buy-in regime on EU bond market pricing and liquidity, and the costs that will be incurred by investors and potentially issuers. The response also seeks to evidence the procyclical and destabilizing effects the regime would have had during the March-April 2020 COVID-19 market turmoil. ICMA further highlights the negative indirect impact that mandatory buy-ins will have on securities lending, as well as arguing that all SFTs should be exempt from the regime.
Updated ESMA Q&A: On 28 January, ESMA published an updated set of SFTR Q&As. The document covers three additional topics compared to the initial version released in November last year, adding questions on the reporting of past modifications, updates of trade state reports and the reporting on behalf of SME-NFCs. In total, the SFTR Q&A now covers questions on eight topics. ICMA has reviewed the latest additions with members of the ERCC’s SFTR Task Force and incorporated a number of related changes in the updated version of the ICMA recommendations.
Sixth version of the ICMA SFTR Recommendations: On 17 February, the ICMA ERCC released the sixth edition of the detailed ICMA Recommendations for Reporting under SFTR. Compared to the previous version published on 29 October 2020, the updated guide reflects the end of the Brexit transition period on 31 December and the resulting split of SFTR into an EU and a UK version, which the recommendations continue to cover both. The new version also incorporates further guidance released by both ESMA and the FCA, in particular ESMA’s Q&As. A number of sections have been substantially revised as a result, including the guidance around the reporting of settlement fails (see e.g. section 9.16 of the Guide). The SFTR Recommendations will continue to evolve to reflect ongoing discussions within the ERCC’s SFTR Task Force as well as any further official guidance published by regulators.
Optimising settlement efficiency: As reported in previous newsletters, the ERCC Operations Group has focused extensively over the past months on the challenges around the management of intraday liquidity. A set of related best practice recommendations have been agreed and will be incorporated into the next version of the ERCC’s Guide to Best Practice. Many of the topics covered, including the use of partial settlement and shaping, are closely linked to the broader settlement efficiency agenda and will help the industry prepare for the implementation of CSDR settlement discipline. The ERCC will hold a dedicated workshop on 26 February to take stock of what has been achieved so far and to discuss what more could be done to optimise settlement efficiency in Europe.
Repo & sustainability
ERCC discussion paper: The ICMA ERCC is looking into ways to incorporate sustainability into the repo and collateral market. As a first initiative, ICMA has put together a short discussion paper to explore the potential sustainability dimensions in repo and to identify further potential for development. A first draft of the paper has been shared with the ERCC Committee as a basis for a first round of review before being circulated to the full ERCC membership. We hope to publish the paper by the end of February with the aim to trigger a broader discussion on this important topic.
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 scheduled to start in the first week of March, 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. 18 weeks, including 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
SFTR Public Data: Following the end of the Brexit transition on 31 December 2020, the SFTR public data has been split into separate EU and UK segments. ICMA continues to collect and aggregate the data on a weekly basis for both EU SFTR and UK SFTR. On the EU side, it is worth noting that, since 20 January, the data also includes reports from NFCs, following the fourth and final phase of the go-live. For a more detailed breakdown and related charts, please visit our SFTR public data page.
Other repo and collateral market developments
Basel Minimum haircut floors: On 26 January 2021, the BCBS published for consultation two technical amendments to the standard on minimum haircut floors for securities financing transactions (SFTs). The amendments seek to address an interpretive issue relating to collateral upgrade transactions and correct a misstatement of the calculation formula applied to netting sets. Both of these amendments are consistent with advocacy points raised previously by the ERCC with the BCBS (as well as the EBA and EC). The deadline for responding to the consultation is March 31.
Review of the EU Financial Collateral Directive: On 12 February, the EU Commission published two related targeted consultations on the parallel review of two of the EU’s long-standing directives in relation to securities and collateral, the Financial Collateral Directive (FCD) and the Settlement Finality Directive (SFD). The deadline for stakeholders to respond to both consultations is 7 May. ICMA will be reviewing both consultations closely together with ERCC members.
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: The first regular meeting of the new Committee is not scheduled yet but will be held around mid-March. On 27 January, the Committee had its last meeting in the old composition, covering a long list of current issues, including settlement efficiency, the increasing importance of technology, as well as the latest regulatory developments. As usual, meeting minutes will be published immediately after approval at the next meeting.
ICMA Education: upcoming livestreamed repo and collateral courses
Collateral management, 22-23 February, 1-2 March, 14.30-18.00 CET
SFTR: Repo Reporting in Practice, 25-26 March, 10.00-13.30 CET