15 March 2021 - We are pleased to share with you the March 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
CSDR mandatory buy-ins
Cross-industry letter on timing: On 11 March, ICMA and 14 trade associations representing a wide range of stakeholders in the European and global financial markets wrote to the European Commission and ESMA raising concerns about the implementation of the mandatory buy-in requirement under the EU’s CSDR Settlement Discipline Regime. The current mandatory buy-in requirement, part of CSDR Settlement Discipline, which is due to come into force on 1 February 2022, is widely felt to require a thorough reassessment as to its appropriateness and is currently the subject of a European Commission Review. Any proposed legislative amendments to the mandatory buy-in requirement are not expected until the end of 2021. Given the significant global implementation effort required to support the CSDR mandatory buy-in requirement, the associations suggest that a far more robust approach would be to make the required revisions to the mandatory buy-in regime arising from the Review before attempting implementation. Accordingly the letter asks the European Commission for clarity on the Review and implementation schedule of CSDR-SD at the earliest opportunity.
Joint industry letter on issuer LEIs: On 8 March, ICMA, in association with ISLA, AFME, and AMAFI sent a joint communication to ESMA, various NCAs, and the FCA to reiterate concerns around the lack of availability of Legal Entity Identifiers (LEIs) for issuers outside of Europe. The letter was sent ahead of the end of a 12-month forbearance period in April for the reporting of non-EEA issuer LEIs that had been granted by ESMA. As part of the letter the associations submitted the results of a joint study to quantify the gap in the issuer LEI coverage for active ISINs. Although the industry has been trying proactively to help encourage LEI issuance, in some major non-European markets the gap is still very significant. The letter proposes possible solutions and seeks further guidance on the issue from ESMA.
Draft Q&A on settlement fails: ICMA submitted a further query related to ESMA’s guidance on the reporting of settlement fails. While ESMA previously clarified that fails need to be reported, the Q&As also include an exemption for CCP-cleared trades, given that these are netted and fails can therefore not be attributed to individual SFTs. ICMA has asked ESMA to confirm that the same logic applies to bilateral trades that settle on a net basis, as a result of technical netting or settlement netting. The ICMA submission highlights the desirability of technical netting which is encouraged as a best practice as it supports settlement efficiency and reduces settlement risk for all parties involved.
Settlement Efficiency Workshop: On 26 March, the ERCC held a cross-industry workshop on settlement efficiency attended by members of the ERCC Committee and a broad set of other stakeholders, including industry associations. The objective of the workshop was to review the current situation in relation to fails and explore ways to further optimise settlement efficiency in the market. Participants discussed a number of important tools, including shaping, auto-partialling and auto-borrowing, and agreed a set of related principles which will help to steer the ERCC work on this topic going forward.
Repo & sustainability
ERCC discussion paper: ICMA has put together a discussion paper to explore potential green and sustainability dimensions in repo and to identify further areas for development. The paper has been shared with the ERCC Committee for review and a follow-up call was held on 9 March to discuss the topic. Members had an engaging conversation and provided useful feedback to the paper. We hope to publish the paper together with a consultation questionnaire ahead of the ERCC General Meeting on 30 March, with the aim to trigger a broader discussion on this important topic.
Common Domain Model (CDM) for repo and bonds: The inaugural meeting to develop ICMA’s CDM for repo and bonds was held on 4 March. In the initial 18-week phase (March-June 2021), the aim is to model fixed-term ‘standard’ repos as well as bonds, focusing on trade execution, clearing and settlement. The project is guided by ICMA’s CDM Steering Committee, which comprises A&O, Barclays, BNY Mellon, Eurex, Euroclear, IHS Markit, JPMorgan, LCH, Murex, Swift, Tradeweb, and UBS. A training session was held on the CDM modelling environment, called Rosetta, followed by a second meeting on 11 March to define a conceptual repo and bond model. Background information, including supporting materials from previous 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 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, although the UK data still needs to be treated with caution due to some teething issues at one of the TRs. For a more detailed breakdown and related charts, please visit our SFTR public data page.
Repo market data hub: ICMA has updated its webpage to include a repo market data hub, which is refreshed on a monthly basis. Currently this includes:
The data is sourced from Bloomberg and CME Group Benchmark Administration Limited.
Other repo and collateral market developments
Basel Minimum haircut floors: On 26 January, 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). However, there remain concerns about both the application of the minimum floors in the case of securities lending as well as the netting formula. The ERCC is considering endorsing a response from ISLA. The deadline for responding to the consultation is 31 March.
Papers and reports
US Repo Fact Sheet, SIFMA Research, January 2021
How do secured funding markets behave under stress? Evidence from the gilt repo market, Bank of England, Staff Working Paper No.910, February 2021
Primer: Money Market Funds and the Repo Market, SEC, February 2021
Survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD) December 2020, ECB, March 2021
Meetings and events
ERCC General Meeting: On 30 March, the ERCC will hold its next Annual General Meeting. We are delighted to welcome Fiona van Echelpoel, Deputy Director General at the ECB, who will join us to provide a keynote address. The 2-hour livestreamed event will also feature two panel discussions: a first panel to discuss ERCC priorities with the chairs of the Committee, and a second panel to focus on the challenges around settlement efficiency in Europe and possible ways to improve it. A number of short pre-recorded updates on other key ERCC initiatives will be available ahead of the event to complement the agenda. More details and a link to register for the event are available on the ICMA website.
ERCC Committee meetings: The first official meeting of the newly elected ERCC Committee will be held on 22 March. During the meeting, Committee members will elect a chair and a vice-chair and will discuss priorities for the Committee for 2021. The final meeting of the Committee in its previous composition was held on 27 January. As usual, minutes of the meeting will be published once approved by the Committee at the upcoming meeting on 22 March.
ICMA Education: upcoming livestreamed repo and collateral courses
SFTR: Repo Reporting in Practice, 25-26 March, 10.00-13.30 CET
Securities Lending & Borrowing: Operational Challenges, 3-11 June, 10.00-13.30 CEST
Understanding the GMRA, 16-24 June, 10.00-13.30 CEST
Collateral Management, 4-12 October, 14.30-18.00 CEST