Why Financial Institutions should lean on MiFID II to alleviate SFTR concerns

Why Financial Institutions should lean on MiFID II to alleviate SFTR concerns

Yann Bloch

Senior Pre-Sales and Product Expert at NeoXam

Views 619

Why Financial Institutions should lean on MiFID II to alleviate SFTR concerns

11.02.2020 09:45 am

With the MiFID II dust finally starting to final settle, industry attention is understandably turning towards the next four-letter regulatory anacronym. One generating significant interest is the Securities Financing Transactions Regulation – more commonly referred to as SFTR. A traditionally under-reported part of the market, the complex world of repos and securities lending is set to come under the compliance spotlight.

But while there are always initial concerns with any new rule, preparations should definitely be less frenzied around SFTR than for its predecessors. This, in large part, is due to the similarities it shares with former regulations. Many financial institutions have already found that solutions developed for MiFID II can be adapted for SFTR compliance.

Take the distinct lack of clarity currently surrounding how intraday cleared transactions will be reported. As things stand, they may vary by the nature of the instrument being traded. There are also worries about how to identify an SFTR trade. Certain venues may be required to generate Unique Trade Identification (UTI) codes, while trading firms will need to maintain the tracking code as part of their reporting. These challenges are not a million miles away from some of the early teething problems firms faced around the MiFID II transaction reporting regime.

However, transaction reporting is by no means the only area firms can look to for their SFTR prep. Best execution, which was at the heart of MiFID II, placed a huge amount of emphasis on data quality. SFTR is no different. Under the rules, there are a number of pressing issues market participants will only be able to address with clean and consistent data. For example, hedge funds will need to rely on delegating their reporting to third parties. This involves the documenting of total interest in a given stock to each prime broker. The trouble is that, without good data, inaccurate information could be reported To ensure full compliance, firms need to know similar intricate details to what was demanded under MiFID II. These details include whether they can amend what’s being reported in their name, and how they can measure and provide full visibility into exactly what has been reported. With such a vast amount of activity to document, from margin-lending transactions on a daily basis, to numerous collateral updates and valuations, it is essential firms have their data houses in order ahead of phase one in April.

SFTR is unquestionably an important missing piece in this complex regulatory jigsaw which market participants have been piecing together over the past decade. Since the financial crash, the industry has been seeking for ways to address the longstanding reporting shortcoming in this specific part of the securities lending and repo markets. With MiFID II setting a precedent for dramatic technological change, financial institutions that use the work already carried out as a foundation for their SFTR requirements are likely to be the ones best prepared for the changes to come later this year.

Latest blogs

Granville Turner Turner Little

The Lockdown Money Revolution

Many Brits have found that lockdown has been beneficial for their money, having cut back on personal spending and managing to put away some extra cash. According to eToro, Brits with unspent discretionary income are set to accumulate £75.5bn in Read more »

Sandra Higgins Sysnet Global Solutions

Are You ‘Prescribing’ the Right Security Solution to Your Merchants?

When it comes to leading a healthy lifestyle, eating the right food, taking regular exercise, and maintaining a positive mindset are key. However, despite these best intentions and practices, you still might not get all the nutrients your body needs Read more »

Robert Flowers DivideBuy

It Doesn’t Have to Be the End – How Retailers Can Grow in Light of COVID-19

It’s no news that the retail industry has been flipped on its head by the COVID-19 pandemic. Due to the lockdown, most in-store operations have been shut down, and nationwide furloughs, reduced pay and steady streams of income at risk have fuelled a Read more »

n/a n/a

4 Ways to Protect Your Small Business Against Cyber Attacks

Just because you are running a small scale business doesn’t mean you are beyond the reach of hackers and attackers. Many small businesses have this thought, which is why they do not invest in their cybersecurity. Unfortunately, every year small Read more »

Kirston Winters MarkitSERV, IHS Markit

IBOR transition update: €STR grabs a foothold?

In the latest development in the IBOR transition, on the weekend of July 25th, we saw the major CCPs perform the much-anticipated Euro discounting and price alignment transition from using EONIA to EuroSTR (a.k.a. €STR) for all Euro OTC interest Read more »

Related Blogs

Maxim Bederov a number of projects

Can blockchain mitigate the impact of MIFID II?

It is over a year since MiFID II came into effect, yet confusion still reigns in the financial services industry. Many participants are struggling to achieve full compliance with the EU-wide regulation that aims to create transparency and improve Read more »

Ivy Schmerken FlexTrade

MiFID II Reaches Across the Pond: Is This the Calm Before the Storm?

Despite the view that MiFID II is a European regulation, US investment managers are experiencing disruption as they align their research payment and execution practices with the influential standard. While MiFID II went into force on Jan. 3, 2018, Read more »

Ivy Schmerken FlexTrade

MiFID II Post-Mortem Cites Delays on LEIs and Data Quality as Key Challenge

With the rollout of such a massive regulation as MiFID II, there are bound to be some hiccups, but so far firms are mainly wrestling with trade reporting and data quality issues. Read more »

Ivy Schmerken FlexTrade

MiFID II’s Trading Hereafter: Systematic Internalizers & Block Venue

MiFID II went live on Jan. 3 without much fanfare, but the EU regulation is already shifting trading behavior toward Large-in-scale block trading venues and new venues called systematic internalizers run by banks and high frequency trading firms. Read more »

Ivy Schmerken FlexTrade

Seeking Clarity on MiFID II Inducement Trading Rules

With MIFID II’s rules on inducements now a reality, buy-side firms are paying close attention to the costs associated with their front-office trading platforms and analytics. The EU regulation, which took effect on Jan. 3, could draw scrutiny to Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel