In a closed-door roundtable discussion in Amsterdam, European market participants discussed whether Europe’s stock loan and repo reporting rules will bring unexpected positive consequences, or prove to be a regulatory headache.

Steve Kiely, BNY Mellon’s international head of securities finance sales, said that, despite many likely expecting him to think that the impending Securities Financing Transaction Regulation (SFTR) is “something we could well do without” – given the bank is a large agent lender – he has observed a number of positives that have stemmed from the regulatory regime.

“SFTR has enabled us to have a very good look at some of our data, to improve the quality and accuracy of it. The things that SFTR is going to force us to do or has forced us to do will be beneficial in the long run. Would we have got round to it were it not for SFTR? From a time and money perspective, maybe not,” Kiely explained.

Roelof Van De Struik, investment manager at PGGM, expressed that he is “mildly enthusiastic” about Europe’s stock loan and repo rules because “for the first time in the history of securities lending”, there will be a standardised report, which he claimed should have been introduced many years ago. The PGGM investment manager also noted the benefits for beneficial owners, highlighting that the transparency aspect of SFTR will support them.

The regime also provides some benefits to smaller market participants, as pointed out by Xavier Bouthors, senior portfolio manager of treasury fixed income solutions at NN Investment Partners, who said: “SFTR should definitely help the small players too, assuming that the bigger players have correct data. When mandatory derivatives clearing began there was a lot of discussion regarding smaller players being impacted by reporting, we don’t hear these discussions anymore. Firms didn’t stop trading. With SFTR you flag it, you start it, and then it gets smoother and parties stay in the business.”

However, despite the go-live date quickly approaching, Kabin George, director at data and analytics firm IHS Markit, noted: “We have spoken to a number of small asset managers and pension funds that complete a small amount of repo trades per month and have not realised at this stage, that these transactions are not being captured by their agent and would need a SFTR reporting solution to capture these trades. We are working with such funds to make sure that there is some sort of a general package and all the in scope trades are taken care of.”

Simon Heath, managing director of securities finance trading at JP Morgan, emphasised that SFTR has a broad scope, underlining that an investor participating in lending trough their own agent lender programme is still using repo for liquidity purposes and could potentially be in-scope.

“There’ll be opportunities under SFTR for an agent lender to work with their beneficial owner clients to help with the plumbing. There are economies of scale with a bulge bracket agent, whereby we could become a part of a client’s overall collateral strategy, and lending would be just one piece of a far wider offering,” Heath said.

BNY Mellon’s Kiely commented on the challenges that SFTR brings, namely surrounding the time and financial obligations. He added: “In terms of negatives, there is a lot more complexity than there used to be at a time when revenues are down. SFTR might be the straw the breaks the camel’s back with some of the smaller players. Even if it’s not just the work that’s involved, it might just be the consequences of getting it wrong means they decide to exit. We’ve been telling our clients SFTR is like filling out a tax return in that someone else can do it for you but you can’t outsource the responsibility, ultimately the data is your responsibility.”

Eward Sonneveld, senior supervision officer at AFM, also highlighted the “uncertainties” surrounding technology – more specifically with regards to connectivity to the regulator, Esma, and data collection. Sonneveld added that the Dutch regulator is aware that “things will go wrong” upon SFTR’s implementation, noting that it “will take months to adjust and the data will gradually improve”.

“The main message is it will take time, we know a lot of data will initially be of low quality, but as long as we receive the data, we have an understanding,” he concluded.

This is an extract from Global Investor’s European Securities Finance Roundtable, held in Amsterdam in September. The discussion features in the December/January edition of Global Investor magazine, which can be accessed by clicking here.