SFT Regulation: Required Disclosures in Periodic Reports of UCITS and AIFs

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SFT Regulation: Required Disclosures in Periodic Reports of UCITS and AIFs

October 7, 2016

As previously reported, the Securities Financing Transactions Regulation (SFTR) came into effect on 12 January 2016, with transitional periods for a number of its provisions. One of these was the requirement under Article 13 that UCITS management companies, on behalf of the UCITS which they manage, and UCITS investment companies, inform investors of the use of securities financing transactions (SFTs) and total return swaps (TRS) in the half-yearly and annual report of the UCITS. Likewise, authorised AIFMs are required to inform investors of the use of SFTs and TRS, by the AIF which they manage, in the annual report of their AIF(s). Article 33(2) (b) of the SFTR provides that Article 13 shall apply from 13 January 2017.

What transactions are affected?

The SFTR affects TRS and the following SFTs:

Repos, to include reverse repos, and buy-sell backs. Repos are a means of securing cash loans with bonds or shares as collateral.
Securities lending, which involves shares or bonds being lent against cash collateral.
Commodities lending, which involves commodities being lent against cash, typically in order to obtain secured financing.
Margin loans in connection with the extension of credit for the purchase, sale, carrying or trading of securities, but excluding any other cash loans secured by securities.

With the transitional period drawing to a close, the relevant data, as set out in the table below, should be gathered for inclusion in periodic reports issued from 13 January 2017.

Information to be provided in periodic reports – Section A of the Annex to the SFTR

Global data:

amount of securities/commodities on loan as proportion of total lendable assets
amount of assets engaged in each type of SFT/TRS, expressed as an absolute amount in fund’s base currency and as proportion of fund AUM

Data on collateral reuse:

amount of collateral reused, compared to maximum amount disclosed to investors
cash collateral reinvestment returns to fund

Concentration data:

ten largest collateral issuers across all SFTs/TRSs, with volume breakdown per issuer name
top ten counterparties of each type of SFTs/TRSs, with counterparty name and gross volume of outstanding transaction

Safekeeping of collateral received by fund as part of SFTs/TRSs:

number and name of custodians and amount of collateral held by each

Aggregate transaction data for each type of SFT/TRS:

type and quantity of collateral
maturity tenor of collateral broken down by 7 maturity buckets
currency of collateral
maturity tenor of SFTs/TRSs broken down by 7 maturity buckets
country of domicile of counterparties
settlement and clearing of trade (e.g. bilateral, tri-party, CCP)

Safekeeping of collateral granted by fund as part of SFTs/TRSs:

Proportion of collateral held in segregated, pooled, or other accounts

Data on return and cost for each type of SFT/TRS, broken down between the fund, fund manager and third parties (e.g. agent lender) in absolute terms and as percentage of overall returns generated by relevant type of SFT/TRS

Contributed by David Naughton