Could a new EU rule on collateral re-use, within the upcoming Securities Financing Transactions Regulation (SFTR), actually expose the underlying buy-side trading book? Some actors voice fear over just that.
News site The Trade explains why the rule in question is problematic for the industry.
“Targeting collateral re-use is one of the main pillars of the regulation which has been deemed to give rise to financial stability risks through complex chains,” it writes, and the regulation will therefore require information from collateral receivers on risks relating to re-use.
Delegated reporting in focus
Yet The Trade quotes a sceptic voice, that of Val Wotton, managing director for collateral management (and several other areas) at the DTCC. For firms opting for delegated reporting, it could effectively expose the underlying book, he argues.
“A number of funds have raised concerns around how that would work from a delegated reporting perspective. Would you really want to provide that information,” asks Val Wotton.
“All firms have to report how their collateral is being re-used, if you want a firm to do delegated reporting on their behalf, do you necessarily want to give them full visibility of how you are re-using your collateral?”