European Union: EU Securities Financing Transactions Regulation Published In The Official Journal Of The EU

The agreed text of the EU regulation on transparency of securities financing transactions and of reuse ("SFTR") has been published in the Official Journal of the European Union and, with the exception of certain transitional provisions, the SFTR entered into force on 12 January 2016.

The SFTR introduces measures addressing: reporting of securities financing transactions ("SFTs") to trade repositories by each counterparty; reporting and disclosure requirements for funds using SFTs and total return swaps; and requirements applicable to all counterparties to collateral arrangements engaged in rehypothecation. 

SFTs are defined in the SFTR to include repurchase transactions, securities or commodities lending or borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions.  


The SFTR requires counterparties to an SFT to report certain details of the transaction to a trade repository within one working day of the conclusion, modification or termination of the SFT and to keep records of the SFT for at least five years following its termination.  The details to be included in the reports will be specified in regulatory technical standards mandated by the SFTR, and prepared by the European Securities and Markets Authority ("ESMA").  In drafting the regulatory technical standards, ESMA is required to take into consideration the existing technical standards made under the European Market Infrastructure Regulation ("EMIR") relating to the reporting of transactions in derivatives.

The SFTR provides that the reports must at least include details of the parties to the SFT and, where different, the beneficiary of the rights and obligations arising therefrom; the principal amount; currency; assets used as collateral and their type, quality and value; the method used to provide collateral; whether collateral is available for reuse; where collateral is distinguishable from other assets, whether it has been reused; any substitution of collateral; the repurchase rate, lending fee or margin lending rate; haircuts; the value date; the maturity date; the first callable date; and the market segment.

Where a UCITS or AIF is counterparty to an SFT, the UCITS management company or AIFM is responsible for reporting on behalf of the fund.


The SFTR contains new rules on transparency which supplement the requirements of the UCITS Directive and the AIFMD.  In particular, UCITS managers or investment companies and AIFMs will need to supplement their existing periodic reports with detailed information on any recourse they have to the use of SFTs and total return swaps.  In addition, the SFTR provides that a fund's investment policy with respect to SFTs and total return swaps should be clearly disclosed in pre-investment documents.

UCITS and AIFs will need to review relevant fund documentation to assess whether they can rely on existing disclosures to meet the SFTR requirements, or whether amendments are necessary in light of the SFTR's more detailed rules, as is likely to be the case.  This would be particularly relevant to AIFs, which are not currently subject to detailed disclosure rules in relation to repurchase agreements and stocklending.

Collateral Reuse

The SFTR sets out new rules relating to the transparency of reuse of collateral, including a requirement to disclose the risks and consequences of: (a) granting a right of use of collateral provided under a security collateral arrangement; or (b) concluding a title transfer arrangement.  The receiving party must obtain the express written consent of the providing party in respect of a security collateral arrangement that includes a right of reuse or the provision of collateral under a title transfer arrangement.

"Reuse" is defined in the SFTR to mean the use by a receiving counterparty, in its own name and on its own account or on account of another counterparty of financial instruments received under a title transfer collateral arrangement or a security collateral arrangement.

It should be noted that the provisions on collateral reuse in the SFTR are without prejudice to stricter sectoral legislation, such as the UCITS requirements, and any national laws which establish a higher level of protection for providing counterparties.

Transitional Provisions

As the SFTR has now been published in the Official Journal of the European Union, and given that it is an EU regulation the nature of which is to have immediate effect without the need for further domestic implementing measures, the SFTR applies from 12 January 2016. There are however some important exceptions in respect of certain provisions:

  • The provisions in relation to transparency in periodic reports applicable to UCITS management companies / investment companies and AIFMs will apply from 13 January 2017
  • The provisions relating to investment fund transparency in pre-contractual documents will apply from 13 July 2017 for UCITS and AIFs constituted prior to 12 January 2017.  Funds established from 12 January 2016 must comply with the pre-contractual disclosure requirements from the date they are established.
  • The provisions relating to reuse of financial instruments received under a collateral arrangement will apply from 13 July 2016.
  • The provisions requiring financial counterparties to report details of securities financing transactions to trade repositories will apply at various dates after the adoption of certain regulatory technical standards required to be adopted under the SFTR, depending on the type of financial counterparty involved.  In the case of UCITS and AIFs, the reporting obligation will apply 18 months after the date of entry into force of the relevant delegated acts.


In relation to the pre-contractual disclosure provisions which apply to new UCITS and AIFs under the SFTR, with respect to sub-funds approved by the Central Bank from 12 January 2016 onwards, it is understood that the Central Bank is currently considering the interpretation of the SFTR's application, and we will keep our clients updated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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