As firms work through how to deal with the impacts of SFTR we have been looked at the life cycle process that impact the pairing and matching process – see our website for the previous ones on returns and marks.  In this blog we look at how exposure agreement can both benefit from SFTR reporting and be leveraged to improve the reporting process for firms.

SFTR requires firms to report collateral data at either the transaction or aggregated counterpart level.  Transaction level data should be reported with the trade whilst portfolio level data should be reported as of end of day, and any changes to both require a collateral update report and valuation report to be submitted along with a collateral re-use report.  There is a further challenge that any security used as collateral should have a valid LEI – with EU securities requiring this from go-live, and non-EU securities from 12 months post go-live.

Values, prices, currencies, and security details should be reported, and any re-use of collateral received as part of the securities finance transaction (SFT) and used in an SFT should also be reported.  In short, there is a relative amount of complexity involved in reporting collateral within the SFTR regime. 

Agreeing exposure requirements with counterparts and managing collateral required is bread and butter to securities finance teams, and an eco-system has developed within the industry to help manage this intraday and improve efficiencies around this.  This real-time, intraday focus benefits the firms reporting function by providing accurate and timely information required with the focus on getting this right to manage risk and operational efficiency.

Equally, SFTR is forcing firms to look at their data quality and increase the level of reconciliation seen across products and between counterparts, which if fed back up the chain will help exposure agreement.   This will also become more important as regulators settle on the required approach of dealing with missing LEIs on securities used as collateral, particularly if this needs to be part of an eligibility check. 

We are now seeing firms working to understand and leverage the data that they are gathering as part of their SFTR programme to help improve their overall risk management, exposure agreement and collateral management functions.  The challenge for firms is how to bring this altogether and manage the workflow and data sharing required in the time required and reduce duplicated effort. 

Pirum provides a comprehensive suite of collateral, exposure, and life cycle management tools, that help firms automate process and mange risk.  These tools compliment our SFTR reporting and reconciliation services provided with our SFTR partners at IHS Markit, to help reduce the impacts the regulation is having on firms. 

Bringing together the focus and agility of a firm’s collateral and exposure management functions with SFTR reporting helps firms make improvements to both.

Contact us to find out more – connect@pirum.com