The 35 lifecycle events that we see in the securities finance industry are affecting firms SFTR reporting, either by creating a reporting obligation or affecting an open trade.  In this blog, Simon Davies at Pirum gives an overview of the impact of returns.

The goal for many firms is to ensure that their initial report to the Trade Repository (TR) is acknowledged (ACK) and that they can meet their reporting obligation.  Firms need to ensure they have a smooth pairing process and to achieve this the generating and sharing the UTI with their counterpart is critical. 

We are seeing very good UTI sharing and ACK rates within the industry on the initial trade reports.  However, the successful initial pairing is then being impacted by returns processing. 

Where firms share a UTI and there is a successful pairing at the TR, but there is then a subsequent full or partial closeout of an open trade, leading to either a modification or termination, this is leading to subsequent quantity breaks or mispairing issues.  This is due to firms processing the return from different UTIs.     

Return booking models often differ between firms – from processing returns by economic data – ie the highest rate or most expensive collateral is allocated the return or along FIFO principles.  Additionally, reallocations and rebooking processes by lenders create challenges.   This results in individual loans at the UTI level quickly getting out of line.  Now that SFTR is in place, the trade level return process needs to be carefully managed to ensure that pairing issues and trade breaks are not seen at the TR.  This will also be crucial in reducing the effort required to fix issues and help manage the complexity around TR error / correction processing. 

These issues can be easily managed automatically.  At Pirum, our auto-returns functionality allows borrowers to call in returns and have them automatically processed to the correct UTI by the lender against defined rules.  We have seen a 69% increase in the number of returns automatically processed as firms prepared for the introduction of SFTR and looked to minimise the impacts of CSDR.

Returns chart

Firms have complete control and gain the benefit of a fully automated process.  They can set limits on minimal lot size, duration of loan and settlement cut-offs etc – all controlled by the counterparts to the trade.  This allows firms to automate their returns processing and any exceptions are highlighted quickly and importantly, it allows them to ensure the return is processed from the correct UTI, thereby eliminating the resulting matching and pairing issues caused by manual processing.

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