Market infrastructure

What has the ALFI Market Infrastructure Committee this year undertaken with regard to SFTR?

Following the global financial crisis, the Financial Stability Board, the European Systemic Risk Board and the European Commission have instigated various initiatives aimed at looking at measures to improve the transparency and monitoring of non-bank alternative credit provision (or "shadow banking"). This has resulted (amongst other things) in the Regulation on transparency of securities financing transactions and of reuse (SFTR) which came into force on 12 January 2016. On 31 March 2017, the European Securities and Markets Authority (ESMA) published its Final Report on draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) under the Securities Financing Transaction Regulation (SFTR) specifying, inter alia, how to fulfil reporting obligations. This Final Report follows the Consultation Paper dated 30 September 2016.

The draft RTS under SFTR have been submitted to the European Commission for endorsement, who has three months to decide to endorse them.

These Commission Delegated Regulations are expected to enter into force by the end of 2017. The phase-in period for the reporting obligation of SFTs to TRs will vary between 12 months for credit institutions and investment firms, 15 months for Central Counterparties and Central Securities Depositories, 18 months for other financial counterparties and 21 months for non-financial counterparties. This implies that the earliest expected date for the reporting obligation will be during Q4 of 2018 for the first type of counterparties.

Further to the publication of the SFTR an ALFI ad-hoc working group was set up to analyse the Regulation and identify possible issues with the final aim to draft Q&As with regard to the disclosure requirements. Finally an additional ad hoc working group with the objective to analyse the finale RTS in liaison with other regulatory reporting requirements (i.e. EMIR/MIFIR) and the aim to draft Q&As was set up in April 2017

What is T2S and why does Europe need it? What are the benefits?

TARGET2-Securities, more commonly known as T2S, is a single, pan-European platform for securities settlement in central bank money. It brings substantial benefits to the European post-trading industry and is one of the largest infrastructure projects launched by the Eurosystem so far.

The roll-out phase of the T2S project is moving fast towards completion, with the final wave of central securities depositories (CSDs) set to migrate to the platform on 18 September this year. With the last wave that took place place in February 2017, T2S is now processing about 90% of the total transaction volume expected at the end of full migration and more than 500,000 securities transactions are being settled on the platform every day.

By providing market participants with a pan-European securities settlement service, T2S has made cross-border settlement easier and more efficient. T2S has not only integrated securities settlement in Europe, it has also created the momentum to press forwards with the harmonisation of post-trade activities, complementing the European Commission’s efforts to build a capital markets union.

T2S brings a lot of benefits in terms of collateral and liquidity optimisation. Industry participants can now use a single commercial bank or central bank cash account across the T2S region, allowing real time offsets in euro across markets; this reduces the volume of euro liquidity required for intra-day settlement. T2S enables common usage of the overnight cycle, operating on a net basis and reducing the liquidity required overnight; however, only if the volume of overnight settlements can be increased will this further reduce the amount of liquidity required on an intra-day basis. The usage of partial settlement again maximises the usage of liquidity by delivering available inventory more effectively. Auto-collateralisation is also a cost effective way for those with central bank access to create additional liquidity. Furthermore, the real-time settlement links across the T2S platform and the fact that triparty providers have a direct connection to the platform allow for a more efficient mechanism for delivering collateral from local markets to triparty programmes.

To support its members, ALFI has established a T2S Working Group, which is publishing an evolving set of guidelines on T2S for funds in the form of continually updated Q&As.

What has the ALFI Market Infrastructure Committee undertaken this year with regard to European Market Infrastructure Regulation Review?

On 4 May 2017 the European Commission (EC) published a legislative proposal to amend the European Market Infrastructure Regulation (EMIR), reflecting the outcome of its review of how EMIR has worked since its adoption in 2012. Rather than fundamental reform, the proposals set out a limited number of changes aiming to address specific issues identified in the review such as the double sided reporting, although many of these will have significant impact on market participants. On 13 June the EC has published the second part of the review of EMIR containing a proposal for an amending Regulation relating to the supervision of central counterparties (CCPs). The proposal is based on an assessment of the supervisory arrangements for CCPs, as well as on the feedback to the consultation on the operations of the European Supervisory Authorities and on the Capital Markets Union mid-term review.

It is expected that the amended Regulation will to enter into force by the end of 2018. However, the proposed amending regulation may be subject to amendments during the legislative process.

ALFI’s EMIR working group responded to the public consultation that took place in 2015 (review of the unintended consequences of the EMIR reporting framework) and has started its analyses of the proposed amendments to the EMIR framework with the objective to contribute to the legislative process.


Fédéric Pérard (BNP Paribas Securities Services, succursale de Luxembourg) and Geoff Radcliffe (BlackRock Fund Management Company S.A.)

Co-Chairs of the ALFI Market Infrastructure Technical Committee