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International Securities Lending Association

SFTR Corporate Actions Working Group #8

James Langlois, Lewis Nicholson

9 Oct 2019

SFTR Corporate Actions: Approach for this Working Group

1- Review of SFTR Corporate Actions Working Group 2- Best Practice discussion:

• Execution Timestamp
• Non-Tradable Securities

3- Next Steps

SFTR Corporate Actions: Overall Scope and Plan

1- Define Corporate Actions Universe (Q2 2019)

• Form a distinct list of all CAs
• Align with the ISO 15022 (SWIFT) and 20022 (STP) standards
• Determine attributes and effects of each CA on SFTs

2- Stratify the CAs into Clusters by their effects on SFTs & booking models (Q2

2019)

• Review groups of CAs which can be processed similarly
• Confirm CAs which have no material effect on SFTs
• Confirm booking models for clusters
• Define the SFTR reports that each Cluster of CAs affects

3- Agree an SFTR related Best Practice for each CA Cluster (Q3 2019)

• Reach agreement on specific booking models which enable SFTR compliant reporting
• Determine universal procedures (Best Practice) for processing and communicating CAs on SFTs

4- Connect the SFTR CA WG’s output with the wider industry discussion (Q4 2019)

• Contribute to the Securities Lending industry’s general policy (beyond of SFTR)

SFTR Corporate Actions: Timeline

Workshops, Surveys, Direct Member Firm Meetings Reaching out for Industry-wide best practice acceptance SFTR Report Testing, Developing Solutions not defined in 2019, Support for SFTR GO LIVE

Membership & Responsibilities Objectives & Scope Methodology & Plan Baselining Information

JUL 19 OCT 19 JAN 20 APR 20 APR 19

1-2-1s

SFTR Corporate Actions: Best Practice Evolution

Working Group Packs Best Practice PowerPoint

Best Practice Draft Document

Best Practice Proposal Doc European Standards SFTR CA Universe ECB Harmonisation Internal ISLA Approval ISLA Member Firm Approval Global Standards European Industry Review Global Review Industry Adoption

SFTR Corporate Actions: Key SFTR Reporting Requirements

• SFTR is a two-sided reporting requirement: both Borrower (collateral provider) and collateral receiver

(lender) required to report their side of the SFT to an approved TR on trade date +1 (T+1).

• All new SFTs, modifications of open SFTs and terminations of existing SFTs must be reported daily.
• Collateral is reported on T+1 or value date +1 (S+1) dependent on method of collateralisation used.
• As part of the two-sided reporting obligation a Unique Transaction Identifier (UTI) must be included by

participants in their reports to the TRs. This value will be used by the TRs to match separately received reports from each counterpart to an SFT.

• Participants must also use Legal Entity Identifiers (LEIs) to identify their counterparts along with a number
• f other parties involved in the SFT (e.g. Agent Lenders, CSDs, CCPs).
• For agency loans with multiple underlying principals both borrower and lender will need to report each

allocation to a principal as an individually reportable transaction.

• The SFTR reporting must also include any collateral linked to the SFTs including the LEI of the counterparty

with whom the collateral was exchanged and the master agreement under which it was agreed.

SFTR Corporate Actions: Issues for review in this WG

Execution Timestamp

SFTR Report:

ETRM/ NEWT ETRM ETRM/ MODI NEWT

NULL NULL

CA Cluster/ Issue

Return and New Trade Full Return Full or Partial Return Addition Sec on Loan Economic

• utside SFT

Non-Economic

• r Information

Execution Timestamp

Y N N Y N N

Non-Tradable Securities

Y N N Y N N

Non-Tradable Securities

SFTR Corp Acts: Execution Timestamp

Issue:

• All new trades will require a NEWT message to be sent which includes an Execution Timestamp

to be applied.

• The execution timestamp must be matched to within an hour to the timestamp on the
• pposite side.
• Currently (and foreseeably) CA bookings are created at the times that the separate CA teams

are processing them – in isolation from each other.

• There is no execution time for a CA booking because it is a downstream effect of an event and

not a new ‘trade’ – however these effects are reported as trades to the TR Best Practice: ✓ OPTION 1- All mandatory CA bookings are have the timestamp overwritten with a time as agreed between the two firms – e.g. this could be standardised to be 10:10:10 ✓ OPTION 2- The UTI generator also sends a timestamp to the other firm to enrich their trade with for reporting purposes. ✓ OPTION 3- A hybrid of the above is detailed on the next slide.

SFTR Corp Acts: Execution Timestamp Best Practice Option 3

10:10:10 10:10:10

The 4 scenarios presented under a hybrid best practice:

LENDER BORROWER Both parties report with 10:10:10 overwritten as the Execution Timestamp 10:10:10 Enrich Borrow will accept the Timestamp from the Lender, therefore the Borrower matches the Lender’s 10:10:10 Enrich 10:10:10 The Lender will report with their own booking time

• the Borrower must be able to accept this

Enrich Enrich The Lender sends their Timestamp to the Borrower who is prepared to accept

SFTR Corporate Actions: Non-Tradable Securities

Issue:

• ESMA is due to respond on the securities without ISINs (see question on next page). The

Level 3 due to be released in a few weeks time may require these positions to be reported.

• The greater percentage of firms do not book the ineligible securities in their systems,

accounting for them in other ways.

• Some firms do book the ineligible securities and if this is reported to the TR, there will be a

single sided trade. Best Practice: ✓ Firms may be required to change their existing processes with regards to booking or representing non-tradable securities as a result of corporate actions. Next Steps: ▪ We should formalise, as a group, the diversity of these corporate actions related non- exchange traded securities, CDIs have already been raised. ▪ Once we have formed an holistic view of the issue, we can discuss what should be reported and agree a best practice.

SFTR Corp Act: Non-Tradable Securities – ESMA Consultation

“ISIN’s may not on occasion be available where private placements

• ccur or where a new security has been issued and a temporary ISIN

has been provided. Members still require instruction as to whether fields #41 ‘Security identifier’, #78 ‘Identification of a security used as collateral’ in Table 2 as well as #7 ‘Collateral component’ should be reported blank for securities without an ISIN, or those lines should be omitted to ensure transmission of the rest of the submission?” Question 41

SFTR Corporate Actions: Non-Tradable Securities – Next Steps

▪ Detail the booking model for members firms which do book the non-tradable securities and those which do not book them – two examples for each method to be volunteered by member firms. ▪ Prepare a list of all types of non-tradable securities from member firms – can these be provided by your CA teams or by the Data Officer? ▪ Determine the effects on reporting as to whether or not each type of non-tradable security requires reporting. ▪ Link this is research with the Level 3 response from ESMA on securities without ISINs.

ISLA SFTR Corporate Actions Working Group

1- ISLA to produce Best Practice Presentation for Firm member internal review in WG #9 2- Prepare to circulate the Best Practice (for SFTR) to the local Industry 3- Start to review the non-SFTR related issues…