Regulatory context -

The regulation on transparency of securities financing transactions and of reuse (the “Regulation”) stems from a belief that the 2007-08 global financial crisis revealed excessive speculative activities, important regulatory gaps, ineffective supervision, opaque markets and overly complex products in the financial system. This Regulation is a product of the “shadow banking” stream of work at the EU leve. The Regulation defines shadow banking as “bank-like credit intermediation” and labels it “alarming” in terms of its scale3. The Regulation seeks to address securities financing transactions, which, in the Commission’s view, allows the build-up of leverage, pro-cyclicality and interconnectedness in the financial markets. In particular, the Commission says that a lack of transparency in the use of securities financing transactions has prevented regulators and supervisors as well as investors from correctly assessing and monitoring the respective bank-like risks and level of interconnectedness in the financial system in the period preceding and during the financial crisis.

This Regulation piggybacks somewhat on EMIR transaction reporting in order to minimise additional operational costs for market participants, and many similarities with EMIR can be seen in the Regulation. For those comfortable with EMIR reporting it should be relatively straightforward to come into compliance with the new requirements...