In our last piece, 7 similarities between SFTR and EMIR, we highlighted the structural resemblance between the two regulations including granularity of reporting, confidentiality restrictions during reconciliation and counterparty classification.
To recap, Securities Financing Transaction Regulation (SFTR) was introduced to monitor risk and enhance transparency in the financing and reuse of securities and repos (repurchase agreements), securities lending activities, and sell/buy-back transactions are all in scope for SFTR. EMIR (European Market Infrastructure Regulation) also aims to monitor risk and enhance transparency for the derivatives world. But, for all the likeness between SFTR and EMIR there are distinct differences in the scope, asset classes, content and reconciliation of transaction data.
7 differences between SFTR and EMIR
| Asset classes covered are distinct | The transactions required under SFTR include repurchase, securities lending or borrowing, commodities lending or borrowing, buy-back/sell-back, margin lending and total returns. EMIR, on the other hand covers derivatives in equity, credit, interest rates, foreign exchange and commodity. |
| Scope and extraterritoriality of regulation | While SFTR requires all counterparties to submit reports including when they are based out of the EEA, EMIR does not. Under SFTR, any counterparty engaging in an SFT and reuse of collateral including branches, wherever they may be located, will need to report. |
| Branch obligation to report | Under EMIR, branches do not have separate LEIs from the headquarter firms and as such do not have an obligation to report. With SFTR however, the EU branches of non-EU entities have the obligation to report to an approved EU trade repository. On top of this, EU branches of 3rd country entities will also be obligated to report if the SFT is concluded in the course of the operations of a branch in the Union of the counterparty. |
| Number of fields, content and structure of data collected | EMIR requires data in 129 fields from three categories to be collected; counterparty data, collateral data and common data. The similarity in the data category collected under SFTR is counterparty data. SFTR requires data in over 150 fields across four categories; margin data, transaction data, re-use data and of course, counterparty data. |
| Different action types | Both regulations are largely similar in the names and definitions of action types including ‘new’, ‘modification’, ‘valuation update’ and ‘position component’. The ‘cancellation’ and ‘error’ action types under EMIR and SFTR differ only as far as the names of the action types. The definitions of both action types still remain the same i.e. the cancellation of a wrongly submitted entire report in case the contract never came into existence or was not subject to the EMIR reporting requirements but was reported to a trade repository by mistake. However SFTR also has other action types such as ‘collateral update’, ‘collateral reuse update’ and ‘margin update’ these are to reflect the continuous reporting of trade events required in SFTR. |
| Inter-TR reconciliation process differs between both regulations | The Inter-TR stage of the reconciliation process should be terminated by 18:00 UTC on each day of TARGET 2 calendar while the termination time under EMIR stands at 16:00 UTC. |
| Reconciliation of transaction data | Terminated or matured trades that have not been reconciled within a month after the latest submission will automatically be excluded from reconciliation under SFTR. However, with EMIR, there is no legal possibility to exclude trades from reconciliation until they are fully reconciled. |
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