Securities financing transactions: Council confirms agreement with EP on transparency rules
On 29 June 2015, the Permanent Representatives Committee endorsed, on behalf of the Council, an agreement on improving the transparency of securities lending and repurchase transactions.
The proposed regulation will enhance financial stability by ensuring that information on so-called securities financing transactions is efficiently reported to trade repositories and investors in collective investment undertakings. An agreement on the text was reached with the European Parliament on 17 June 2015.
Improved transparency will prevent banks and other financial intermediaries from attempting to circumvent regulation by shifting parts of their activities to the less-regulated shadow banking sector.
Securities financing transactions, often carried out by the shadow banking sector, consist of any transaction that uses assets belonging to the counterparty to generate financing. They mostly involve lending or borrowing of securities and commodities, repurchase (repo) or reverse repurchase transactions, or buy-back/sell-back transactions.
A package of measures
The Commission presented its proposal in January 2014, together with a draft regulation on structural reform of the EU banking sector. The proposal is intended to counter the risk of trading activities based on securities financing transactions further developing without proper oversight, for instance outside the regulated banking system. To this end, it proposes binding transparency and reporting requirements for securities financing transactions.
The draft regulation introduces measures to improve transparency in three main areas:
- the monitoring of the build-up of systemic risks in the financial system related to securities financing transactions;
- the disclosure of information on such transactions to investors whose assets are employed in the transactions;
- reuse by banks or brokers for their own purposes of collateral provided by their clients.
Once finalised in all languages, the regulation will be submitted to the European Parliament for approval at first reading, and to the Council for adoption.