“To be honest, there are some things that are still being raised. One of the things that we’re still hearing some information about is the UTI dissemination. There is a UTI decision tree that’s put in place, but actually how you share the UTI isn’t enforced in the regulation,” says Catherine Talks, SFTR product manager at UnaVista.
The European Securities and Markets Authority (Esma) published the decision tree to clarify responsibility for creation of UTIs, but the regulator does not offer official guidance on their exchange.
Talks has seen an uptick in firms using market vendor systems to electronically share UTIs. For those not using such systems, counterparty communication remains an issue.
Val Wotton, managing director, DTCC also cites UTIs as a concern for the buyside who are required to pair and match transactions in a trade repository on a T+1 basis.
“Counterparties have to generate and exchange UTI pre-reporting because the pairing of trades requires the UTI and legal entity identifiers (LEIs) of the counterparties involved in a given transaction. Prior to the implementation of SFTR, UTIs were not used in the repo and SFT markets and therefore this presents a significant challenge for market participants,” said Wotton in an email.
On March 19, Esma published a statement delaying the first phase of SFTR from April 13 to July 13 due to pressures of coronavirus. The new deadline merges phase one and two of the regulation, covering credit institutions, investment firms, central clearing counterparties (CCPs), central securities depositories (CSDs) and relevant third country entities. Buyside firms are subject to their initial deadline of October 12.
According to Wotton, the delay was needed for the sellside to prepare, but now buyside firms are left with less time to assess difficulties after the first phase of implementation.
“There are varying levels of preparedness across the buyside, depending on the size of the firm. For those who have opted for delegated reporting, several outstanding issues within this model remain, including the reporting of collateral reuse. As a result it is imperative that buyside firms act now, finalise their reporting plans and carry out testing in order to be ready for the October deadline,” he said.
UnaVista’s Talks has also been advising the buyside to test their reporting plans as soon as possible.
“One of the things we’ve been telling firms to make sure that they have in place for their reporting phases is that they’ve managed to get their explicit permission requirements completed, which has a bigger impact on the buyside than the sellside because they will have a lot of funds under management. That means that they’ll need to get a lot of permissions in place ahead of the reporting,” she says.
“And that’s been a requirement that’s been known for a long time so I think firms have been very good and engaged, and it shouldn’t be that much of a concern.”
Communication between firms will be imperative in the months following the first phase of implementation. Talks is hopeful.
“I think firms have been very good at communicating with one another. What we’ve seen is many firms are very engaged in the industry bodies and there’s very active participation which means that they’re very engaged, they’re sharing any concerns and discussing where there might be any issues or opportunities.”