New ICMA European Repo and Collateral Council (ERCC) Annual … · 2020. 10. 6. · 5 CEST 15.00...
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7 October 2020 ICMA European Repo and Collateral Council (ERCC) Annual General Meeting Hosted by:
Transcript of New ICMA European Repo and Collateral Council (ERCC) Annual … · 2020. 10. 6. · 5 CEST 15.00...
7 October 2020
ICMA European Repo and Collateral Council (ERCC)
Annual General Meeting
Hosted by:
2
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Welcome by the hostGrant Davies, Head of Sales EMEA, EquiLend
Introductory remarksGodfried De Vidts, Senior Adviser, ICMA ERCC
5
CEST
15.00 Welcome by the host
15.05 Introductory remarks
15.10 Repo market data: The 39th European Repo Survey & SFTR public data
15.25 Panel discussion: The European Repo Market in 2020
16.00 ERCC Ops initiative on intraday liquidity
16.15 Legal updates
16.25 Regulation
16.45 CDM and repo
16.55 Closing remarks
17.00 Event close
ICMA European Repo and Collateral Council (ERCC) Annual General Meeting
Repo market data: The 39th European
Repo Survey & SFTR public data
Richard Comotto, Senior Adviser, ICMA
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Headline number: ICMA survey
39th European repo market survey conducted in June 2020
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jun
-01
Jun
-02
Jun
-03
Jun
-04
Jun
-05
Jun
-06
Jun
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Jun
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Jun
-09
Jun
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Jun
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Jun
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Jun
-14
Jun
-15
Jun
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Jun
-17
Jun
-18
Jun
-19
Jun
-20
EU
R b
illio
n
EUR 7,885 bn (from 8,310)ICMA survey
headline number -5.1% (Jun-Dec)headline number +1.6% (Jun-Jun)constant sample -4.5% (Jun-Dec)constant sample -1.0% (Jun-Jun)
EUR 7,756 bnSFTR public data 24-Jul
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SFTR public data --- outstanding value of repo
39th European repo market survey conducted in June 2020
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
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-Ju
l-2
0
24
-Ju
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31
-Ju
l-2
0
07
-Au
g-2
0
14
-Au
g-2
0
21
-Au
g-2
0
28
-Au
g-2
0
04
-Sep
-20
11
-Sep
-20
18
-Sep
-20
25
-Sep
-20
EUR
bill
ion
EUR 11,687 bn25-Sep-2020
9
SFTR public data --- repo turnover
39th European repo market survey conducted in June 2020
EUR 17,301 bn per weekEUR 3,469 per dayweek ending 25-Sep-2020
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
17
-Ju
l-2
0
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-Ju
l-2
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31
-Ju
l-2
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07
-Au
g-2
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14
-Au
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28
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0
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-Sep
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11
-Sep
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18
-Sep
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25
-Sep
-20
EUR
bill
ion EUR 1,947 bn per day
ICMA survey
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Trading Analysis
39th European repo market survey conducted in June 2020
0%
10%
20%
30%
40%
50%
60%
70%
Dec-0
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Dec-0
2
Dec-0
3
Dec-0
4
Dec-0
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Dec-0
6
Dec-0
7
Dec-0
8
Dec-0
9
Dec-1
0
Dec-1
1
Dec-1
2
Dec-1
3
Dec-1
4
Dec-1
5
Dec-1
6
Dec-1
7
Dec-1
8
Dec-1
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direct = 54.5% (52.5%)
ATS = 27.5% (28.9%)
voice-broker = 8.8% (9.9%)
tri-party = 9.2% (8.7%)
EEA MIC 48.9%
all OTC 51.1%SFTR public data W2-W11
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Geographical Analysis
39th European repo market survey conducted in June 2020
0%
10%
20%
30%
40%
50%
60%
70%
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
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Dec
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Dec
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Dec
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Dec
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Dec
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Dec
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Dec
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Dec
-15
Dec
-16
Dec
-17
Dec
-18
Dec
-19
domestic = 27.4% (26.3%)
X-border = 53.1% (52.6%)
anonymous = 19.5% (21.1%)
EEA-EEA 55.1%EEA-nonEEA 40.6%CCP-cleared 43.7%SFTR public data W2-W11
12
Geographical Analysis
39th European repo market survey conducted in June 2020
X-border into EUR= 36.3% (38.2%)
X-border to outside EUR = 16.8% (14.4%)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Dec
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Dec
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Dec
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Dec
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Currency Analysis
39th European repo market survey conducted in June 2020
EUR54.1%(53.6%)
GBP15.8%(13.6%)
USD20.6%(18.9%)
JPY5.7%(5.4%)
other3.8%(8.5%)
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Currency Analysis
39th European repo market survey conducted in June 2020
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Dec
-01
Dec
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Dec
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Dec
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Dec
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Dec
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Dec
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Dec
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EUR (54.1%)
GBP (15.8%)
USD (20.6%)other (9.5%)
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Collateral Analysis --- Core Eurozone
39th European repo market survey conducted in June 2020
0%
5%
10%
15%
20%
25%
30%
35%
40%
De
c-0
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De
c-0
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c-0
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c-0
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c-0
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c-1
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De
c-1
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NL = 1.5% (1.2%)
DE = 13.5% (13.5%)
FR = 11.0% (12.9%)
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Collateral Analysis --- Peripheral Eurozone
39th European repo market survey conducted in June 2020
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
De
c-0
1
De
c-0
2
De
c-0
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Dec-0
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De
c-0
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De
c-0
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De
c-0
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De
c-0
8
De
c-0
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Dec-1
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c-1
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De
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De
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De
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De
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De
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De
c-1
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De
c-1
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IT = 12.8 % (13.9%)
ES = 5.3% (5.6%)
GR = 0.2%IE = 0.6%PT = 0.6%
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Collateral Analysis --- non-EU collateral
39th European repo market survey conducted in June 2020
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
De
c-1
5
Ju
n-1
6
De
c-1
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Ju
n-1
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De
c-1
7
Ju
n-1
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De
c-1
8
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De
c-1
9
Ju
n-2
0
UST = 9.2% (8.8%)
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Collateral Analysis
39th European repo market survey conducted in June 2020
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-0
1
Dec-0
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Dec-0
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Dec-0
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Dec-0
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Dec-0
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Dec-0
7
Dec-0
8
Dec-0
9
Dec-1
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Dec-1
1
Dec-1
2
Dec-1
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Dec-1
4
Dec-1
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Dec-1
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Dec-1
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Dec-1
8
Dec-1
9
EU govis = 90.0% (89.6%)
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Maturity Analysis
39th European repo market survey conducted in June 2020
8.5%(9.6%)
19.0%(16.9%)
19.2%(17.3%)
16.9%(16.8%)
10.4%(13.3%)
7.4%(4.7%)
3.1%(5.1%)
2.8%(3.4%)
12.6%(12.9%)
0%
5%
10%
15%
20%
25%
open 1D to 1W to 1M to 3M to 6M to 12M +12M fd-fd
short dates = 55.1% (53.5%)
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Maturity Analysis
39th European repo market survey conducted in June 2020
0%
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100%
ON + open < 30D > = 30D fd
repo
reverse repo
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Maturity Analysis
39th European repo market survey conducted in June 2020
Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20
1D -68,845 -21,035 17,109 -50,653 -85,511 53,525 100,555 -151,955
2-7D -46,504 -89,762 -74,736 -80,858 -88,059 66,329 69,935 --165,899
7D-1M 65,329 85,218 68,604 63,809 74,078 -125,571 -116,739 61,398
1M-3M 101,009 73,762 109,079 85,696 64,265 -75,906 -83,493 135,875
3M-6M 80,514 56,181 62,008 58,632 59,454 -65,489 -46,873 141,130
6M-12M 46,385 69,259 50,359 72,288 84,720 -81,305 -134,705 104,623
12M+ 3,939 -412 14,149 894 27,404 -16,127 11,290 36,260
forward 53,822 36,772 87,609 51,398 43,821 18,743 9,360 21,944
open -6,527 -19,103 -11,400 -10,947 60,221 -60,414 -40,316 31,335
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
1D 2-7D 7D-1M 1M-3M 3M-6M 6M-12M 12M+ forward open
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Maturity Analysis
39th European repo market survey conducted in June 2020
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days
max. WAM
min. WAM
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Rate Analysis
39th European repo market survey conducted in June 2020
fixed
82.1% (85.0%)
floating
9.3%(9.0%)
open
8.7%(6.0%)
no floating rate > EUR 5 bn pw
and/or > 6 counterpartiesSFTR public data W2-W11
The European Repo Market in 2020This panel will be held under the Chatham House rule
Moderator: Andy Hill, Senior Director, ICMA
Panellists:
Gareth Allen, Managing Director, UBS; ERCC Chair
Emma Cooper, Head of EMEA FI Repo, BlackRock; ERCC vice chair
Richard Hochreutiner, Head Global Collateral, Swiss Re
Prepared by ERCC
Operations Group
Intraday Liquidity – Analysis and
Recommendations
James Upton, Commercial Services Director, LCH LimitedERCC Ops co-chair
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Problem statement
• Intra-day liquidity (IDL) pressures are not new to our market. The ERCC has cited intra-day liquidity challenges for over 3-4 years.
• Challenges also highlighted in May 2017 EPTF Report, which identified “Issues regarding intraday credit to support settlement” as one of the potential post-trade barriers:
“The increasing focus on intraday and overnight liquidity…. has created the need to better understand the related drivers and impacts, as a basis to assess whether further action is required to reduce the overall usage of intraday and overnight credit…
• To address the intraday liquidity challenge, finding ways to optimise settlement has become a major focus for the industry. This will also help prepare the industry for the upcoming implementation of CSDR settlement discipline.
• The ERCC is not alone in focussing on intra-day liquidity usage and settlement best practice. AFME and the LMMA are also working on related agendas.
Background
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ERCC response to the challenge
Background
2018
• ERCC hosted IDL workshop
• Sell and buy side, CSDs, ICSDs, CCPs and the ECB attended
• Follow up actions − focus on use of shaping and partialling
2019
• ERCC ask ERCC Ops to lead IDL workstream
• ERCC Ops sub-group formed with cross industry representation
• Goal to present update to new ERCC committee in early 2020
2020
• Full findings presented to ERCC in July 2020
• Clear recommendations to enable reduction in IDL usage and improve settlement rates
• But questions remain − why is so little settling in the T2S overnight settlement cycle?
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Key enablers to reducing IDL usage
Reinforce existing best practice
• Shaping
• Encourage a standard shape size
• Explore potential for CSDs and ICSDs to automatically shape
• Partialling and auto-partialling
• Emphasize best practice to take partial delivery
• Understand barriers to further uptake and adoption
• Settlement netting
• Counterparties should co-operate to reduce settlement risk through pair-offs
Introduce new best practice
• T2S Hold and Release
• Introduce best practice on use
• Highlight appropriate and inappropriate uses of H & R
• Settlement “throttling”
• Firms may optimize intraday liquidity by “throttling”, effectively pushing settlement towards end of day
• Throttling may negatively impact firms that try to settle early and have negative repercussions for overall settlement efficiency
Optimise settlement behaviour
• Timing of settlement
• Understand why only a small value of transactions settle in the T2S night cycle and how this cycle can be used more optimally
• T2S and ICSD ecosystems
• Much bank to client flow settles in ICSDs, while a large % of bank to bank flow settles in T2S
• This can cause timing frictions when realigning securities, leading to delayed settlement
• Opportunities to improve the connections between these ecosystems
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• The data in the top chart
shows value of settlements
settling in the Night Time
Cycle (NTS) and Real Time
Cycle (RTS)
• Many participants
purposefully instruct their repo
settlements to be included in
the NTS, as settlement is
cheaper
• However, from 2019 data, an
average of only ~ 30-35%
settled in the NTS. Why?
• To better understand this, we need more data
Timing of settlement – ObservationsWe need more data!!
30
To enable and influence more use of the night time cycle, we need more granular data. This should include:
• An asset class (fixed income and equity) and product (repo and cash) breakdown of what is instructed into NTS, with reasons as why a large % of instructions are not settling in NTS:
Counterparty not matching
Securities lacking
Cash lacking
Other
• A participant breakdown (sell side, buy side, custodian, CCP, other) of what is instructed into NTS, with reasons as why a large % of instructions are not settling in NTS
The ask for more data
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Broaden working group participation, to include buy side and custodians
Next steps..
Re-emphasize existing settlement best practice
Update the repo best practice guide with enhanced guidance
Settlement Data Request
ERCC AGM: Legal UpdateLisa Cleary, Senior Director, ICMA
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2020 Legal Opinion Update
• Published ICMA GMRA Legal Opinion for Argentina
• Published 2020 ICMA GMRA legal opinion updates
• 2021 Legal Opinion update process already underway
CSDR
• Continued work via CSDR Legal Working Group
• Development of SFT SD Annex
• Paused to understand scope and impact of CSDR review
• Highlighted two ongoing issues:
• Passing through third party buy-in costs
• Contract amendments methodology
Since last update…
34
ERCC Legal Working Group
• CSDR
• Security Interest Agreement
• BRRD II
• Brexit
• Clause Library project
• Legal tech
Looking forward
35
ICMA Legal Helpdesk
Lisa Cleary: Senior Director, Legal
Tel: +44 (0)20 7213 0330
Questions
SFTR updateAlexander Westphal, Director, ICMA
37
SFTR reporting – the road to go-live…
Jan 2014: SFTR proposal published by the EC
Jan 2016: SFTR enters into force
March 2017: ESMA’s draft RTS/ITS submitted to EC
April 2019: Final RTS/ITS enter into force
January 2020: Final ESMA Reporting Guidelines
March 2020: ESMA announces 3-month delay to go-live
13 July 2020: Reporting start for firms in phase 1 & 2
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Two “go-lives” still to come…
• Mon 12 October 2020: Reporting start for UCITs, AIFs & (re-)insurance undertakings
• Mon 11 January 2021: Reporting start for NFCs (except in the UK)
Brexit…
• 31 December 2020: End of the transition period will see a split into EU SFTR & UK SFTR
ESMA Level 3 guidance to be completed…
• Guidelines, validation rules & XML schemas (all published)
• Q&As (still to come)
… and ultimately there will also be an opportunity for a full SFTR review
• Commission report to assess effectiveness, efficiency & proportionality due in April 2022
SFTR reporting – more to come…
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The ERCC’s SFTR Task Force
• Established in 2016
• Group is open to a broad range of market participants, including sell-side, buy-side, market infrastructures, TRs and service providers – in total over 150 firms represented
• Main objective of the TF has been to facilitate implementation by agreeing and documenting common interpretations and detailed best practice recommendations
ICMA SFTR best practices and other publications
• ICMA Recommendations for Reporting under SFTR (4th version released on 7 Sep)
• SFTR sample reports (covering nearly 50 repo scenarios)
• Overview for the reporting of repo lifecycle events
• SFTR Quick Guide (maps ICMA recommendations vs SFTR reporting fields)
• Master Regulatory Reporting Agreement published in December 2019 (jointly by ICMA, ISLA, ISDA, AFME, FIA)
• Aggregated SFTR public data published on a weekly basis
SFTR reporting – ICMA’s implementation work
https://www.icmagroup.org/assets/documents/Regulatory/Repo/SFTR/ICMA-SFTR-recommendations-070920.pdf
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ICMA log of implementation issues post go-live
• Based on member feedback, ICMA put together a detailed log of reporting issues observed since go-live
• List covers around 50 issues and continues to evolve
• Initial version shared with ESMA & some NCAs
• Issues log feeds back into the ICMA SFTR recommendations
What are the key issues?
• Issues captured include (i) problems causing TR rejections, (ii) pairing issues & (iii) matching breaks
• Most issues are due to incorrect reporting by firms (e.g. static data issues, sequencing of action types)…
• But a significant number result from problems with the underlying ESMA rules (e.g. collateral signage)…
• And some issues haven’t materialized yet but are bound to create problems in the future (e.g. settlement fails reporting, collateral market value, LEI for non-EEA issuers)
SFTR reporting – key issues
41
Links:
ICMA SFTR webpage
Internal SFTR Task Force page (ICMA member login required)
SFTR public data
ICMA contacts:
Alexander Westphal
Zhan Chen
Richard Comotto
Further information
CSDR mandatory buy-insAndy Hill, Senior Director, ICMA
43
Recent developments
23 June 2020: UK elects not to implement CSDR-SD measures
10 July 2020: Deadline for ESMA Survey on Topics for the CSDR Review (ICMA submitted response)
24 August 2020: Postponement to CSDR-SD until February 2021 published in the Official Journal
28 August 2020: ESMA publishes amending draft RTS delaying CSDR-SD to February 2022
Implementation
Update to the ICMA Buy-in Rules (member consultation pending)
GMRA CSDR Annex
CSDR Review
Q4 2020
Expected to include SD
Public consultation expected
Viewed as opportunity to drive meaningful change to the MBI provisions
CSDR-SD
Common Domain Model (CDM)
for repos and bondsIn collaboration with ISDA and Regnosys
Gabriel Callsen, Director, ICMA
45
CDM for repos and bonds – Current and future state
Par Party 2Repotransaction
Current state: Each party captures repo trade data and repo lifecycle events in different ways – eg repo interest, margining, collateral substitution.
Disadvantages: Reconciliation resulting from duplication and inconsistencies of data and processes.
Future state: Each party uses the CDM trade processing model as ‘common denominator’ or ‘common language’ to process repo transactions.
Benefits: Interoperability, STP, innovation.
Party 1
46
CDM for repos and bonds – Future state
Same code implemented by each party, compatible with existing messaging protocols and data standards.
CDM
ISO 20022
APIs
Eg DLT, Cloud
FpML
XML
FIX
47
ICMA working group of sell-sides, buy-sides, trading venues and technology providers met in July and August
Defining draft specifications for repo model in the CDM
Fundamental components: securities & cash
Repo specific-components, differentiating the structure of a repo and collateral
Interest calculation
Scenarios (eg overnight uncleared, 3-month fixed)
Initial gap analysis:
Between ISDA’s derivatives CDM and components for modelling repos
Potential FpML legacy issues (eg concept of price and notations)?
Next steps:
Finalising legal agreement with Regnosys
Finalising governance and IP arrangements with ISDA
Latest CDM Repo Workshops and Next steps
48
Kick-off planned for 2nd half of October. Weekly meetings to be scheduled.
Expected duration of initial engagement: 8-12 weeks
Requirements:
Anonymised sample data are key → Model only as good as sample data
Coordination with internal data modelling functions and IT
CDM for repos and bonds – Next steps
Modelling of repo product model
Modelling of transaction model
‘Simple’ scenarios
Translating process and lifecycle events into code
Validation and integration testing
CDM repo software
Covering selected scenarios in initial stage
49
Any questions?
ICMA contacts:
Gabriel Callsen, Director
+44 (0)20 7213 0334
Rowan Varrall, Associate
+44 (0)20 7213 0317
Thank you for your attention
Closing remarksGodfried De Vidts, Senior Adviser, ICMA ERCC
Next ERCC General Meeting
Tuesday 30 March 2021
Hosted by LCH
SAVE THE DATE
For further information, please visit the ERCC webpage or contact us by email: [email protected]
