|Securities or commodities lending or securities or commodities borrowing|
|European Union Electricity Market Glossary|
Pursuant to Article 3(7) of the Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (SFTR) 'securities or commodities lending' or 'securities or commodities borrowing' means a transaction by which a counterparty transfers securities or commodities subject to a commitment that the borrower will return equivalent securities or commodities on a future date or when requested to do so by the transferor, that transaction being considered as securities or commodities lending for the counterparty transferring the securities or commodities and being considered as securities or commodities borrowing for the counterparty to which they are transferred.
Securities lending transactions are conceptually similar to repos, where one counterparty borrows securities for a fee, against a collateral in the form of cash or non-cash (Report on securities financing transactions and leverage in the EU Report prepared under the mandate in Article 29(3) SFTR, 4 October 2016, ESMA/2016/1415, p. 12).
When cash collateral is provided by the borrower, it can be reinvested into other instruments.
In securities lending arrangements, haircuts apply to the collateral provided and not the securities borrowed.
Securities or commodities lending and securities or commodities borrowing transactions are subject to reporting requirements as laid down in Article 4(1) of the SFTR and in the secondary legislation.
For the reporting purposes of with respect to counterparties roles ESMA proposes to use the terms "collateral giver" and "collateral taker".
In the case of securities or commodities borrowing and securities or commodities lending, the counterparty that lends the securities or commodities, subject to a commitment that equivalent securities or commodities will be returned on a future date or on request, shall be identified as the collateral taker.
As ESMA argues, the counterparty would always know whether it provides or receives the collateral.
|Last Updated on Wednesday, 16 November 2016 22:55|