Brussels,

Securities financing transactions (SFTs)

Securities Financing Transactions (SFTs) are vital financial tools that allow investors and firms to use assets, such as shares or bonds, to secure funding. The EU has implemented regulations to enhance the transparency of SFTs, enabling better monitoring and risk identification.

What are SFTs?

  • Securities Financing Transactions (SFTs) allow investors and firms to secure funding by using their assets. These transactions can take several forms:
    • Repurchase transactions: Selling a security with an agreement to repurchase it later for the original sum plus interest.
    • Securities lending: Lending a security for a fee, with a guarantee from the borrower.
    • Buy-sell back or sell-buy back transactions.
    • Margin lending transactions.

European Rules Enhancing Transparency of SFTs

  • During the financial crisis, a lack of data made it difficult for regulators to anticipate risks related to SFTs. This led to the adoption of the Securities Financing Transactions Regulation (SFTR) in 2015, aimed at increasing transparency by:
    • Requiring all SFTs (except those with central banks) to be reported to trade repositories.
    • Mandating investment funds to disclose SFT use in regular reports and pre-investment documents.
    • Establishing minimum transparency conditions for collateral reuse, including risk disclosure and prior consent obligations.

Key Documents