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 (Text with EEA relevance) - Main contents

EN

Official Journal of the European Union

L 337/1

The global financial crisis that emerged in 2007-2008 has revealed excessive speculative activities, important regulatory gaps, ineffective supervision, opaque markets and overly complex products in the financial system. The Union has adopted a range of measures in order to render the banking system more solid and more stable, including strengthening capital requirements, rules on improved governance and supervision and resolution regimes, and to ensure that the financial system fulfils its role in directing capital towards the financing of the real economy. Progress made on the establishment of the banking union is also decisive in this context. However, the crisis has also highlighted the need to improve transparency and monitoring not only in the traditional banking sector but also in areas where bank-like credit intermediation known as ‘shadow banking’, takes place, the scale of which is alarming, having already been estimated to amount to close to half of the regulated banking system. Any shortcomings with regard to those activities, which are similar to those carried out by credit institutions, have the potential to affect the rest of the financial sector.

In the context of its work to curb shadow banking, the Financial Stability Board (FSB) and the European Systemic Risk Board (ESRB) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council (5) have identified the risks posed by securities financing transactions (SFTs). SFTs allow the build-up of leverage, pro-cyclicality and interconnectedness in the financial markets. In particular, a lack of transparency in the use of SFTs has prevented regulators and supervisors as well as investors from correctly assessing and monitoring the respective bank-like risks and level of interconnectedness in the financial system in the period preceding and during the financial crisis. Against this background, on 29 August 2013, the FSB adopted the policy framework entitled ‘Strengthening Oversight and Regulation of Shadow Banking’ (‘FSB Policy Framework’) for addressing shadow banking risks in securities lending and repos, which was endorsed in September 2013 by the G20 Leaders.

On 14 October 2014, the FSB published a regulatory framework for haircuts on non-centrally cleared SFTs. In the absence of clearing, such operations raise major risks if they are not properly collateralised. While enhancing transparency in the reuse of client assets would be a first step towards facilitating counterparties’ capacity to analyse and prevent risks, the FSB is due to complete its work, by 2016, on a set of recommendations on haircuts on non-centrally cleared SFTs to prevent excessive leveraging and mitigate concentration risk and default risk.

On 19 March 2012, the Commission published a Green Paper on Shadow Banking. Based on the extensive feedback received and taking into account international developments, the Commission issued, on 4 September 2013, a communication to the Council and the European Parliament entitled ‘Shadow Banking — Addressing New Sources of Risk in the Financial sector’. The Communication stressed that the complex and opaque nature of SFTs makes it difficult to identify counterparties and monitor risk concentration and also leads to the build-up of excessive leverage in the financial system.

A high-level expert group chaired by Erkki Liikanen adopted a report on reforming the structure of the Union banking sector in October 2012. It considered, among other things, the interaction between the traditional and the shadow banking systems. The report recognised the risks of shadow banking activities such as high leverage and pro-cyclicality, and it called for a reduction of the interconnectedness between banks and the shadow banking system, which had been a source of contagion in a system-wide banking crisis. The report also suggested certain structural measures to deal with remaining weaknesses in the Union banking sector.

Structural reforms of the Union banking system are dealt with in a proposal for a regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions. However, imposing structural measures on banks could result in certain activities being shifted to less-regulated areas such as the shadow banking sector. That proposal should therefore be accompanied by the binding transparency and reporting requirements for SFTs laid down in this Regulation. Thus, the transparency rules laid down in this Regulation complement that proposal.

This Regulation responds to the need to enhance the transparency of securities financing markets and thus of the financial system. In order to ensure equivalent conditions of competition and international convergence, this Regulation follows the FSB Policy Framework. It creates a Union framework under which details of SFTs can be efficiently reported to trade repositories and information on SFTs and total return swaps is disclosed to investors in collective investment undertakings. The definition of SFT in this Regulation does not include derivative contracts as defined in Regulation (EU) No 648/2012 of the European Parliament and of the Council (6). However, it includes transactions that are commonly referred to as liquidity swaps and collateral swaps, which do not fall under the definition of derivative contracts in Regulation (EU) No 648/2012. The need for international convergence is reinforced by the probability that, following structural reform of the Union banking sector, activities that are currently exercised by traditional banks might migrate to the shadow banking sector and encompass financial and non-financial entities. Therefore, even less transparency may arise for regulators and supervisors in respect of those activities, preventing them from obtaining a proper overview of the risks linked to SFTs. This would only aggravate already well established links between the regulated and the shadow banking sectors in particular markets.

The evolution of market practices and technological developments enable market participants to use transactions other than SFTs as a source of funding, for liquidity and collateral management, as a yield-enhancement strategy, to cover short sales or for dividend tax arbitrage. Such transactions could have an equivalent economic effect and pose risks similar to SFTs, including pro-cyclicality brought about by fluctuating asset values and volatility; maturity or liquidity transformation stemming from financing long-term or illiquid assets through short-term or liquid assets; and financial contagion arising from interconnectedness of chains of transactions involving collateral reuse.

In order to respond to the issues raised by the FSB Policy Framework and the developments envisaged following structural reform of the Union banking sector, Member States are likely to adopt divergent national measures which could create obstacles to the smooth functioning of the internal market and be to the detriment of market participants and financial stability. In addition, the lack of harmonised transparency rules makes it difficult for national authorities to compare the micro-level data stemming from different Member States and thus to understand the real risks individual market participants pose to the system. It is therefore necessary to prevent such distortions and obstacles from arising in the Union. Consequently, the appropriate legal basis for this Regulation is Article 114 of the Treaty on the Functioning of the European Union (TFEU), as interpreted in accordance with the consistent case-law of the Court of Justice of the European Union.

The new rules on transparency should therefore provide for the reporting of details regarding SFTs concluded by all market participants, whether they are financial or non-financial entities, including the composition of the collateral, whether the collateral is available for reuse or has been reused, the substitution of collateral at the end of the day and the haircuts applied. In order to minimise additional operational costs for market participants, the new rules and standards should build on pre-existing infrastructures, operational processes and formats which have been introduced with regard to reporting derivative contracts to trade repositories. In that context, the European Supervisory Authority (European Securities and Markets Authority) (‘ESMA’) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (7) should, to the extent feasible and relevant, minimise overlaps and avoid inconsistencies between the technical standards adopted pursuant to this Regulation and those adopted pursuant to Article 9 of Regulation (EU) No 648/2012. The legal framework laid down by this Regulation should, to the extent possible, be the same as that of Regulation (EU) No 648/2012 in respect of the reporting of derivative contracts to trade repositories registered for that purpose. This should also enable trade repositories registered or recognised in accordance with that Regulation to fulfil the repository function assigned by this Regulation, if they comply with certain additional criteria, subject to completion of a simplified registration process.

In order to ensure consistency and effectiveness of ESMA’s powers to impose penalties, the market participants that fall within the scope of this Regulation should, by reference to Regulation (EU) No 648/2012, be subject to the provisions regarding ESMA’s powers as laid down in that Regulation as specified, in respect of the rules of procedure, by the delegated acts adopted pursuant to Article 64(7) of that Regulation.

Transactions with members of the European System of Central Banks (ESCB) should be exempted from the obligation to report SFTs to trade repositories. However, in order to ensure that regulators and supervisors obtain a proper overview of the risks linked to SFTs concluded by the entities they regulate or supervise, the relevant authorities and the members of the ESCB should cooperate closely. Such cooperation should enable regulators and supervisors to fulfil their respective responsibilities and mandates. Such cooperation should be confidential, and conditional on a justified request from the relevant competent authorities, and should only be provided with a view to enabling those authorities to fulfil their respective responsibilities having due regard to the principles and requirements of the independence of central banks and the performance by them of their functions as monetary authorities, including the performance of monetary, foreign exchange and financial stability policy operations which members of the ESCB are legally empowered to pursue. The members of the ESCB should be able to refuse to provide information where the transactions are entered into by them in the performance of their functions as monetary authorities. They should notify the requesting authority of any such refusal together with the justification therefor.

Information on the risks inherent in securities financing markets should be centrally stored, and easily and directly accessible by, inter alia, ESMA, the European Supervisory Authority (European Banking Authority) (‘EBA’) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (8), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (‘EIOPA’) established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council (9), the relevant competent authorities, the ESRB and the relevant central banks of the ESCB, including the European Central Bank (ECB) in carrying out its tasks within a single supervisory mechanism under Council Regulation (EU) No 1024/2013 (10), for the purpose of identification and monitoring of financial stability risks entailed by shadow banking activities of regulated and non-regulated entities. ESMA should take into consideration the technical standards adopted pursuant to Article 81 of Regulation (EU) No 648/2012 regulating trade repositories for derivative contracts and the future development of those technical standards when drawing up or proposing to revise the regulatory technical standards provided for in this Regulation. ESMA should also aim to ensure that the relevant competent authorities, the ESRB and the relevant central banks of the ESCB, including the ECB, have direct and immediate access to the information necessary to perform their duties, including to define and implement monetary policy and to perform oversight of financial market infrastructures. In order to ensure this, ESMA should set out the terms and conditions for access to such information in draft regulatory technical standards.

It is necessary to introduce provisions on the exchange of information between competent authorities and to strengthen the duties of assistance and cooperation which they owe each other. Due to increasing cross-border activity, competent authorities should provide each other with the relevant information for the exercise of their functions in order to ensure the effective enforcement of this Regulation, including in situations where infringements or suspected infringements may be of concern to authorities in two or more Member States. In the exchange of information, strict professional secrecy is needed to ensure the smooth transmission of that information and the protection of particular rights. Without prejudice to national criminal or tax law, the competent authorities, ESMA, bodies or natural or legal persons other than the competent authorities, which receive confidential information, should use it only in the performance of their duties and for the exercise of their functions. However, this should not prevent the exercise, in accordance with national law, of the functions of national bodies responsible for the prevention, investigation or correction of cases of maladministration.

SFTs are used extensively by managers of collective investment undertakings for efficient portfolio management. Such use can have a significant impact on the performance of those collective investment undertakings. SFTs can be used either to fulfil investment objectives or to enhance returns. Managers also make use of total return swaps which have effects equivalent to SFTs. SFTs and total return swaps are extensively used by managers of collective investment undertakings to get exposure to certain strategies or to enhance their returns. The use of SFTs and total return swaps could increase the general risk profile of the collective investment undertaking whereas their use is not properly disclosed to investors. It is crucial to ensure that investors in such collective investment undertakings are able to make informed choices and to assess the overall risk and reward profile of collective investment undertakings. When assessing SFTs and total return swaps, the collective investment undertaking should consider the substance of the transaction in addition to its legal form.

Investments made on the basis of incomplete or inaccurate information as regards a collective investment undertaking’s investment strategy can result in significant investor losses. It is therefore essential that collective investment undertakings disclose all relevant detailed information linked to their use of SFTs and total return swaps. In addition, full transparency is especially relevant in the area of collective investment undertakings as the entirety of assets that are subject to SFTs and total return swaps are not owned by the managers of collective investment undertakings but by their investors. Full disclosure as regards SFTs and total return swaps is therefore an essential tool to safeguard against possible conflicts of interest.

The new rules on transparency of SFTs and total return swaps are closely linked to Directives 2009/65/EC (11) and 2011/61/EU (12) of the European Parliament and of the Council since those Directives form the legal framework governing the establishment, management and marketing of collective investment undertakings.

Collective investment undertakings may operate as undertakings for collective investment in transferable securities (UCITS) managed by UCITS management companies or by UCITS investment companies authorised under Directive 2009/65/EC or as alternative investment funds (AIFs) managed by alternative investment fund managers (AIFMs) authorised or registered under Directive 2011/61/EU. The new rules on transparency of SFTs and total return swaps introduced by this Regulation supplement, and should apply in addition to, the provisions of those Directives.

In order to enable investors to become aware of the risks associated with the use of SFTs and total return swaps, managers of collective investment undertakings should include detailed information on any recourse they have to those techniques in periodical reports. The existing periodical reports that UCITS management companies or UCITS investment companies and AIFMs have to produce should be supplemented by the additional information on the use of SFTs and total return swaps. In further specifying the content of those periodical reports, ESMA should take into account the administrative burden and the specificities of different types of SFTs and total return swaps.

A collective investment undertaking’s investment policy with respect to SFTs and total return swaps should be clearly disclosed in the pre-contractual documents, such as the prospectus for UCITS and the pre-contractual disclosure to investors for AIFs. This should ensure that investors understand and appreciate the inherent risks before they decide to invest in a particular UCITS or AIF.

Reuse of collateral provides liquidity and enables counterparties to reduce funding costs. However, it tends to create complex collateral chains between traditional banking and shadow banking, giving rise to financial stability risks. The lack of transparency on the extent to which financial instruments provided as collateral have been reused and the respective risks in the case of bankruptcy can undermine confidence in counterparties and magnify risks to financial stability.

In order to increase transparency of reuse, minimum information requirements should be imposed. Reuse should take place only with the express knowledge and consent of the providing counterparty. The exercise of a right to reuse should therefore be reflected in the securities account of the providing counterparty unless that account is governed by the law of a third country which provides for other appropriate means to reflect the reuse.

Although the scope of the rules concerning reuse in this Regulation is wider than that of Directive 2002/47/EC of the European Parliament and of the Council (13), this Regulation does not amend the scope of that Directive but should, rather, be read in addition to that Directive. The conditions subject to which counterparties have a right to reuse and to exercise that right should not in any way diminish the protection afforded to a title transfer financial collateral arrangement under Directive 2002/47/EC. Against that background, any infringement of the transparency requirements of reuse should not affect national law concerning the validity or effect of a transaction.

This Regulation establishes strict information rules for counterparties on reuse which should not prejudice the application of sectorial rules adapted to specific actors, structures and situations. Therefore, the rules on reuse provided for in this Regulation should apply, for example, to collective investment undertakings and depositories or clients of investment firms only insofar as no more stringent rules on reuse are provided for in the legal framework for collective investment undertakings or for safeguarding of client assets constituting a lex specialis and taking precedence over the rules contained in this Regulation. In particular, this Regulation should be without prejudice to any rule under Union law or national law restricting the ability of counterparties to engage in reuse of financial instruments that are provided as collateral by counterparties or persons other than counterparties. The application of the reuse requirements should be deferred to six months after the date of entry into force of this Regulation in order to provide counterparties with sufficient time to adapt their outstanding collateral arrangements, including master agreements, and to ensure that new collateral arrangements comply with this Regulation.

In order to promote international consistency of terminology, the use of the term ‘reuse’ in this Regulation is in line with the FSB Policy Framework. This should not, however, lead to inconsistency within the Union acquis and, in particular, should be without prejudice to the meaning of the term ‘reuse’ employed in Directives 2009/65/EC and 2011/61/EU.

In order to ensure compliance by counterparties with the obligations deriving from this Regulation and that they are subject to similar treatment across the Union, Member States should ensure that competent authorities have the power to impose administrative sanctions and other administrative measures which are effective, proportionate and dissuasive. Therefore, administrative sanctions and other administrative measures laid down in this Regulation should satisfy certain essential requirements in relation to addressees, criteria to be taken into account when applying a sanction or measure, publication of sanctions or measures, key powers to impose sanctions and levels of administrative pecuniary sanctions. It is appropriate that sanctions and other measures established under Directives 2009/65/EC and 2011/61/EU apply to infringements of the transparency obligations relating to the collective investment undertakings under this Regulation.

The powers to impose sanctions conferred on competent authorities should be without prejudice to the exclusive competence of the ECB, pursuant to Article 4(1)(a) of Regulation (EU) No 1024/2013, to withdraw authorisations of credit institutions for prudential supervisory purposes.

Provisions in this Regulation regarding the application for registration of trade repositories and the withdrawal of registration do not affect the remedies provided for in Chapter V of Regulation (EU) No 1095/2010.

Technical standards in the financial services sector should ensure consistent harmonisation and adequate protection of depositors, investors and consumers across the Union. As a body with highly specialised expertise, it is efficient and appropriate to entrust ESMA with the development of draft regulatory technical and implementing standards which do not involve policy choices. ESMA should ensure efficient administrative and reporting processes when drafting technical standards. The Commission should be empowered to adopt regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 in the following areas: the details to be reported for different types of SFTs; the details of the application for registration or extension of the registration of a trade repository; the details of the procedures to be applied by trade repositories in order to verify the details of SFTs reported to them; the frequency and the details of publication of, the requirements for, and the access to, trade repositories’ data; and, if necessary, the further specification of the content of the Annex.

The Commission should be empowered to adopt implementing technical standards developed by ESMA by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010 with regard to the format and frequency of the reports, the format of the application for registration or extension of the registration of a trade repository, as well as the procedures and forms for exchange of information on sanctions and other measures with ESMA.

The power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of amending the list of entities that are excluded from the scope of this Regulation and of the type of fees, the matters for which fees are due, the amount of the fees and the manner in which they are to be paid by trade repositories. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission to take decisions on the assessment of the rules of third countries for the purposes of recognising third-country trade repositories, and in order to avoid potentially duplicate or conflicting requirements. The assessment which forms the basis of decisions on equivalence of reporting requirements in a third country should not prejudice the right of a trade repository established in that third country and recognised by ESMA to provide reporting services to entities established in the Union, as a recognition decision should be independent of such an assessment for the purposes of an equivalence decision.

Where an implementing act on equivalence is withdrawn, counterparties should automatically be subject again to all of the requirements laid down in this Regulation.

Where appropriate, the Commission should cooperate with third-country authorities in order to explore mutually supportive solutions to ensure consistency between this Regulation and the requirements established by those third countries and thus avoid any possible duplication in this respect.

Since the objectives of this Regulation, namely enhancing the transparency of certain activities in financial markets such as the use of SFTs and reuse of collateral in order to enable the monitoring and identification of the corresponding risks, cannot be sufficiently achieved by the Member States but can rather, by reason of the scale and effects of this Regulation, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union, in particular the right to the protection of personal data, the right to respect for private and family life, the rights of the defence and the principle of ne bis in idem, the freedom to conduct a business, the right to property, the right to an effective remedy and to a fair trial. This Regulation must be applied according to those rights and principles.

The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council (14) and delivered an opinion on 11 July 2014 (15).

Any exchange or transmission of personal data by competent authorities of the Member States or by trade repositories should be undertaken in accordance with the rules on the transfer of personal data as laid down in Directive 95/46/EC of the European Parliament and of the Council (16). Any exchange or transmission of personal data by ESMA, EBA or EIOPA should be carried out in accordance with the rules on the transfer of personal data as laid down in Regulation (EC) No 45/2001.

With the assistance of ESMA, the Commission should monitor and prepare reports to the European Parliament and to the Council on the international application of the reporting obligation laid down in this Regulation. The time provided for submission of the Commission reports should allow for the prior effective application of this Regulation.

Following the outcome of the work carried out by relevant international fora, and with the assistance of ESMA, EBA and the ESRB, the Commission should submit a report to the European Parliament and to the Council on progress in international efforts to mitigate the risks associated with SFTs, including the FSB recommendations for haircuts on non-centrally cleared SFTs, and on the appropriateness of those recommendations for Union markets.

The application of the transparency requirements laid down in this Regulation should be deferred in order to provide trade repositories with sufficient time to apply for the authorisation and recognition of their activities provided for in this Regulation, and counterparties and collective investment undertakings with sufficient time to comply with those requirements. In particular, it is appropriate to defer the application of additional transparency requirements for collective investment undertakings, taking into account the Guidelines for competent authorities and UCITS management companies issued by ESMA on 18 December 2012 which lay down an optional framework for UCITS management companies regarding disclosure obligations and the need to reduce the administrative burden of managers of collective investment undertakings. In order to ensure the effective implementation of the reporting of SFTs, a phase-in of the application of the requirements by type of counterparty is necessary. Such an approach should take into account the effective ability of the counterparty to comply with the reporting obligations laid down in this Regulation.

The new uniform rules on the transparency of SFTs and certain over-the-counter (OTC) derivatives, namely total return swaps, laid down in this Regulation are closely linked to the rules laid down in Regulation (EU) No 648/2012, as those OTC derivatives fall within the scope of the reporting requirements laid down in that Regulation. In order to ensure a coherent scope of both sets of transparency and reporting requirements, a clear delineation between OTC derivatives and exchange-traded derivatives is needed irrespective of whether those contracts are traded in the Union or in third-country markets. The definition of OTC derivatives in Regulation (EU) No 648/2012 should therefore be amended in order to ensure that the same type of derivatives contracts are identified as either OTC derivatives or exchange-traded derivatives irrespective of whether those contracts are traded in the Union or in third-country markets.

Regulation (EU) No 648/2012 should therefore be amended accordingly,

a counterparty to an SFT that is established:

management companies of undertakings for collective investment in transferable securities (UCITS) and UCITS investment companies in accordance with Directive 2009/65/EC;

managers of alternative investment funds (AIFMs) authorised in accordance with Directive 2011/61/EU;

a counterparty engaging in reuse that is established:

members of the European System of Central Banks (ESCB), other Member States’ bodies performing similar functions, and other Union public bodies charged with, or intervening in, the management of the public debt;

the Bank for International Settlements.

‘trade repository’ means a legal person that centrally collects and maintains the records of SFTs;

‘counterparties’ means financial counterparties and non-financial counterparties;

‘financial counterparty’ means:

‘non-financial counterparty’ means an undertaking established in the Union or in a third country other than the entities referred to in point (3);

‘established’ means:

‘branch’ means a place of business other than the head office which is part of a counterparty and which has no legal personality;

‘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;

‘buy-sell back transaction’ or ‘sell-buy back transaction’ means a transaction by which a counterparty buys or sells securities, commodities, or guaranteed rights relating to title to securities or commodities, agreeing, respectively, to sell or to buy back securities, commodities or such guaranteed rights of the same description at a specified price on a future date, that transaction being a buy-sell back transaction for the counterparty buying the securities, commodities or guaranteed rights, and a sell-buy back transaction for the counterparty selling them, such buy-sell back transaction or sell-buy back transaction not being governed by a repurchase agreement or by a reverse-repurchase agreement within the meaning of point (9);

‘repurchase transaction’ means a transaction governed by an agreement by which a counterparty transfers securities, commodities, or guaranteed rights relating to title to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow a counterparty to transfer or pledge a particular security or commodity to more than one counterparty at a time, subject to a commitment to repurchase them, or substituted securities or commodities of the same description at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the counterparty selling the securities or commodities and a reverse repurchase agreement for the counterparty buying them;

‘margin lending transaction’ means a transaction in which a counterparty extends credit in connection with the purchase, sale, carrying or trading of securities, but not including other loans that are secured by collateral in the form of securities;

‘securities financing transaction’ or ‘SFT’ means:

‘reuse’ means the use by a receiving counterparty, in its own name and on its own account or on the account of another counterparty, including any natural person, of financial instruments received under a collateral arrangement, such use comprising transfer of title or exercise of a right of use in accordance with Article 5 of Directive 2002/47/EC but not including the liquidation of a financial instrument in the event of default of the providing counterparty;

‘title transfer collateral arrangement’ means a title transfer financial collateral arrangement as defined in point (b) of Article 2(1) of Directive 2002/47/EC concluded between counterparties to secure any obligation;

‘security collateral arrangement’ means a security financial collateral arrangement as defined in point (c) of Article 2(1) of Directive 2002/47/EC concluded between counterparties to secure any obligation;

‘collateral arrangement’ means a title transfer collateral arrangement and security collateral arrangement;

‘financial instrument’ means a financial instrument as defined in point (15) of Article 4(1) of Directive 2014/65/EU;

‘commodity’ means a commodity as defined in point (1) of Article 2 of Commission Regulation (EC) No 1287/2006 (22);

‘total return swap’ means a derivative contract as defined in point (7) of Article 2 of Regulation (EU) No 648/2012 in which one counterparty transfers the total economic performance, including income from interest and fees, gains and losses from price movements, and credit losses, of a reference obligation to another counterparty.

were concluded before the relevant date of application referred to in point (a) of Article 33(2) and remain outstanding on that date, if:

are concluded on or after the relevant date of application referred to in point (a) of Article 33(2).

the parties to the SFT and, where different, the beneficiary of the rights and obligations arising therefrom;

the principal amount; the currency; the assets used as collateral and their type, quality, and value; the method used to provide collateral; whether collateral is available for reuse; in cases where the collateral is distinguishable from other assets, whether it has been reused; any substitution of the collateral; the repurchase rate, lending fee or margin lending rate; any haircut; the value date; the maturity date; the first callable date; and the market segment;

depending on the SFT, details of the following:

global legal entity identifiers (LEIs), or pre-LEIs until the global legal entity identifier system is fully implemented;

international securities identification numbers (ISINs); and

unique trade identifiers.

an application for registration;

an application for an extension of registration for the purposes of Article 4 of this Regulation in the case of a trade repository already registered under Title VI, Chapter 1 of Regulation (EU) No 648/2012.

the procedures referred to in paragraph 2 of this Article and which are to be applied by trade repositories in order to verify the completeness and correctness of the details reported to them under Article 4(1);

the application for registration referred to in point (a) of paragraph 5;

a simplified application for an extension of registration referred to in point (b) of paragraph 5 in order to avoid duplicate requirements.

the application for registration referred to in point (a) of paragraph 5;

the application for an extension of registration referred to in point (b) of paragraph 5.

expressly renounces the registration or has provided no services for the preceding six months;

obtained the registration by making false statements or by other irregular means;

no longer meets the conditions under which it was registered.

ESMA;

the European Supervisory Authority (European Banking Authority) (‘EBA’);

the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (‘EIOPA’);

the ESRB;

the competent authority supervising the trading venues of the reported transactions;

the relevant members of the ESCB, including the European Central Bank (ECB) in carrying out its tasks within a single supervisory mechanism under Regulation (EU) No 1024/2013;

the relevant authorities of a third country in respect of which an implementing act pursuant to Article 19(1) has been adopted;

supervisory authorities designated under Article 4 of Directive 2004/25/EC of the European Parliament and of the Council (24);

the relevant Union securities and market authorities whose respective supervisory responsibilities and mandates cover transactions, markets, participants and assets which fall within the scope of this Regulation;

the Agency for the Cooperation of Energy Regulators established by Regulation (EC) No 713/2009 of the European Parliament and of the Council (25);

the resolution authorities designated under Article 3 of Directive 2014/59/EU of the European Parliament and the Council (26);

the Single Resolution Board established by Regulation (EU) No 806/2014 of the European Parliament and of the Council (27);

the authorities referred to in Article 16(1).

the frequency and the details of the aggregate positions referred to in paragraph 1 and the details of SFTs referred to in paragraph 2;

the operational standards required, to allow the timely, structured and comprehensive:

the details of the information to which the entities referred to in paragraph 2 are to have access, taking into account their mandate and their specific needs;

the terms and conditions under which the entities referred to in paragraph 2 are to have direct and immediate access to data held in trade repositories.

for UCITS management companies or UCITS investment companies in the half-yearly and annual reports referred to in Article 68 of Directive 2009/65/EC;

for AIFMs in the annual report referred to in Article 22 of Directive 2011/61/EU.

the providing counterparty has been duly informed in writing by the receiving counterparty of the risks and consequences that may be involved in one of the following:

the providing counterparty has granted its prior express consent, as evidenced by a signature, in writing or in a legally equivalent manner, of the providing counterparty to a security collateral arrangement, the terms of which provide a right of use in accordance with Article 5 of Directive 2002/47/EC, or has expressly agreed to provide collateral by way of a title transfer collateral arrangement.

reuse is undertaken in accordance with the terms specified in the collateral arrangement referred to in point (b) of paragraph 1;

the financial instruments received under a collateral arrangement are transferred from the account of the providing counterparty.

for financial counterparties, competent authorities or national competent authorities within the meaning of Regulations (EU) No 648/2012, (EU) No 1024/2013 and (EU) No 909/2014 and of Directives 2003/41/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU and 2014/65/EU, and the supervisory authorities within the meaning of Directive 2009/138/EC;

for non-financial counterparties, the competent authorities designated in accordance with Article 10(5) of Regulation (EU) No 648/2012;

for the purpose of Articles 13 and 14 of this Regulation, concerning UCITS management companies and UCITS investment companies, the competent authorities designated in accordance with Article 97 of Directive 2009/65/EC;

for the purpose of Articles 13 and 14 of this Regulation, concerning AIFMs, the competent authorities designated in accordance with Article 44 of Directive 2011/61/EU.

where judicial proceedings have already been initiated in respect of the same actions and against the same persons before the authorities of the Member State of the competent authority receiving the request; or

where a final judgment has already been delivered in relation to such persons for the same actions in the Member State of the competent authority receiving the request.

trade repositories authorised in that third country comply with legally binding requirements which are equivalent to those laid down in this Regulation;

effective supervision of trade repositories and effective enforcement of their obligations takes place in that third country on an ongoing basis;

guarantees of professional secrecy exist, including the protection of business secrets shared with third parties by the authorities, and those guarantees are at least equivalent to those laid down in this Regulation; and

trade repositories authorised in that third country are subject to a legally binding and enforceable obligation to give direct and immediate access to the data to the entities referred to in Article 12(2).

an application for recognition;

an application for extension of the registration for the purposes of Article 4 of this Regulation in the case of a trade repository already recognised in accordance with Regulation (EU) No 648/2012.

the Commission has determined, by means of an implementing act pursuant to paragraph 1, that the third country has an equivalent and enforceable regulatory and supervisory framework;

the relevant authorities of the third country have entered into cooperation arrangements with ESMA specifying at least:

are equivalent to the requirements laid down in Article 4;

ensure protection of professional secrecy equivalent to that laid down in this Regulation;

are being effectively applied and enforced in an equitable and non-distortive manner in order to ensure effective supervision and enforcement in that third country; and

ensure that the entities referred to in Article 12(2) have either direct access to the details on SFT data pursuant to Article 19(1) or indirect access to the details on SFTs pursuant to Article 20.

an order requiring the person responsible for the infringement to cease the conduct and to desist from a repetition of that conduct;

a public statement which indicates the person responsible and the nature of the infringement in accordance with Article 26;

withdrawal or suspension of the authorisation;

a temporary ban against any person discharging managerial responsibilities, or any natural person who is held responsible for such an infringement, from exercising management functions;

maximum administrative pecuniary sanctions of at least three times the amount of the profits gained or losses avoided because of the infringement where those can be determined by the relevant authority, even if those sanctions exceed the amounts referred to in points (f) and (g);

in respect of a natural person, a maximum administrative pecuniary sanctions of at least EUR 5 000 000 or, in the Member States whose currency is not the euro, the corresponding value in the national currency on 12 January 2016;

in respect of legal persons, maximum administrative pecuniary sanctions of at least:

the gravity and duration of the infringement;

the degree of responsibility of the person responsible for the infringement;

the financial strength of the person responsible for the infringement, by considering factors such as the total turnover in the case of a legal person or the annual income in the case of a natural person;

the importance of the profits gained or losses avoided by the person responsible for the infringement, insofar as they can be determined;

the level of cooperation of the person responsible for the infringement with the competent authority, without prejudice to the need to ensure disgorgement of profits gained or losses avoided by that person;

previous infringements by the person responsible for the infringement.

specific procedures for the receipt of reports of infringements of Article 4 or 15 and their follow-up, including the establishment of secure communication channels for such reports;

appropriate protection for persons working under a contract of employment who report infringements of Article 4 or 15 or who are accused of infringing those articles against retaliation, discrimination and other types of unfair treatment;

protection of personal data both of the person who reports the infringement of Article 4 or 15 and of the person who allegedly committed the infringement, including protection in relation to preserving the confidentiality of their identity, at all stages of the procedure without prejudice to disclosure of information being required by national law in the context of investigations or subsequent judicial proceedings.

defer publication of the decision until the reasons for that deferral cease to exist;

publish the decision on an anonymous basis in accordance with national law where such publication ensures effective protection of the personal data concerned and, where appropriate, postpone publication of the relevant data for a reasonable period of time where it is foreseeable that the reasons for anonymous publication will cease to exist during that period;

not publish the decision in the event that the competent authority is of the opinion that publication in accordance with point (a) or (b) will be insufficient to ensure:

whether the use of SFTs leads to the build-up of significant leverage that is not addressed by existing regulation;

where appropriate, the options available to tackle such a build-up;

whether further measures to reduce the pro-cyclicality of that leverage are required.

In Article 2, point (7) is replaced by the following:

The following Article is inserted:

‘Article 2a

Equivalence decisions for the purposes of the definition of OTC derivatives

• 1. 

  For the purposes of Article 2(7) of this Regulation, a third-country market shall be considered to be equivalent to a regulated market within the meaning of Article 4(1)(14) of Directive 2004/39/EC where it complies with legally binding requirements which are equivalent to the requirements laid down in Title III of that Directive and it is subject to effective supervision and enforcement in that third country on an ongoing basis, as determined by the Commission in accordance with the procedure referred to in paragraph 2 of this Article.

• 2. 

  The Commission may adopt implementing acts determining that a third-country market complies with legally binding requirements which are equivalent to the requirements laid down in Title III of Directive 2004/39/EC and it is subject to effective supervision and enforcement in that third country on an ongoing basis for the purposes of paragraph 1.

Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 86(2) of this Regulation.

• 3. 

  The Commission and ESMA shall publish on their websites a list of those markets that are to be considered to be equivalent in accordance with the implementing act referred to in paragraph 2. That list shall be updated periodically.’.

In Article 81, paragraph 3 is replaced by the following:

‘3.   A trade repository shall make the necessary information available to the following entities to enable them to fulfil their respective responsibilities and mandates:

• (30) 

  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63)."

• (31) 

  Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (OJ L 142, 30.4.2004, p. 12)."

• (32) 

  Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1)."

• (33) 

  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).’."

Article 4(1), which shall apply:

Article 13, which shall apply from 13 January 2017;

Article 14, which shall apply from 13 July 2017 in the case of collective investment undertakings subject to Directive 2009/65/EC or Directive 2011/61/EU that are constituted before 12 January 2016;

Article 15, which shall apply from 13 July 2016, including for collateral arrangements existing on that date.

The amount of securities and commodities on loan as a proportion of total lendable assets defined as excluding cash and cash equivalents;

The amount of assets engaged in each type of SFTs and total return swaps expressed as an absolute amount (in the collective investment undertaking’s currency) and as a proportion of the collective investment undertaking’s assets under management (AUM).

Ten largest collateral issuers across all SFTs and total return swaps (break down of volumes of the collateral securities and commodities received per issuer’s name);

Top 10 counterparties of each type of SFTs and total return swaps separately (Name of counterparty and gross volume of outstanding transactions).

Type and quality of collateral;

Maturity tenor of the collateral broken down in the following maturity buckets: less than one day, one day to one week, one week to one month, one to three months, three months to one year, above one year, open maturity;

Currency of the collateral;

Maturity tenor of the SFTs and total return swaps broken down in the following maturity buckets: less than one day, one day to one week, one week to one month, one to three months, three months to one year, above one year, open transactions;

Country in which the counterparties are established;

Settlement and clearing (e.g., tri-party, Central Counterparty, bilateral).

Share of collateral received that is reused, compared to the maximum amount specified in the prospectus or in the disclosure to investors;

Cash collateral reinvestment returns to the collective investment undertaking.

General description of the SFTs and total return swaps used by the collective investment undertaking and the rationale for their use.

Overall data to be reported for each type of SFTs and total return swaps

Criteria used to select counterparties (including legal status, country of origin, minimum credit rating).

Acceptable collateral: description of acceptable collateral with regard to asset types, issuer, maturity, liquidity as well as the collateral diversification and correlation policies.

Collateral valuation: description of the collateral valuation methodology used and its rationale, and whether daily mark-to-market and daily variation margins are used.

Risk management: description of the risks linked to SFTs and total return swaps as well as risks linked to collateral management, such as operational, liquidity, counterparty, custody and legal risks and, where applicable, the risks arising from its reuse.

Specification of how assets subject to SFTs and total return swaps and collateral received are safe-kept (e.g. with fund custodian).

Specification of any restrictions (regulatory or self-imposed) on reuse of collateral.

Policy on sharing of return generated by SFTs and total return swaps: description of the proportions of the revenue generated by SFTs and total return swaps that is returned to the collective investment undertaking, and of the costs and fees assigned to the manager or third parties (e.g. the agent lender). The prospectus or disclosure to investors shall also indicate if these are related parties to the manager.