Wednesday, November 19, 2014

FSB Moves for More Transparency in Repo and Securities Lending Markets

Proposals for Standards and Processes for Global Securities Financing Data Collection and Aggregation

Author: David Schwartz J.D. CPA

On November 13, the Financial Stability Board published a consultation report that sets forth proposed standards and processes for global securities financing and data collection and aggregation.  Previously, the FSB recommended that national/regional authorities collect appropriate data on securities financing markets to help the FSB better assess ongoing financial stability.   These latest proposals are intended to provide guidance on what kinds of data on repo, securities lending, and margin lending should be collected, how they should be collected, and in what format.  Mark Carney, Chairman of the FSB, characterized the proposed standards as "an important step to ensure that authorities fully understand trends and risks in one of the core funding markets for wide range of market participants. The global data collection and aggregation based on the FSB standards and processes will help transform securities financing markets into more transparent and resilient sources of financing that would better serve the needs of the economy."

Based on the policy recommendations in its August 2013 report Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos, the November consultation document: 

  1. sets forth the data elements for repos, securities lending and margin lending that national/regional authorities will be asked to report in aggregate form to the FSB to help assess financial stability; 

  2. raises data architecture issues related to the data collection and transmission from the reporting entity to the national/regional authority and then from the national/regional to the global level; 

  3. proposes six recommendations to national/regional authorities intended to ensure consistency among national/regional data collections as well as the quality of global aggregates and the efficiency of the reporting framework; and 

  4. describes the potential uses of the aggregate data proposed to be collected.

This latest consultation document is part of a larger effort by the FSB to increase transparency in "shadow banking" activities like securities lending and repo to detect financial stability risks, develop policy responses, and assess global trends in financial stability.  Echoing the sentiments of Mr. Carney, Daniel Tarullo, Chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation, stated that "timely, comprehensive and consistent data collection is essential for authorities in identifying the build-up of leverage and other financial stability risks in global securities financing markets. The implementation of the proposed standards and processes will allow authorities to establish a monitoring framework to support their efforts to effectively address financial stability risks stemming from securities financing."

The consultation period ends and all comments are due by February 12, 2015.