On January 29, 2014, the European Commission issued its long awaited proposal for the establishment of a central database for Secured Financing Transactions. This release is a part of a larger regulatory effort aimed at increasing the transparency of certain transactions in the shadow banking sector and to prevent regulatory arbitrage. The proposal aims to increase transparency in secured financing transactions, a term which is defined broadly to include repo, reverse repo, tri-party repo, securities lending transactions as well as total return swaps, collateral swaps and buy-sell transactions.

On November 5, 2013, the Financial Stability Board (FSB) launched the second stage of its two-stage quantitative impact study on the proposed regulatory framework for securities financing transactions.  As you may recall, on August 29, 2013, the FSB published the results of the first stage of its look into securities finance.  The report, Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos, sets out policy recommendations for addressing financial stability risks in relation to securities lending and repos. These measures formed part of an overall set of policy recommendations to strengthen oversight and regulation of shadow banking, an overview of which was published on the same date.

The second prong of the FSB's look into securities finance will be a more comprehensive quantitative assessment of the effect of the FSB's earlier haircut proposals on a broader set of firms.  The study will look into both the effects of the proposed minimum standards for methodologies used by firms in calculating their own haircuts and the numerical haircut floors to be applied to certain securities financing transactions.