Six associations publish risk disclosure statement
FIA is working with several other trade associations to help market participants comply with new disclosure requirements under the EU's Securities Financing Transaction Regulation that will come into force in July.
On May 13, the associations published an updated version of a standardized disclosure form regarding the risks and consequences related to the use of collateral provided under a security collateral arrangement or a title transfer collateral arrangement.
The new version includes an appendix outlining collateral re-use risks in relation to U.S. futures commission merchants, broker-dealers or banks when they act as "collateral takers." In addition, it also provides member firms with guidance as to how they can use the information statement when sending it to their clients.
The SFTR Information Statement is a template for use by market participants to inform their counterparties of the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding a title transfer collateral arrangement. Market participants can tailor the statement to suit their own specific circumstances.
The document has been drawn up in response to the SFTR rules, which come into force from July 13 and will affect all existing and future title transfer and security collateral arrangements under a variety of financial agreements, including FIA client clearing agreements, ISDA master agreements, and the ISDA/FIA client cleared OTC derivatives addendum. The statement includes a section discussing the risks associated with collateral used in the clearing of derivatives and specifically the porting of transactions and assets following a default.
