To support the U.K. Financial Services Authority’s (FSA) enhanced requirements for agency lending disclosure with the implementation of Basel 2 in Europe, DTCC’s SMART/Track for Agency Lending Disclosure service will soon be made available to members of the International Securities Lending Association (ISLA), beginning in mid-December.
European agent lenders will be able to use DTCC SMART/Track to create unique identifiers for non-U.S. principal lenders one of the required data elements in the agency lending files to disclose the identity of the principal lender to borrowers, so the borrower can complete a credit and capital analysis of the underlying, or principal, lender. The FSA requires agent lenders to disclose the identity of their principal lenders to borrowers and to provide details of exposures to underlying principals at least monthly from January 2008.
“Since 2006, ISLA has been planning a two-stage approach to introducing agent lender disclosure in Europe: an interim phase involving at least monthly disclosure followed by the introduction of daily disclosure in line with the U.S. market,” says David Rule, chief executive at ISLA. “Working with DTCC and using SMART/Track is a quick and easy solution to assigning unique identifiers that will ensure consistency with U.S. practices.”
In addition to the Web screen feature in SMART/Track for Agency Lending Disclosure that creates these unique identifiers, the system can also act as a ‘post office,’ transmitting the agency lending data files between lenders and borrowers. SMART/Track provides acknowledgments and receipts for the file transmissions.
By January 2010, the FSA has stated it will require full, daily disclosure for all firms borrowing securities, at point of trade where possible and no later than a business day following settlement date. This initiative is similar to the one undertaken in the U.S. under the auspices of the U.S. Securities and Exchange Commission (SEC) and the Federal Reserve. Since October 2006, U.S. agent lenders have provided daily disclosure of underlying principals to U.S. borrowers using standardized file formats and DTCC as a data transmission hub.
“We are pleased that our SMART/Track service for Agency Lending can be leveraged to satisfy similar requirements in the E.U.,” says Susan Cosgrove, managing director at DTCC Clearance and Settlement Group. “Extending use of the service beyond US domestic agent lenders and borrowers facilitates a standardized and cost effective global solution.”
As a next step, ISLA is establishing a working group of borrowers and agent lenders, reporting to the ISLA Board, to oversee the planning and implementation of a model for daily disclosure in Europe.