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Securities financing transactions – draft regulation agreed


The Council of the European Union and the European Parliament have agreed a draft regulation to improve transparency in securities lending and repurchase transactions. 

The draft regulation includes measures that will improve transparency in three areas, the Council said. It will monitor the build up of systemic risks in the financial sector related to securities financing transactions; disclose information on those transactions to investors with assets involved; and introduce rules on 'rehypothecation' activities, where banks and brokers use the collateral pledged by their clients for their own purposes, the Council said

Securities financing transactions are often carried out by the 'shadow banking sector', the Council said.

The term shadow banking generally refers to the provision of credit either fully or partially outside of the regular banking system. Shadow banking activities are typically subject to less stringent, if any, regulatory oversight than traditional banking activities.

Securities financing transactions mostly involve lending or borrowing of securities and commodities, repurchase (repo) or reverse repurchase transactions, or buy-back/sell-back transactions, the Council said.

The text will be confirmed by the permanent representatives committee on behalf of the Council, then passed to the European Parliament for a vote before being sent to the Council for adoption.

The European Commission said in February that it was consulting on the way that the securitisation market is regulated to ensure that it is not hindering growth. 

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