Question ID:
2019_4777
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Leverage ratio
Article:
1
Paragraph:
8
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Delegated Regulation (EU) 2015/62 - DR with regard to the leverage ratio
Article/Paragraph:
429(8)
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Treatment of open repos for leverage ratio exposure measure
Question:

Could securities financing transactions (SFT) with no explicit end date (but which can be unwound at any time by any counterparty, e.g. open repos) be considered as bearing economic similarity between open maturity and overnight SFTs? If so, is it possible to net the cash payables and cash receivables in SFTs with the same counterparty subject to contractual legal rights to close the trade on the next day and in principle similar to overnight trades?

Background on the question:

The treatment of securities financing transactions(SFTs) allows cash payables and cash receivables that arises from SFTs with the same counterparty to be netted provided that certain conditions are met; one of these conditions being transactions that gives rise to the receivables and payables have the same explicit final settlement date.

Clarification has been sought since the Basel III leverage ratio framework on the treatment of open repos (i.e. repos with no explicit end date but which can be unwound at any time by either party to the transaction). The response concluded was open repos are not eligible for netting as they do not meet the mentioned condition of featuring an explicit settlement date.

However, it was mentioned in the FAQ in July 15 that the Committee is aware that there are countries where the use of open repos is widespread and that the current treatment may therefore have a material impact on banks operating in those countries despite open repos serving a functional equivalent to overnight repos used in other countries.

We noted that for Canada Leverage OSFI has amended its treatment of open maturity SFT exposure in the LR guideline to reflect the economic similarity between the open maturity and overnight SFTs. Institutions will be allowed to consider open maturity secured transactions as overnight trades for the purpose of measuring cash payables and cash receivables in SFTs with the same counterparty on a net basis.

As a result, the LR exposure measure of open repos may significantly differ between jurisdictions.

Date of submission:
14/06/2019
Published as Rejected Q&A
11/02/2022
Rationale for rejection:

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status:
Rejected question
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