The scope of the proposed reporting requirements under the EU’s Securities Finance Transaction Regulation (SFTR) is alarming, according to law firm Linklaters.

Responding to a 187 page discussion paper issued by watchdog ESMA last week, Pauline Ashall, partner in Linklater’s capital markets division, says the level of detail involved is startling.

"I’ve read through the discussion paper and the scope of the proposed reporting requirements is alarming,” Ashall told Global Investor/ISF.

“As well as the multiple reporting that is required where trades are concluded, modified or terminated, daily reporting with respect to each trade, as regards the value of the securities lent and the value of the collateral, is proposed.

“In light of the size of the stock lending and repo markets, this would lead to millions of daily reports being required."

Ashall added that the proposed 'linking' of the various transactions in a chain is also very complex, and the costs of systems builds would be huge.

Once in force, SFTR requires all securities loans, repos, reverse stock loans, buy and sell back and similar operations to be declared to an EU trade repository.

Fund managers must also inform investors of their use of these types of deals.

In addition, SFTR also imposes conditions on the 'reuse' of financial instruments which have been provided as 'collateral'.

The aim here is to ensure clients and counterparties understand the risks involved and give their consent to the reuse.

Essentially, the rules form just one step in a wider series of regulatory initiatives affecting securities financing markets and collateral both in the EU and elsewhere.

This week the International Securities Lending Association (ISLA) told Global Investor/ISF that a large number of firms have tended to view the requirements as "just another set of reporting rules".

However, the sheer scope of reporting and level of detail and data involved is onerous and ISLA says market participants cannot afford to bury their heads in the sand.

"SFTR represents a fundamental shift in the business models of securities finance market participants," said Andy Dyson, ISLA’s chief operating officer.

"If market participants fail to implement the changes on time and in an efficient manner, the penalties could be severe and the costs of doing business will rise."