- Many corporate actions which result in a new line of asset or cash payment, will produce a temporary or interim security, as a result of the CA which is replaced by the new asset, or cash on payment date.
- As per the ISLA working group, it was noted that a greater percentage of firms do not book interim (ineligible or non-tradable) securities in their internal systems at all, accounting for them in other ways.
- For firms that do book interim securities, if one firm reports to the TR, it will create a single sided trade and hence a break.
- ISLA's working group determined a universe of all types of interim securities, which could be the result or temporary result from a corporate action and agree the reportable characteristics of each type of Interim security as referenced in tables 2 & 3 in the appendix.
- With reference to the table on the following page; some interim securities will need to be reported and some should be supressed for reporting to the TR however, the effect on daily collateral will be mitigated by the fact that the total position will comprise the value reported to the TR.
- Those parties who book the interim security will reduce the value of the original line, and those firms not booking an additional line will reprice the original SFT until pay date, when the new security line is booked.
- Therefore, as in the example shown below, Firm 1 and Firm 2 will both report matching collateral values, only Firm 3, which neither books the coupon nor re-prices the original holding, would be in error and break at the TR on their daily COLU report.
- In all cases, the SFTR report on Pay Date (Trade and Settlement +1) will be in line as outlined on the next page: Example: (Click here to view) (COAC-127 FOR ISLA REVIEW)
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