Open SFTs are short duration products with an operational facility for unilateral or bilateral renegotiation at the discretion of either party or the two contracting parties. They have no set maturity, but will, for operational fluidity purposes, be renegotiated every business day (in terms of rate, size, collateralization or terminations, which is up to each party) and if necessary revalued according to the market parameters at the date. They are mainly used when a market player has a specific need (such as a short hedge for a market-maker whose position is likely to change constantly) and cannot commit to a long-term contract.

Open SFT aim above all to avoid costly daily manual re-entries and the associated operational risks for these products, which carry very large volumes. Thus, every day, as long as the two counterparties still agree on the terms of the transaction, the transaction is automatically renewed in the same conditions. If not, the transaction is either closed, or is subject to a rebalancing of the collateral and potentially to a revision of the remuneration conditions.

According to the LCR scenario (art.5(e) of the Delegated Act : “increased market volatility affecting the value of collateral or its quality or creating additional collateral needs”), collateral used in such open SFT necessarily cater for a decrease in value, equal to the regulatory haircut : there is no loss of value for HQLA L1 securities, a partial haircut is applied to L2A/L2B securities, while non-HQLA securities face a total loss.

In this perspective, in a LCR-type liquidity stress scenario, at each renegotiation date within the LCR horizon, such transaction results either in a termination or in a roll with additional collateral. Consequently, a cash flow should mechanically be accounted for to reflect the loss of value of the collateral attached to these products.

Pursuant to Q&A 2021_6163, we understand that the EBA takes a different stance and rules that inflows on open reverse repos not formally recalled within the 30-day horizon of the LCR and contingent on an option to trigger the liquidity flow, should not be computed in the LCR.