Pursuant to Article 3(8) of the Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (SFTR) 'buy-sell back transaction' (BSB) or 'sell-buy back transaction' (SBB) means a transaction by which a counterparty buys or sells securities, commodities, or guaranteed rights relating to title to securities or commodities, agreeing, respectively, to sell or to buy back securities, commodities or such guaranteed rights of the same description at a specified price on a future date, that transaction being a buy-sell back transaction for the counterparty buying the securities, commodities or guaranteed rights, and a sell-buy back transaction for the counterparty selling them, such buy-sell back transaction or sell-buy back transaction not being governed by a repurchase agreement or by a reverse-repurchase agreement.
Sell-buy backs (and buy-sell backs) are very similar to repos (and reverse repos), but based on separate buy and sell contracts without a master agreement (Report on securities financing transactions and leverage in the EU Report prepared under the mandate in Article 29(3) SFTR, 4 October 2016, ESMA/2016/1415, p. 12).
A sell/buy-back is very similar to a repo but with two independent contracts, one for the spot contract, and one for the forward contract.
As such, the terminology used is slightly different to repo, with repo generally referring to the price difference as rates, while sell/buy-back refer to a spot price and a forward price.
Some people consider sell/buy-backs as riskier instruments than repos as they do not require a mastering agreement between the buyer and seller. The lack of this legal document may increase the risk of the sell/buy-back if the borrower defaults.
Final Report, Technical standards under SFTR and certain amendments to EMIR, 31 March 2017, ESMA70-708036281-82, p. 353
These transactions tend to be used to a larger extent than repos in some specific countries (e.g. Spain).
Buy-sell back and sell-buy back transactions are subject to reporting requirements as laid down in Article 4(1) of the SFTR and in the secondary legislation.
For the reporting purposes, with respect to counterparties roles ESMA proposes to use the terms "collateral giver" and "collateral taker".
In the case of sell-buy backs, the counterparty that buys securities, commodities, or guaranteed rights relating to title to securities or commodities on the opening or spot leg of the trade and agreeing to sell them at a specified price on a future date (closing or forward leg of the trade) is to be identified as the collateral taker.
The other counterparty shall be identified as the collateral giver (Consultation Paper Draft RTS and ITS under SFTR and amendments to related EMIR RTS, 30 September 2016, ESMA/2016/1409, p. 44, 45).
The repo reporting scenarios depicted in the aforementioned ESMA's Report of 30 September 2016 (p. 45 - 53) would also apply in the same way to buy/sell back and sell/buy back transactions.
According to ESMA, the only difference would consist in the legal nature of the trade which encompasses a simultaneous buy and a sell, but it is expected to be reported as a single Securities financing transaction (SFT).
Therefore, for each of those transactions, a CCP and respectively a clearing member, would be included as counterparties, as applicable.
ESMA clarified that all repo scenarios (bilateral and centrally cleared) would also apply in the same way to buy/sell back.
In case of buy/sell back trades that do involve a CCP they would be reported in the same way as centrally cleared repos.
ESMA's Report of 30 September 2016 proposes, moreover, to include the market value of the securities as a required element of transaction data for buy-sell back and sell-buy back trades.
According to the said recommendation the reporting counterparties would update this information on a daily basis.
The market value should be at close of business of each business day as it is used for collateral management purpose, i.e. the market value used to calculate daily variation margin.
Reporting entities should use the "Other modification" action type.
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Securities financing transaction (SFT)