The data is collected monthly from approximately 50 financial institutions with the largest SFT trading volume, including transactions with overseas counterparties and intra-group transactions.
The BOJ (Bank of Japan) has started publishing monthly statistics on SFTs (securities financing transactions), as part of global efforts to improve the transparency of securities financing markets.
While SFTs play a crucial role in supporting active trading in securities markets, the need to increase transparency of such transactions was highlighted by the 2008 global financial crisis (GFC), due to their use by market participants to raise funds for the purpose of taking on additional leverage.
During the GFC, short-term funds raised through SFTs were used to invest in illiquid assets and long-term financial assets, including debt securities with low creditworthiness such as securitised products backed by subprime mortgages.
In short, SFTs are seen to have worsened the GFC, leading global regulators to work towards strengthening regulations around SFTs to reduce their risks and enhance transparency.
While the BOJ has been collecting SFT data for about a year, it first published the data in January, covering granular transaction data with various attributes, and providing detailed information such as statistical series by currency, transaction type, counterparty jurisdiction, and maturity.
The data is collected monthly from approximately 50 financial institutions with the largest SFT trading volume, including transactions with counterparties located overseas and intra-group transactions.
The BOJ has developed a dedicated system for aggregating SFT data, an information management system and an analysis platform for the data. Since it started collecting the data, it began reporting aggregate values to the FSB (Financial Stability Board).
The BOJ and FSA (Financial Services Agency) also use the data to understand trends in SFT markets, including information about haircuts and the types of collateral used, to monitor trading activity at individual financial institutions.
The statistics have revealed that about 90 percent of SFTs in Japan are denominated in Japanese yen. Of these transactions, 90 percent are with Japanese government securities (two-thirds repo; one-third securities lending).
While 73 percent of the transactions are with counterparties in Japan, the next largest counterparty jurisdiction is Europe, largely due to financial institutions headquartered in Europe conducting SFTs between their Japanese and overseas offices.
“The Bank expects the publication of these statistics will help improve the transparency of securities financing markets in Japan, thereby contributing to maintaining and improving the functionality and robustness of financial markets overall,” the BOJ says.
More information is available here.