EU Regulation on Transparency of Securities Financing Transactions and of Reuse aims at reducing financial stability risks . Within its development ESMA has published a research paper about Trends, Risks and Vulnerabilities (on shadow banking) We extract this paragraph related to descuentos (haircuts) in SFT
"Securities financing transactions (SFTs), which include
mainly repurchase agrements (repos) and securities lending, involve the temporary exchange of cash
or securities against collateral. EU SFT markets are very large, with the value of collateral used in SFTs
amounting to several trillions of euros. To cover for risks related to the characteristics of the collateral
and counterparty creditworthiness, a discount known as a haircut is usually applied to the value of
collateral. Haircuts are helpful risk management tools, but haircut levels are also part of the negotiation
between counterparties trading bilaterally. Haircuts may thus change over time to reflect the evolution
of market conditions, and can contribute to procyclicality and financial instability by reinforcing asset
price movements.
"Haircuts are often, but not systematically, used
as a pricing mechanism following internal
discussions between the credit (or risk)
department and trading desks. In securities
lending markets, some entities rely on haircut
grids pre-determined internally, from which
traders can deviate up to a certain percentage,
but the tolerance band for such deviations
depends on the characteristics of the collateral
and the entity’s risk appetite. Collateral and counterparty analysis are the two
key components used to determine haircuts.
Counterparty credit risk plays a role prior to the
transaction, in deciding whether or not to trade,
and during negotiation on the terms of the trade.
Factors considered in the counterparty analysis
include creditworthiness, exposures and
concentration. Factors considered in the
collateral analysis include historical volatility of
the asset, residual maturity, market risk, wrongway
risk, currency mismatch, and asset class (for
tri-party repos). Other minor factors may also
influence haircuts, including for example the type
of collateral ownership (title transfer versus
collateral pledge).
Following the internal risk assessment, trading
desks usually engage in negotiations with their
counterparty, which often include haircuts.
Haircuts are one of the price components,
together with repo rates or securities lending
fees, that traders may use to strike a deal."
- More , at ESMA's site