Should collateral received via securities financing transaction that is subsequently sold short be reported as encumbered in F32.02? Follow-up question on 2014_946 related to short positions in Asset Encumbrance

In accordance with the general instructions in section 1.7 (Definition of Encumbrance) of Annex XVII of the ITS No 451/2021 on asset encumbrance reporting under Article 430 of Regulation (EU) No 575/2013, it is outlined that an asset shall be treated as encumbered if it has been pledged or if it is subject to any form of arrangement to secure, collateralise or credit enhance any transaction from which it cannot be freely withdrawn. The ITS further clarifies that the definition is not based on an explicit legal definition, such as title transfer, but rather on economic principles, as the legal frameworks may differ in this respect across countries. A collateral received via securities financing transactions that is subsequently sold short does not give rise to encumbrance, as explained in the Q&A 2014_946. Neither it could be reported as unencumbered, since it is not possible for the institution to reuse or repledged it in other transactions. After the short sale of the collateral received, the instructions written in the scenario (1) of Q&A 2014_946 should be followed. As a consequences, in such a case the item of collateral ceases to be reported in template F 32.02.