first use of the financial supply chain’s new
global coding scheme is being tested by swaps market
participants in their new responsibility to report swaps
transactions to trade repositories.
would agree that while a lot of global cooperation has been
achieved and progress has been made, it is not yet
intent is to have unique, unambiguous and universal codes
embedded in all financial transactions.
these codes data aggregation across the multiple business units
of financial enterprises and across multiple financial
institutions would be possible.
objective for the deployment of this global ID regime was to
observe a single firm’s enterprise risk and
multiple firms’ systemic risk across the
first test of its use for data aggregation is with swaps
transactions in trade repositories.
regulatory and industry initiatives are focusing on
incrementally adjusting the coding scheme as regulators attempt
to rollout the ID system across the globe.
ESMA (European Securities Market Authority) published reporting
guidelines on the LEI (Legal Entity Identifier) and the UTI
(Unique Transaction Identifier). EIOPA
(European Insurance and Occupational Pension Authority)
published reporting guidelines for the LEI. ISDA
published reporting guidelines for the UTI and UPI (Unique
three recent releases are an attempt to bring clarity to the
identification regime first proposed by the SEC, CFTC and
Office of Financial Research (OFR) in 2010 and subsequently
transferred to the Financial Stability Board (FSB) in
then the FSB has organized the Regulatory Oversight Committee,
a group of 70 regulators from 40 countries, and the Global
Legal Entity Identifier Foundation (GLEIF), whose board is made
up of 16 industry practitioners and academics, to implement one
part of the global identification scheme, the Global Legal
Entity Identifier System (GLEIS).
regulators and trade associations have opined previously on the
ID regime, including the
Singapore Monetary Authority,
FSB and the
GFMA’s CEOs also chimed in recently on needed
improvements. Relevant excerpts from all of these documents are
included in the referenced footnotes.
LEI is particularly important to implementing global as well as
local swaps risk regimes as it is intended to uniquely describe
the counterparties and reference entities in a swaps
transaction. The LEI is also to be used in constructing the
regulators are describing the GLEIS as "operational" the GLEIF
is more cautious as they must
design the operating components of the system and then
now what is operational is local issuance and maintenance of
pre-LEIs by 17 LOUs (facilities operators designated as Local
Operating Units that organize the local LEI registries and
maintain business card data on each legal entity).
13 LOUs are still in the formation stage.
to be decided is the mechanism for registering and maintaining
organizational hierarchies and controlling entities of multiple
LEIs; the mechanism to make changes to LEIs as corporate events
such as mergers, spin-offs, acquisitions and bankruptcies
occur; and the mechanism to federate all the disparate LEI
registries into a virtual data base for a single view and
access to the entire set of LEIs.
general theme common to all the referenced regulatory
'mandates’ is that:
the identification system as currently implemented is not yet
functioning as intended;
that use of the pre-LEI codes as the counterparty code is to be
used until an officially approved LEI system is
that no pre-LEIs are available for branches so a BIC (Swift
issued Banking Industry Code) can be used;
that no LEIs are planned to be available for individuals so an
internal customer number can be used;
to construct the UTI various construction 'themes’
of each regulatory can be used until an official UTI is
to provide for a UPI in data reporting use any available
interim UPI taxonomy until a global one is
is not quite the nod to unique, unambiguous and universal code
construction the industry and regulators asked for.
it is not yet useable for its intended purpose, in the
immediate term – counterparty data aggregation within
and across swaps trade repositories globally; and longer-term
–for global risk analysis across all financial market
participants and all the products traded.
are not yet there on the short-term and a long way from the
would not be surprising, given the adjustments regulators and
industry are already seeking to see the transition from the
pre-LEI to the GLEIS require adjustments to the LEI codes
a prefix appended to the LEI code to associate each LEI with
its parent registering entity. This simple addition would
accommodate data aggregation; ease global access; and permit
rapid updating of corporate events, all key functions yet to be
additional research on this topic see www.FinancialinterGroup.com
Allan D Grody
is president of Financial InterGroup Holdings.