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LEI-Dealing with Reality – How to Ensure Data Quality in the Changing Entity Identifier Landscape

“The Global LEI will be a marathon, not a sprint” is a phrase heard more than once during our series of Hot Topic webinars that’s charted the emergence of a standard identifier for entity data. Doubtless, it will be heard again.

But if we’re not exactly sprinting, we are moving pretty swiftly. Every time I think there’s nothing more to say on the topic, there is – well – more to say. With the artifice of the March ‘launch date’ behind us, it’s time to deal with reality. And the reality practitioners are having to deal with is one that’s changing rapidly.

Down load full and detailed report.

LEI-Dealing_with_reality-how_to_ensure_data_quality with Entity Identifiers_06_13.pdf

Source: A-Team, 26.06,2013

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LEI Development Embraces Change and Picks up Speed Ahead of G20 Meeting

The Financial Stability Board’s (FSB) third progress note on the legal entity identifier (LEI) initiative, released last week, has met with a positive response from those involved in shaping the system, potential infrastructure providers and market data vendors, despite changes to some proposals and the collapse of perceptions that have built up during debate on how the final system could shape up.

But while progress is positive, there are still fundamental concerns around corporate hierarchies, as without agreed reference data on legal entity parent and relationship information, the LEI will not fulfil the effective risk aggregation function at the heart of the global system development.

The decisions and to-do lists outlined in the FSB progress note are significant steps forward in developing a global LEI system and come ahead of another major milestone this week when G20 finance ministers and central bank governors meet in Mexico City and will be asked to endorse a draft charter for the system’s Regulatory Oversight Committee (ROC). The charter has been drawn up by the FSB Implementation Group (IG) and is expected to be approved by the G20 meeting, setting in motion the creation of the ROC and the global LEI foundation that will underpin the Central Operating Unit (COU) and secure a governance framework designed to sustain the public good of the system.

One of the late changes identified in the progress note is a shift away from perceptions that entity identifier codes would be 20-character random numbers. Instead, the note describes a part-structured, part-random character string resulting from an ‘urgent’ request made by the FSB IG in September for the FSB LEI Private Sector Preparatory Group (PSPG) to consider how identifiers could best be issued for the purposes of a federated, global LEI system. The PSPG’s views were considered at meetings of the PSPG and IG in Basel earlier this month and a technical specification has been endorsed by the FSB plenary.

The FSB states in the progress note: “The FSB decision is provided now to deliver clarity and certainty to the private sector on the approach to be taken by potential pre-LEI systems that will facilitate the integration of such local precursor solutions in to the global LEI system.”

On the basis of the arguments presented and discussed by the PSPG, the FSB has selected a structured number as the best approach for the global LEI system, although it acknowledges that the 20-character code, which complies with the existing ISO 17442 standard, will have no permanent embedded meaning. Instead it is aimed to avoid any overlap of random numbers in a federated issuing system by adding a code for each local operating unit (LOU) assigning LEIs in front of the numbers.

The breakdown then looks like this:

· Characters 1-4: a four character prefix allocated uniquely to each LOU

· Characters 5-6: two reserved characters set to zero

· Characters 7-18: entity-specific part of the code generated and assigned by LOUs

· Characters 19-20: two check digits as described in ISO 17442.

If this information has been a long time coming, the time to organise behind it is short with pre-LEI solutions wanting to transition into the global LEI system required to adopt the numbering scheme no later than November 30, just a month away. The LEI will be portable within the global LEI system, implying that the LEI code can be transferred from one LOU to another and that each LOU must have capacity to take responsibility for LEIs issued by other LOUs.

Following recommendations on data quality achieved through self-registration of legal entities in the FSB’s June 2012 report, the FSB goes on to decree that pre LEI-services should be based on self-registration, although this can include third-party registration made with the permission of the entity to be registered, and that from November 9 all pre-LEI systems must allow self-registration only.

No specific recommendations are made on how the Commodity Futures Trading Commission’s (CFTC) CFTC Interim Compliant Identifiers, or CICIs, which are entirely random numbers, will integrate with the LEI system, although the 27,000 or so already issued are expected to be grandfathered and accepted into the system without being restated.

Commenting on the LEI number structure, Peter Warms, global head of ID and symbology development at Bloomberg, says: “But for the prefix that identifies where the number was assigned from, the number is still random. This is good for data management practices as the number has no other data dependencies. I would question, however, whether the prefix of an identifier would be changed if it is moved to another LOU as this is not clear.”

Tim Lind, head of legal entity and corporate actions at Thomson Reuters, says: “We must put the debate on intelligent versus dumb numbers behind us and leave it as a milestone. Either solution could work and ongoing argument is not productive. The LEI principles are in place and we need to get on and get the work done.”

Both Warms and Lind applaud the advances made by the FSB and its working groups, but the need for speed remains if deadlines are to be met. And as the complex tasks of developing a legal foundation, ROC and governance framework for the LEI continue, Lind proposes a balance of perfection and pragmatism as the only way forward.

Another outcome of the Basel meetings that deflates earlier perceptions, is a clear indication that the COU will not be located in one central place, but will instead be distributed across several locations. This is likely to emanate from the FSB’s hard fought for and well held desire to ensure the LEI system is a collective development for the public good including a governance and operational framework that will encourage all jurisdictions to join in.

On the same basis, it has also become apparent that any suggestion that an LEI system could initially be based on a replica of the DTCC and Swift utility set up for the CFTC’s CICIs has been quashed. Instead, LOUs are expected to make their own technology choices to support the LEI – indeed they may already have systems in place – although they will, necessarily, have to conform with standards set by the COU.

If these are some of the recent gains in the LEI development, there is still much to be done ahead of having an ROC, COU and some LOUs in place by March 2013. Again sustaining a level playing field for the public good on a global basis, the FSB has asked the PSPG to build on initial work and consider the next phase of operational work that will focus on how the system can best address key issues in areas such as data quality, supporting local languages and characters, and drawing effectively on local infrastructure to deliver a truly global federated LEI system. The PSPG’s deadline to make proposals on these issues is the end of the year, generating the need for extremely swift action if the LEI system is to be up and running to any extent in March.

The final issue raised in the FSB’s progress note and one which has yet to be openly debated and resolved is ownership and hierarchy data associated with LEIs. The note states: “Addition of information on ownership and corporate hierarchies is essential to support effective risk aggregation, which is a key objective for the global LEI system. The IG is developing proposals for additional reference data on the direct and ultimate parents(s) of legal entities and on relationship (including ownership) data more generally and will prepare initial recommendations by the end of 2012. The IG is working closely with the PSPG to develop the proposals.”

This might be the FSB’s final note, but the issue has to be a top priority. As one observer puts it: “The next big thing is hierarchies. They need to be nailed down and there needs to be transparency. Work is being done on this, but without a good solution there will be no meaning in the LEI.”

Source: Reference Data Review, 29.10.2012

Filed under: Data Management, Reference Data, Standards, , , , , , , ,

News and updates on LEI standard progress and development

As a follow up on G20 acceptance in Los Cabos in July 2012 and the Financial Stability Board guidelines and recommendations of the Legal Entity Identifier  LEI, we will regularly update this post with news and article to provide an overview of  LEI standard progress and development.

 
First Published  13.07.2012 , Last Update 27.09.2012

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Whitepaper: Bloomberg to embrace emerging LEI

The industry initiative to develop and promote a standard global legal entity identifier (LEI) is expected to significantly reduce the opacity associated with complex financial instruments, widely acknowledged to be a major contributing factor in the 2008 credit crisis.

In this white paper, Bloomberg explains the implications of the emerging LEI for financial institutions, and outlines how it is embracing the new standard to help clients better understand the entities whose instruments they trade and hold (like mapping of LEI to Blombergs numeric BUID, etc.)

Download the White Paper Now

Source: A-TEAM 28.06.2012

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Thomson Reuters Opens RICs to all with Non-Realtime License

Thomson Reuters is taking a step toward answering client calls for more open access to its Reuters Instrument Code (RIC) symbology. The company is making RICs available for use with non-real-time information in client and non-client financial institutions’ trade processing systems.

Enterprise content chief Gerry Buggy, who has spearheaded Thomson Reuters’ response to the EC anti-competition complaint, the new facility is the “first step in supporting the financial community’s symbology needs across all parts of the trading life cycle through our evolving symbology services.”

The move comes in the wake of the EC investigation and subsequent complaint into the use of RICs in real-time consolidated data feeds. In response to that complaint, many financial services practitioners have called for more open access to the RIC, which is entrenched in many firms front-, middle- and back-office trading and trade processing systems.

According to Jason du Preez, Global Business Manager, Enterprise Platform, at Thomson Reuters, the latest initiative “has nothing to do with the EC investigation. The EC is focused on use of RICs for accessing real-time information, while the new licences are focused at firms looking to trade with the RIC or use the RIC to access non-real-time information.”

Du Preez says that latest move means that “any market participant can buy a license that will allow them to trade using the RIC. This will allow the use of the RIC for pre- and post-trade activities, and the right to redistribute RICS in this regard.”

The new RICs arrangement will allow market participants to use and cross-reference the RIC symbol for trade activities. As such, it can be used to facilitate the advertisement of liquidity, acceptance of trade flow and execution of post trade activities with the RIC symbol as a consistent identifier throughout the process.

Additionally, the service will allow Thomson Reuters pricing and reference data customers to use RICs to reference and retrieve securities data from their securities master databases and navigate to connected content such as legal entity identifier (LEI) information.

Du Preez says that “Firms that purchase reference data from Thomson Reuters will also be granted the right to use the RIC to access any non-real-time information, essentially allowing them to use the RIC to access any content, including third-party party content, held in their securities master databases.”

Thomson Reuters believes the new service will encourage more efficient and reliable capital markets by giving market participants the freedom to use RICs symbols irrespective of whether they use Thomson Reuters enterprise data products.

As part of the latest initiative, the Bats Chi-X Europe exchange has signed up for the service, which will allow it to deploy RICs in the post-trade services it offers.

According to Paul O’Donnell, COO at BATS Chi-X Europe, “Cross-referencing the BATS Chi-X Europe instrument codes with the Thomson Reuters RIC symbols will enable us to reach new market participants as well as improve efficiency and data transparency by facilitating accurate identification of securities on our platform.”

Du Preez says obvious candidates for adopting the new arrangement include “trade hubs, third-party trade/post-trade processing firms or anyone that wants to send, receive or cross reference messages that contain securities identified with a RIC.”

Source: A-Team Reference Data Review 27.06.2012

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Reference Data: LEI system Real and Ready for Use…or maybe not?

The morning after the G-20 leaders endorsed the Financial Stability Board’s recommendations for a global system of precisely identifying legal entities, the co-chairwoman of the LEI Trade Association Group said, “I think we have something that is real and ready for use.’’

Robin Doyle, a senior vice president at JPMorgan Chase, noted that 20,000 ready-to-use “legal entity identifiers” have already been generated by a prototype jointly developed by the Depository Trust and Clearing Corporation and the Society for Worldwide Interbank Financial Telecommunication. A copy of that file can be downloaded here.

The online portal that would allow financial market participants to register and receive 20-character ID codes and to search for the codes of counterparties or other entities was demonstrated Wednesday morning at the 2012 Technology Leaders Forum of the Securities Industry and Financial Markets Association.

That portal can be turned live “within 24 hours” of its need, said Mark Davies, 
Vice President, Business Development
 at The Depository Trust & Clearing Corporation, during the demonstration.

The LEI Trade Association Group represents a group of firms and financial industry trade associations trying to develop a global and uniform legal entity identifier. The group is supported by the Global Financial Markets Association, which includes SIFMA.

SIFMA and a variety of other trade groups have recommended that DTCC and SWIFT operate a central authority for registering and issuing the codes that the leaders of the G-20 industrial nations Tuesday endorsed.

The G-20 endorsed the 35 recommendations of an international coordinator known as the Financial Stability Board.

The board’s recommendations differed in one significant aspect from the SIFMA and trade association recommendation. Where the trade groups recommended a centralized system for registering and issuing ID codes – a point reinforced Tuesdya in opening remarks at SIFMA Tech by SIFMA president T. Timothy Ryan Jr. – the FSB recommended a “federated” registration model. Under that approach, local authorities, aka nations, could and theoretically would act as the agencies for registration, issuing and storing the codes.

The central authority would maintain a database that would be logically managed, but whose contents might be spread around the world, as on servers spread across the Internet.

“We think it can work,” but it has to be set up and maintained properly, Doyle said.

The federated model will only be as good as it adheres to the global standards set by the FSB and the International Organization for Standardization, which defined the 20-character code.

Doyle said a central authority under the FSB approach likely will need to conduct audits of local operating units, to ensure compliance with the overall standards. The challenge will be to make sure the codes are kept correctly and not, in some fashion, duplicated.

The local authorities will need to take on the expense of maintaining high standards. “It is an expensive, difficult process to validate data,” Doyle said.

“A public-facing system like this needs a huge amount of control,” Davies said.

The next shoe to drop on the development of the system will come within the next couple weeks. That’s when Commodity Futures Trading Commission member Scott O’Malia said a decision will be announced on what organization or organizations will handle the registration and issuance of ID codes for the swaps markets it will oversee. O’Malia said at SIFMA Tech Tuesday that the decision among what industry executives say are four competing proposals will come “very soon.”

Srinivas Bangarbale, the CFTC’s Chief Data Officer, said Wednesday that the regulator’s “interim compliant identifier” will support the ISO 17442 standard set out by the FSB and ISO. r

It’s decision to move ahead “presupposed the standard” and that the chosen implementing group would “adopt the standards as published.” The CFTC will not directly or indirectly create another set of reference data for the industry to keep track of

“It’s important to use the standard as soon as possible,” he said, however.

O’Malia said the CFTC is likely to begin issuing IDs as early as September. That is so the commission can fulfill its mandate to oversee interest-rate and credit-default swap markets, as mandated by the 2010 Dodd-Frank Wall Street Reform Act.

The FSB’s implementation schedule calls for a functional system to be ready to use by March 2013.

Source: Securities Technology Monitor, 20.06.2012 by Tom Steinert-Threlkeld

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LEIs – Increasing Usability & Benefits of the New Standardised Identifier – IDC

The development of the standardised legal entity identifier (LEIs) is very much underway, but how can firms and market participants utilise this new identifier to improve internal data flow and risk monitoring processes whilst also meeting the regulatory reporting requirements?

Listen to the Podcast here

Moderator/ Speakers:
Julia Schieffer
– Founder, DerivSource.com
Chris Johnson – Head of Product Management, Market Data Services, HSBC Securities Services
Darren Marsh – European Business Manager, Risk Management and Compliance, Interactive Data

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LEI (Legal Entity Identifier) set to arrive in waves

A new system giving financial institutions standardized Legal Entity Identifiers (LEIs) will start to be phased in next year after an international organization finalizes new standards in January 2012.

LEI requirements for a Global Legal Entity Identifier (LEI) Solution May 2011
LEI industry progress and  recommendation July 2011

The Geneva-based International Organization for Standardization (ISO) is expected to approve a plan for LEIs at the beginning of next year, calling for them to consist of 20 alphanumeric characters. After that happens, the infrastructure is already in place to start issuing the IDs early in 2012, according to officials with the Securities Industry and Financial Markets Association.

“Assuming the standard is approved by early January, our expectations are that legal entities will be able to register in short order for an LEI,” said Tom Price, managing director and head of SIFMA’s technology, operations and business continuity planning group.

During the financial crisis, both regulators and institutions realized they did not have the information available to quickly address issues of counterparty risk. LEIs aim to change that by using a universal code that would allow counterparties to be easily identified.

The United States has provided much of the leadership behind the push for LEIs, but the concept enjoys broad support around the globe. The registering authority for LEIs will not come from any government, but rather from the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

After the ISO finalizes the standard, the next step will be rule writing, which is already underway at the Commodity Futures Trading Commission with respect to swaps. Price said LEIs will be used first for swaps participants and then gradually adopted for transactions involving other types of assets until they are required for all trades.

David Strongin, who is also a managing director at SIFMA, said the U.S. will be the first country to require LEIs, but Hong Kong and Canada will likely follow fairly quickly. The European Union has committed to adopting LEIs as well, though it is unclear whether Europe will adopt the system all at once or phase it in country by country.

Strongin stressed, however, that there is a global consensus to move forward, even if not every nation and region mandates LEIs at the same time.

“The G20, both the finance ministers and leaders, have all endorsed this,” Strongin said. “From a very high level, you don’t see disagreement that an LEI is needed. I think everyone agrees that it’s an important tool to build the foundation for risk management.”

Strongin said that while many traders might not see it right now, most firms are currently working hard to prepare for LEIs. Eventually, however, the changes will touch every facet of the industry. “There’s a lot of work going on, though there’s only so much you can do until you see the final rules,” Price added.

Source: Traders Magazine, 18.11.2011

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Markets in Financial Instruments Regulation (MiFIR): A New Breed of Data Requirements – A-TEAM

Rather than opting for an all in one directive to herald the second coming of MiFID, the European Commission has split the update into two parts: a regulation and a directive. The Markets in Financial Instruments Regulation (MiFIR) should be of particular interest to the data management community due to its focus on all aspects of data transparency, from trade data through to transaction reporting.

According to the draft of MiFIR, which is available to download at the bottom of the blog, the regulation: “sets out requirements in relation to the disclosure of trade transparency data to the public and transaction data to competent authorities, the authorisation and ongoing obligations applicable to providers of data services, the mandatory trading of derivatives on organised venues, and specific supervisory actions regarding financial instruments and positions in derivatives.” The data transparency requirements have therefore been neatly tied together under one regulatory banner, leaving the directive to deal with aspects such as the provision of investment services and conduct of business requirements for investment firms.

The draft regulation is the culmination of the work of the European Securities and Markets Authority (ESMA) and its predecessor over the last couple of years to gather industry feedback on the implementation of the first version of MiFID and to fill in any gaps, as well as to extend the regulation beyond the equities market. The draft paper notes that the European Commission has focused on assessing the impact of these new requirements including cost effectiveness and transparency; hence it is adopting a defensive stance ahead of any possible industry backlash on the subject.

Much like its predecessor, MiFIR is focused on improving cross border transparency and ensuring a level playing field with regards to data reporting requirements and access. Although the regulation contains a number of important pre-trade data transparency requirements such as equal access to data about trading opportunities, the most important aspects for data managers will likely reside in the post-trade section of MiFIR.

The extension of transparency requirements to OTC derivatives and fixed income instruments and the multilateral trading facility (MTF) and organised trading facility (OTF) contingents in the market is one such development. These markets, however, will not face the same level of transparency requirements as the equity markets, although “equity like” instruments such as depository receipts and exchange traded funds will see the MiFID requirements extended to cover them directly. All trading venues and their related trades will therefore now be subject to the same level of transparency requirements, but these will be tailored to the individual instrument types in question (the level of transparency will be determined by instrument type rather than venue).

On transaction reporting (the area of most relevance with regards to reference data standards), MiFIR aims to improve the quality of the data underlying these reports (a common theme across a lot of recent regulation – see commentary on which here) by being much more prescriptive in the standards that must be used. The idea is for firms to provide “full access to records at all stages in the order execution process” and for trading venues, beyond just traditional exchanges to encompass MTFs and OTFs, to store relevant data for a period of five years. This data includes legal entity identification data that the regulation indicates must be reported via approved mechanisms and formatted in a certain manner that will make it accessible for regulatory oversight purposes cross border.

The exact nature of the legal entity identification (LEI) and instrument identification standards that are to be used by firms in their transaction reports is likely to be impacted by the ongoing work at a global level as part of the systemic risk monitoring effort (see more here). At the moment, a range of identifiers is acceptable, but the regulatory community has been pushing towards the Bank Identifier Code (BIC) for some time (see more on which here), but this may change before MiFIR comes into force.

Another important section of MiFIR is the one devoted to the “increased and more efficient data consolidation” for market data, which necessarily entails a reduction in the cost of this data. A City of London paper published earlier this year addressed this issue directly, noting that the majority of the European firms participating in the study believe poor data quality, high costs of pricing data and a reliance on vendors are the main barriers to post-trade transparency (see more here), and MiFIR appears to be aiming to directly address those issues.

The argument for some form of consolidated tape or tapes is an integral part of that endeavour (see recent industry commentary on this issue here) and MiFIR indicates that the aim is for data to be “reliable, timely and available at a reasonable cost.” On that last point, the regulation also includes a provision that all trading venues must make post-trade information available free of charge 15 minutes after execution, thus enabling data vendors to stay in business but increasing transparency overall (or so the logic goes). Moreover, the regulator is keen for a number of consolidated tape providers to offer market data services and improve access to a comparison of prices and trades across venues, rather than a single utility version.

In order to tackle the issue of a lack of data quality for trade reporting, all firms will also be required to publish their trade reports through approved publication arrangements (APAs), thus ensuring certain standards are adhered to.

The full MiFIR Draft paper is downloabale here  from A-TEAM

Source: A-Team Virgina´s Blog, 08.09.2011

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