The global Legal Entity Identifier system (GLEIS) has made its mark in the market and is here to stay, despite the continuing absence of a Central Operating Unit (COU) that will run the system, a lack of data standardisation that should be sorted out by the COU and concerns about how well entities will maintain their LEI data.
The state of play in the development of the GLEIS and how LEIs are and will be used was debated during a recent A-Team Group webinar moderated by A-Team Group editor-in-chief Andrew Delaney. Delaney was joined on the webinar panel by LEI experts Ronald Jordan, managing director and chief data officer at DTCC; Emma Kalliomaki, Head of the SEDOL masterfile at the London Stock Exchange Group (LSE); and Peter Warms, head of development, data symbology, at Bloomberg.
Delaney opened the debate with a quick catch-up on the GLEIS, noting the lengthy evolution of the system, but increasing activity in the second half of 2013 as more pre-Local Operating Units (LOUs) were set up and issued pre-LEIs, making the LEI landscape larger but more complex. He reported that many market practitioners have entity data management projects moving forward at full steam, but questioned what will happen in the absence of a COU for the system and whether LEI fatigue will hamper progress.
Jordan responded, saying there was a little LEI fatigue in the market, but herculean effort to set up the global, endorsed and free system had got it to a good place, although more remains to be done. He added: “The COU does not exist yet, but the Regulatory Oversight Committee (ROC) of the LEI system, which includes about 55 regulators, has taken on the activities of the COU for the time being, endorsing five pre-LOUs and allowing regulatory reporting to begin with pre-LEIs from endorsed pre-LOUs.”
From a market data vendor’s perspective, Warms commented: “There is concern among market data vendors that the COU is not in place. As more pre-LOUs assign pre-LEIs, it becomes harder for us to map them as pre-LOUs do not all use the same data attributes for pre-LEIs. This means pre-LEIs from each pre-LOU must be mapped separately. The COU is expected to provide a consolidated feed that would be easier to map.” Noting numbers of LEIs in the market, Warms said over 100,000 LEIs have been issued across 150 countries, with about 50% having been issued in the US.
Considering the LEI Foundation that will underpin the COU, Kalliomaki said: “Steps are being taken to put in place a board of 15 directors for the foundation. We expect the foundation to provide a consistent way of gathering and standardising LEI data for the market.”
Picking up the issue of data consolidation, Jordan said: “Until a central body defines the data attributes of LEIs it will be difficult to pull the data together. The end game has to be data standards and data that is publically available. Then consolidation becomes more straight forward and it is easier to create data for consumers.”
Delaney moved on to question how many endorsed pre-LOUs assigning pre-LEIs that are globally acceptable to regulators would be needed to make the system viable from a regulatory standpoint. Jordan said: “My belief is that the system is globally viable now, but there needs to be a continuing focus on interoperability between pre-LOUs and data quality.”
Turning to regulation, Delaney named the US Commodity Futures Trading Commission, European Market Infrastructure Regulation (EMIR) and the US National Association of Insurance Commissioners as organisations and regulations that mandate the use of LEIs in reporting. Jordan agreed that these are the only regulatory mandates at the moment, but pointed to regulators in jurisdictions including Canada, Singapore and Japan that are expected to mandate or strongly recommend the use of LEIs. Kalliomaki suggested LEIs may be mandated in the Alternative Investment Fund Managers Directive and in MifID II after EMIR gets underway in February 2014.
Describing the role of LEIs in EMIR, she said: “The European Securities and Markets Authority said in October that only pre-LEIs from endorsed pre-LOUs should be used for EMIR. If pre-LEIs are available, BICs and company identifiers must not be used.” With EMIR looming and the LSE waiting to be endorsed as a pre-LOU, Kalliomaki said requests for Interim Entity Identifiers, the LSE’s pre-LEIs, had increased dramatically over the past three weeks and she expected this to continue. She added that this will mean a longer turnaround time for requests and warned market practitioners to prepare immediately and not wait until the last minute before EMIR takes effect. Given the EMIR deadline, she noted that the LEI is being driven by regulation, but also by business, which recognises the internal and business-to-businesses benefits of rolling out LEIs to all entities.
Answering a question from Delaney about whether a trader could take a derivatives position without an LEI, Kalliomaki said: “Having or not having an LEI doesn’t prevent trading, but the requirements of reporting mean any trade made without an LEI would be rejected and could attract penalties.”
Discussing the mapping issues involved with LEIs, Warms said: “The LEI necessitates the need for mapping and more than just mapping. It represents a sizeable shift in reference data. For 20 years, the focus has been on the instrument level, now it is on the entity level. The shift requires entity models to be put on top of security models and connected to activities such as client on-boarding and know your customer.” Turning to use cases of the LEI, Warms said Bloomberg customers were beginning to use LEIs to aggregate the total risk exposure of single entities.
As EMIR approaches and more and more LEIs are assigned to entities, Delaney asked panel members what market participants should be doing to accommodate the identifiers. Jordan said DTCC’s top tier clients were at various levels of readiness for the LEI, with some already running sophisticated systems and others deciding whether to map the identifiers themselves or depend on market data vendors. He commented: “There is a realisation that the LEI is here to stay, but also a wide variety of preparations being made.”
Warms suggested market participants could be both users of LEIs and contributors to the system. He explained: “Market participants need to use LEIs for regulatory reporting and contribute to the global system by understanding the information, mostly business card information, that is required to get an LEI and how to update and recertify that information in line with annual maintenance requirements.”
While all the panellists agreed that the global LEI system is here to stay, Warms warned that its credibility may be damaged if recertification is not improved to make LEI data more up to date. Jordan concluded: “The LEI and LOUs are not meant to be all things to all people, but I hear a lot of talk about how the global system could be used. We need to stay grounded and not add anything to the system that has a cost to the consumer and minimal benefits. We need to avoid the scope creep that often gets into these kinds of projects if we are not diligent.”