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Michael Shashoua, editor, Inside Reference Data

LEI and the Profit Motive

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The fate of legal entity identifiers as an industry standard could rest on what types of organizations implement them

As the newly installed editor of Inside Reference Data, I’d like to start by picking up where my predecessor Tine Thoresen left off last month. We expect to keep hearing a lot about legal entity identification (LEI), with the US Office of Financial Research (OFR) preparing to put an LEI standard in place on July 15.

Last month, at its Financial Services Technology Leaders Forum, the Securities Industry and Financial Markets Association (Sifma) picked up the mantle that had been set up by other industry leaders concerning LEIs, as an opportunity to make changes for the better in the functioning of the industry. The greatest advantage the new LEI standard could yield, according to executives who spoke at the Sifma forum, is improvement in firms’ risk management (page 16).

Yet, even with a looming deadline, there still seems to be swirling uncertainty around how the new standards will be put in place, confronting the industry with questions about where to store data, how to get a full end-to-end, front- to back-office view of data, and how to evaluate data quality.

One might be well-advised to take a look back nearly 10 years ago, when securities industry technologists were debating about how to handle straight-through processing, a trading initiative that, while not regulation-driven, did spawn two organizations to serve the function, the not-for-profit GSTPA, and the for-profit corporation Omgeo, which began as a joint venture of Thomson Reuters (its pre-merger Thomson half) and DTCC. Omgeo thrived, while the now-defunct GSTPA is little remembered by those with less than five years’ involvement in the industry.

This history holds a lesson for how to serve the industry’s demands for setting and working with LEIs. That lesson is that it could be time to consider setting up a for-profit, or at least “non-non profit” as some put it, company to handle LEIs. Although the changes to LEIs appear to be driven by the US, AFME (the Association for Financial Markets in Europe) and ASIFMA (the Asia Securities Industry and Financial Markets Association) have joined Sifma in forming the Global Financial Services Trade Associations, which is expected to recommend providers to issue LEIs right around the time this issue goes to press. Will the trade associations point to providers that already exist? Will those providers be ones that are already profitable? Will there be any surprises in what the associations recommend?

The answers to these questions will affect how the new LEIs are implemented and how requirements and mandates are met. The process is expected to last from a year and a half to two years, beyond the July 15 date, as different regions and countries complete their rulemaking. Undoubtedly, the effectiveness of the new LEI standard at improving risk management will depend on who carries it out.

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Opportunity for scope creep with LEIs ?

Hi Michael - it's been interesting watching this process swing from "The BIC can be made to do everything" to a new and unique ISO LEI. It's not at all clear at the moment how existing organisations that issue domestic legal entity identifiers(which are often government departments) are going to fit into the scheme of ISO LEIs. Will there be duplication of effort across all countries globally, or a harmonised single approach? It's great seeing financial institutions pulling together so quickly to agree on a new global standard, but the impression is that relevant government bodies outside of the USA may not yet have participated in this discussion. And non-financial organisations that will need to obtain ISO LEIs - corporates, for example - may not have participated either. Looking to initiatives in the European Union to increase the use of e-commerce, it's easy to see that a unique LEI could be a key identifier in the international e-commerce and payments space. Just as the BIC code started off as a network address on a cross-border bank-to-bank payments network and its scope crept to being proposed as a global business entity identifier, I think that we're likely to see similar shoe-horning of the ISO LEI to be used much more broadly than just for regulatory reporting in financial markets.

Posted by: Chris Pickles Jul 27 2011

LEI - history lesson extends beyond the financial industry

HISTORY LESSON EXTENDS BEYOND FINANCIAL SERVICES Michael, congratulations and best wishes for your success as you take over as Editor of Inside Reference Data. We all look forward to your insightful and informed editorials in the future. Your current editorial has much to be appreciated regarding the history lesson for how to serve the industry’s demands for setting and working with LEIs. Your point is well taken that it could be time to consider setting up a for-profit or at least a “non-non-profit” company to handle LEIs. You site the example of OMGEO a 50-50 joint venture of a commercial entity, Thomson Reuters, and a shared industry utility, DTCC. This is, in fact, the expectation for the LEI. See “Creating a Linchpin for Financial Data: The Need for a Legal Entity Identifier” at http://ssrn.com/abstract=1723298 Page 9. The LEI is to be a unique, unambiguous and universal numbering system with a minimum number of data attributes that the regulators need for acquiring and aggregating valued position data for risk analysis. It is to be run as a non-profit. The rest of it, extended data attributes for operationalizing the LEI for use in financial industry business applications is to be developed within any appropriate business model, including existing data vendor and financial market utility models. Fortunately this model already exists in many industries, healthcare, food, retail, pharmaceuticals, manufacturing and over 20 other global industries. In the latest government report “Legal Entity Identifier: What Else Do You Need to Know?” at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1866447 , one such non-profit model has been identified, adminstered by GS1. GS1 and my company have formally proposed to work with the financial industry and the regulators, offering our combined know-how and forty years of experience implementing global standards around a collaborative model. GS1 has 2200 people in 110 countries exclusively setting and maintain global standards (http://www.gs1us.org/sectors/financial_services). Their collaborative model allows for all business interests, data vendors and financial market utilities alike to co-exist within this non-profit model by simply synchronizing their proprietary numbering system to the GS1 Registry. In fact, GS1 is the only proposer to the OFR that is the requested ISO sanctioned Internationally Recognized Standards-setting Body that has a viable, ready to use numbering system. 1 ½ million companies are already identified with a GS1 number, many of which are the financial market participants that need an LEI. The same number works equally well for a company identifier, whether they are in the commercial trades supply chain or the financial supply chain or both, as many are.

Posted by: Allan D Grody Jul 18 2011

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The winners of the 12th annual Inside Market Data Awards 2014 and Inside Reference Data Awards 2014 were announced in New York on May 21, recognizing industry excellence within market data and reference data. To view the winners across the 31 categories click here.

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