While the CFTC taps the DTCC and SWIFT to oversee its interim identifiers, many firms are taking baby steps to the LEI standard.
The push for standardized Legal Entity Identifiers (LEIs) got a boost last week when the CFTC tapped the DTCC and SWIFT to be the providers of the CFTC Interim Compliant Identifiers (CICIs) for legal entities that participate in over-the-counter (OTC) derivatives trading. Yet many firms are only now beginning to take steps to move from multiple identifiers to one.The temporary CICIs used for OTC derivatives trading are likely to become the LEIs that will be part of a global effort to launch standardized LEIs by March 2013. Officials at the CFTC, DTCC and SWIFT expect the CICIs will become LEIs and the actual 20 character numbers will not change as they are based on and compliant with the current ISO 17442 standard for LEIs, says William Hodash, managing director, business development for the DTCC.
As a result of the expected CFTC’s choice, the joint DTCC/SWIFT effort for the CICI program will deliver CICIs for organizations required by the CFTC to submit transactions to swap data repositories and to name the dealers and their counterparties.
Firms trading in the OTC credit and interest rate derivatives markets will have to register for and be assigned an identifier using DTCC and SWIFT’s CICI Utility Portal, which needs to be up and running prior to the effective date of the CFTC transaction reporting and recordkeeping rule, officials say.
The portal, expected to be ready for use in mid-August, will allow firms to query and/or download the data and will allow them to certify their records or register new records, officials say. The CICI Utility Portal will include a user guide, a set of answers to frequently asked questions, and will be the point of contact for webinars about implementing CICIs.
Firms will be required to use CICIs for CDS and IRS trading 60 days after the CFTC publishes its swap definitions in the US Federal Register. The CFTC is finalizing those definitions and is expected to file them soon with the Federal Register, according to the CFTC.
Key Deadlines
The forthcoming, key deadlines and dates have been determined by the CFTC Swap Reporting and Recordkeeping Rule, Part 45, explains Hodash.
“If those definitions were published in mid-August, firms designated by the CFTC as swap dealers and major swap participants would be required to report their transactions to swap data repositories and would have to identify themselves and their counterparties with CICIs beginning in mid-October for credit derivatives and interest rates,” Hodash says. “The remaining OTC derivative asset classes will need to be reported three months following (mid-January 2013). Three months thereafter, buy-side firms facing other buy-side firms will be required to report (mid-April 2013).”
SWIFT is finalizing the order from the CFTC, says Paul Janssens, LEI program director, securities
Paul Janssens,
LEI program director,
SWIFT
and treasury markets for SWIFT. “We are looking at what that means to our web portal,” Janssens says. “The database does not start empty.”
The CICI Utility Portal has been set up as a not-for-profit effort and will be run via a cost recovery model, Janssens say. “The global funding model for LEI will be defined under the Financial Stability Board (FSB) framework and the current plan for the CICI is to have an initial registration/certification fee of $200 and starting year two, a $100 maintenance fee.”
In addition to the CICI Utility Portal, the DTCC and SWIFT already have assigned more than 24,000 provisional CICIs for legal entities, which can be accessed via the Global Financial Markets Association (GFMA) website, which provides XML schemas and the corresponding reference data, Hodash says. “The OTC derivatives dealers have been working with that file to prepare their systems for the required reporting and have been providing continual feedback to us,” he adds. “The community has been very supportive in that regard.”
The GFMA website has also been keeping vendors apprised of the plans of the DTCC and SWIFT, Hodash says. They have access to the full database, XML schemas and a daily file of changes to the database, which are available for download. “All data vendors are invited to download that for free without restrictions or licensing,” he says. “This has been the stance of the industry, led by GFMA and ourselves, from the beginning and is consistent with the principles and recommendations made by the FSB.”
The DTCC and SWIFT have also working with the Association of National Numbering Agencies (ANNA) to incorporate National Numbering Agencies as federated registration and validation facilities. A federated operating model has been recommended by the FSB to the G-20 nations. The FSB has also set up an LEI Private Sector Preparatory Group (PSPG), which had its first meeting on July 25.
No Big Projects Yet
As industry and standards bodies pave the way for the LEI standard, many firms are “holding off at the moment” on launching major overhauls, says Aite Group analyst Virginie O’Shea. “They haven’t really seen it as a big issue. A lot of people don’t understand the true impact of this area.”
Virginie O’Shea,
analyst,
Aite Group
To get a better understanding, firms have been reviewing how many identifiers and incumbent reference data they have for a single entity, says O’Shea, who adds that a top-tier sell-side firm recently discovered that it had 73 identifiers for one entity.
“A lot of this data is really disparate across the organization, obviously,” O’Shea says. “Trying to get one view of your counterparties at the desk level is okay. But trying to get an aggregate across an organization is not easy.”
Another complication is that there are no best practices yet for what is a pioneering effort, O’Shea.
Some of the frequently mentioned approaches for implementation include a data overlay coupled with a massive overhaul of incumbent identifiers. Firms can also use an array of cross-referencing measures.
“It very much depends on the firm,” says O’Shea, adding that reference data projects range from 5% to 10% of technology budgets at many firms. In addition, firms face a major complication as a result of the multitude of systems they have in place. “Some of them are very old and calling data from them is quite difficult,” she says. “Trying to find attributes that uniquely identify your customers is harder than just using a symbol or a code.”
The LEI push could break down or at least crack the business silos within firms.
“It’s a good start,” O’Shea says. “I would imagine it would take something in the region of 10 years before they could offer their customers better services as a result of it or make better decisions. In the long run, I think, initially, it’s just going to be a massive cost … rather than being an immediate benefit.”
While the sell side is seen as taking the lead in the LEI charge, the buy side may have a better situation when it comes to data.
“They’re in a better position than the sell side because largely they have fewer systems to deal with,” O’Shea says. “They have to know their clients a lot better than the sell side and they’ll have a lot of checks in there that the sell side has to work on now in terms of data.”
But that does not mean buy-side firms can sit on their hands. Like all other OTC markets participants, the buy side will have to deal with regulatory reporting requirements. “It’s aggregating the data internally—and not only the LEIs but all the supporting data they have to provide to the regulators—that’s the more painful part,” O’Shea says.
Still, without punitive measures in place for LEI noncompliance, it may be a while before the buy side takes action on the LEI front, O’Shea says.
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