MiFID II Focus: LEIs

Shanny Basar

Global counterparties were warned that they will not be able to trade in the European Union without legal entity identifiers after new regulations come into force in January.

MiFID II, which is effective from the beginning of next year, requires all trades to have LEIs, unique alpha-numeric codes that identity legal entities globally. All counterparties that trade with an EU counterparty, regardless of their location, will need an LEI.

Chris Johnson, senior product manager, market data, HSBC Securities Services spoke on LEI requirements at the Association for Financial Markets in Europe’s Post-Trade Conference in London yesterday. He said: “After January, no LEI means no trade. MIFID II is not a carrot but a hammer.”

The LEI was introduced in the EU in 2014 under the European Markets Infrastructure Regulation, which covers cleared derivatives, but MiFID II applies to many other asset classes including equities, fixed income and commodities. So far, just over 500,000 LEIs have been issued, but many more will be required under MiFID II.

Richard Young, head of regulatory initiatives and strategy, Open Symbology Group at OpenFIGI also spoke at the conference. The Financial Global Identifier is an open data standard for identifying financial instruments and Bloomberg is the nominated registration authority and certified provider for the standard. Young warned that one third of issued LEIs have lapsed because they have not been updated and few LEIs have been issued outside Europe and the US.

Johnson continued that LEIs have not been mandated by Asian regulators but awareness of the need is growing in the region. He said: “Only 1% of global LEIs have been issued in Asia, which rises to 3% if Japan is included.”

Young added that firms had left it to the last minute to apply for LEIs under both Dodd-Frank in the US and Emir.

“Will there be enough capacity in the fourth quarter of this year to issue the necessary LEIs ?” said Young. “At Bloomberg we are confident that we can handle the volumes and some providers also only operate in certain countries or only cover specific asset classes.”

The Global Legal Entity Identifier Foundation, the body responsible for ensuring the operational integrity of the LEI system, warned market participants in April to obtain an LEI as soon as possible so they can comply with the reporting requirements in the EU from January. The statement said: “To further streamline the issuance of LEIs, GLEIF has introduced the concept of the ‘Registration Agent’, which allows organizations to help their clients to access the network of LEI issuing organizations.”

There are 31 LEI issuing organizations, including Bloomberg which joined two weeks ago.

A poll at the conference found that 67% were on track to assess their LEI requirements in the middle of this year while 8% have not begun to look at their needs.

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