Legal identity identifiers to enable tracking of transactions.

The private sector has responded to calls by international regulators for a system of legal entity identifiers (LEIs), which would be used to tag OTC derivatives.

It’s working to develop a system of LEIs, Unique Product Identifiers (UPIs), and taxonomies for the classification of OTC derivatives, according to the International Swaps and Derivatives Association.

A uniform, globally consistent LEI Solution will provide regulators with a powerful tool to better monitor systemic risk and enable individual firms to more effectively measure counterparty exposure.

“Regulations are driving data requirements for investment firms,” Steve Melanaski, chief technology officer of capital markets at Hewlett-Packard, told Markets Media. “Firms need to have data governance and integrity policies in place in order to be able to sift through mountains of data.”

The G20 leaders, at their Nov. 2011 meeting, declared support for the creation of global LEI and called upon the Financial Stability Board to take the lead in coordinating work among the regulatory community. The FSB is a working group of international banking and securities regulators that’s charged with implementing the G20 reforms for OTC derivatives.

The FSB has set up an expert group from the official sector, to be supported by a private-sector advisory panel, to deliver concrete proposals by April on the implementation of a global LEI system for review by the FSB and delivery to the G20 at the June 2012 Summit.

The Global Financial Markets Association last week posted a test file, created by the Depository Trust & Clearing Corporation (DTCC), and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), of provisional LEIs, as well as a brief summary describing the provisional legal entity identifier attributes.

The posting of the provisional legal entity identifiers is in anticipation of a global LEI solution that will be phased and sequenced according to regulatory requirements that are established regionally and globally, as well as implemented in accordance with an appropriate governance framework established in cooperation between the G20, Financial Stability Board (FSB), other regulatory bodies, and the financial services industry.

DTCC and SWIFT will operate the core LEI utility as the central point for data collection, maintenance, and LEI assignment. This first phase supporting the anticipated OTC derivatives reporting rules will be based on some new functionality added alongside existing capabilities of DTCC’s subsidiary Avox Ltd.

DTCC will collect requests for new LEIs to be created, validate the information provided using Avox’s capabilities, maintain and store the reference data associated with each LEI, and maintain the public distribution of the LEI database. SWIFT will act as the Registration Authority for the ISO standard, issuing the actual LEI upon the request of DTCC.

DTCC is aiming to have the enhancements necessary to support these capabilities in place by June 2012, so the OTC derivatives market can meet regulatory reporting requirements without having to retool their internal applications for LEIs.

The provisional LEI test file is meant to assist firms in their preparation for compliance with new reporting requirements, GFMA said.

The test file contains randomly-selected records pertaining to actual legal entities believed to be active in the OTC Derivatives market and consists of a provisional legal entity identifier patterned after the Draft ISO 17442 LEI Standard, and the core data attributes prescribed by the ISO standard.