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Introduction 1
Managing the change 2
Conclusion 3
List of new elds requiring an LEI as introduced by the MiFID Review 3
How Hatstand can help 5
CONTENTS
1
2
3
4
5
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e LEI Revolution - Managing the Extended Use of the LEI
1 Introduction
Disclaimer: is paper is only relevant in
those jurisdictions that are part of the
MiFID area ( e single market in nancial
services covers the European Union,
Norway, Iceland, Liechtenstein and
Andorra.)
e Legal Entity Identi er (LEI) is a
globally managed standard system to
identify a legal entity. A number of local
agencies, known as Local Operating Units
(LOU), can issue an LEI. ere is an
infrastructure in place to ensure that each
LEI issued is unique and there are no
duplicates globally.
e current regulatory environment limits
the required use of the LEI to a few
applications such as EMIR post-trade
reporting to Trade Repositories and EBA
guidelines on Large Exposure Reporting .
e LEI is used to identify a legal entity in
less than a dozen elds in two reports.
e new regulatory environment that will
take e ect between the summer of 2017
and the summer of 2018 will lead to an
extended use of the LEI. As a matter of
fact, putting together the requirements of
MiFID II/MiFIR, EMIR, SFTR and MAR for
both reporting and record-keeping, there
are approximately fty elds where the
LEI is either the main identi er or the
alternative identi er when the main one is
not available.
e changes can be divided into three
main types:
1) Extended use of existing attributes.
e LEI identifying the counterparty to a
trade is already used for current EMIR
reporting (derivatives only). Following the
introduction of MiFID II/MiFIR in January
2018, it will have to be used to identify
buyers and sellers of shares and bonds.
ere is already a data- eld 'LEI' amongst
the client data. e LEI for those clients
that only trade shares and/or bonds now
need to be available - a question of
content not structure.
2) Completely new use of the LEI as the
principal form of identi cation.
Use of the LEI of the issuer of a corporate
bond or of the issuer of the underlying
instrument to a derivative requires a
change to the data landscape, a change
that is necessary to achieve regulatory
compliance.
3) Use of the LEI as an alternative
identi er.
An execution venue is usually identi ed by
the MIC code, but an execution venue that
does not have a MIC code needs to be
identi ed by its LEI. According to MiFID
II/MiFIR requirements, this would apply
when the execution venue is a 'market
maker', a 'liquidity provider' but not a
Systematic Internaliser (SI).
is is an exercise across multiple
regulations where a consolidated view is
essential to save time and e ort so that all
the changes to the data landscape can be
de ned at the same time.
1
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2 Managing the Change
e individual regulatory obligations
must be assessed in detail. Four basic
questions should be answered:
1) What does your rm trade?
If it only trades cash instruments it is not
subject to EMIR; if it trades in Repos, lends
or borrows shares, or re-use margins it will
be subject to SFTR. e type of
instruments traded will have a direct
impact on the requirements to be met by
the implementation of MiFID II.
2) How does your rm trade?
Being a market maker or a liquidity
provider impacts on regulatory
obligations. Trading OTC an instrument
A consolidated approach may lead to
separate implementation plans driven by
the di erent deadlines. e process to
implement the expanded use of the LEI
implies both changing the structure of the
data landscape to accommodate new
elds and the ensuring that the required
content is available.
2.1 Content and Content-driven Changes
e initial implementation of the LEI was
limited to clients who traded in
derivatives. e original requirements for
reporting to Transaction Repositories
under EMIR also included the
identi cation of the ultimate bene ciary,
an example of a legal entity identi ed by
the LEI that did not necessarily have to be
onboarded as a client.
A nancial institution that trades in
derivatives on behalf of clients already
has the structure to accommodate the LEI
of legal entities that are clients and of
those that are not. It is only a question of
admitted to trading on an exchange also
in uences regulatory compliance.
3) Which authorisation is in place?
As a nancial institution the rm could be
authorised as an Organised Trading
Facility (OTF) or as a Systematic
Internaliser (SI). ose two authorisations
carry the obligation to produce
Transparency Reports and an Execution
Quality Report for an Execution Venue.
Both these reports use the LEI.
4) Where does your rm trade?
If this is outside the EU/EEA a post-trade
transparency report must be produced by
the seller for each order executed in a
venue outside the EU/EEA. is is also the
case where an instrument that has been
having the LEI for those clients that deal in
cash instruments (shares and bonds) and
the LEI for all those other entities that now
have to be identi ed with an LEI.
For instance :
A client dealing in cash securities, both
shares and bonds
e issuer of the underlying bond
Executing Entity identi cation code (the
MIC code is used for a trading venue)
e LEI identifying the company
responsible for the decision to buy or
sell. (A di erent identi cation technique
will be used if that decision is made by a
client that is not a legal entity.)
ese are just some examples; the list is
longer. Following the timeline displayed in
g.1 above, the changes to EMIR reporting
that comes into e ect in the
Spring/Summer 2017 do not introduce
new elds where the LEI is used, but all
the examples above are part of the MiFID
II/MiFIR requirements that will become
admitted to trading in an exchange is
traded OTC.
Once you have established the precise
nature of the regulatory environment that
your rm is subject to, it pays to have a
consolidated view of the changes required.
If the extended use of the LEI across all
regulations is considered in depth, the
changes required for the data landscape
will only have to be de ned once. A
consolidated approach permits the
de nition of the new requirements in their
entirety, the performance of a gap
analysis and then proceeding according to
whatever implementation plan is adopted.
At the time of writing this paper, the
implementation timeline in Europe is as
follows:
e ective on January 3, 2018. It should be
noted that in less than 18 months content
will have to be supplied (at the time of
writing this, July 2016).
2.2 Structural Changes to your Data
Landscape
Once the set of data not currently being
captured is de ned, the data landscape
will require modi cation. is is a relatively
big change, and it may prove worthwhile
to do this as part of an overall review of
reference and static data with other
regulatory requirements in mind.
e challenge is to create a modi ed
structure that allows di erentiation
between clients, legal entities that have
been onboarded following all the Know
Your Clients (KYC) procedures e ective at
the time, and entities that are not clients
and therefore have not been properly
onboarded. An e ective system is needed
to store the information associated
with LEIs.
e LEI Revolution - Managing the Extended Use of the LEI 2
January 2018 - MiFID II/MiFIR
Late 2017 - CAT for SROs
Late 2018 - CAT for
large B/D
MAR - July 2016
(Except what is under
consultation or what is
waiting for MiFID II)
Between 2017 and
2018 the rest
Spring 2017 - EMIR
Changes in reporting to
transaction repositories
Spring 2018 - SFTR
(Estimate) Currently
under discussion
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3 Conclusion
Changing a data structure is seldom a quick job. is is particularly true when it impacts legacy systems that are not properly
documented. e usual recommendations apply. It is better and faster to start from a clean database. A consolidated approach saves time .
Even if the consolidated approach is not used beyond the gap analysis, it still pays to have a comprehensive view of all the required
changes to databases to implement regulatory requirements coming into force over the next two years.
1 Issuer of the
Underlying Bond
Field to be populated when the underlying type is a bond or a bond future with the legal
entity identi er code (LEI) of the issuer of the direct or ultimate underlying bond.
is applies to interest rate derivatives only when the Underlying Type is 'BOND' or 'BNDF'
(Bond Futures).
2 Reference Entity To be populated with the reference entity of a single name CDS or a derivative on single
name CDS. e LEI is used when the reference entity is a corporate bond and the LEI of the
issuer (the reference entity) is used. A Sovereign Bond will have the country code plus, if
relevant, another three letter code that may indicate the region.
3 Client Identi cation
Code
Code used to identify the client of the investment rm. In cases of DEA (DMA) the code of
the DEA user shall be used. If the client is an individual an alternative form of identi cation
will be used.
4 List of new elds requiring an LEI as introduced by the MiFID Review
Note: is list only covers MiFID II/MiFIR requirements. It spans seven Regulatory Technical Standards. Compliance with all of them may
not be necessary. e requirements of other regulations such as EMIR, SFTR and MAR are not included here.
4 Order Receiver
Identi cation Code
e code of the investment rm that received the order or the code of the trading venue
that received the order. e trading venue is identi ed by a MIC code, not the LEI.
5 Executing Entity
Identi cation Code
Code used to identify the entity executing the transaction. (If it is executed by a trading
venue, the MIC code should be used.)
Submitting Entity
Identi cation Code
6 Code of the entity submitting the report. If an Authorised Reporting Mechanism (ARM) is
used the LEI of the ARM' will be used.
If the report is submitted by a trading venue, the LEI of the trading venue should be used.
Name DescriptionNo.
e LEI Revolution - Managing the Extended Use of the LEI 3
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Name DescriptionNo.
8 Buyer Decision
Maker Code
If the decision maker is a legal entity. If it is an individual there is an alternative form of
identi cation
9 Seller Identi cation
Code
Same as eld 7 but for the seller
10 Seller Decision
Maker Code
Same as eld 8 but for the seller decision maker.
11 Transmitting Firm
Identi cation Code
for the Buyer
Code used to identify the rm transmitting the order on behalf of the buyer.
12 Transmitting Firm
Identi cation Code
for the Seller
Same as eld 11 but for the seller.
Issuer or Trading
Venue Operator
13 Code of the issuer or of the operator of the trading venue that admitted the instrument
to trading on an exchange.
14 Identi cation of the
Entity that
submitted the Order
Code used to identify the rm that submitted the order. In case of DEA (DMA) the code of
the DEA user should be used.
15 Client Identi cation
Code
Code used to identify the client of the investment rm. In the case of DEA (DMA) the
code of the DEA user should be used. If the client is an individual an alternative form of
identi cation will be used
17 Execution Venue
Identi er
e LEI should be used in those cases where an MIC code is not available.
16 Non-executing
Broker
Field should remain blank if not relevant.
e LEI Revolution - Managing the Extended Use of the LEI 4
7 Buyer Identi cation
Code
LEI of the acquirer if the buyer is a Legal Entity.
LEI of the CCP if the transaction is executed on a trading venue outside the SMFS Area
that utilises a CCP and the identity of the acquirer is not known.
As above but where a CCP is not used then the MIC code of the venue rather than the
LEU? will be used
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5 How Hatstand can help
Hatstand's approach to Regulatory Change Management consists of three stages:
Our Regulatory Advisory Service provides a comprehensive review of all the new regulations a ecting our clients. We take a step back and
look at all your regulation related obligations and their relevant timelines. We then consider your current business and its strategy for the
future. We may suggest changes to that strategy depending on any new factors introduced by the regulation(s) considered.
Once we have completed the analysis we de ne the change and implementation strategy following the steps broadly described above.
We implement the strategy or support you in its implementation in any way you require. We can cover the whole programme, support
your existing team in speci c areas or just run the Project Management O ce on your behalf.
Regulatory Advisory Service
Accelerator
Implementation
Endnotes:
1. is de nition includes an investment bank, an asset management and fund management company, a private bank
and a retail bank.
2. e reader may want to seek legal advice before acting on this statement.
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We try to ensure that the information in this document is correct at the time of going to press, but we do not give any express or implied warranty as to its accuracy. We do not accept any liability for
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