Canada's Securities Depository Now a Pre-LOU, Part of Global LEI System
Friday morning, the Canadian Clearing and Depository Services (CDS) announced that it will offer Canadian entities LEI issuance in collaboration with Depository Trust & Clearing Corp.'s (DTCC's) Global Markets Entity Identifier utility.
A legal entity identifier (LEI) is a universal and unique computer readable code planned for identifying every financial market participant in the financial supply chain. Pre-local operating units (Pre-LOUs), which now includes CDS, are allowed to issue LEIs and operate a LEI registry containing business card data for financial market participants.
The Regulatory Oversight Committee (ROC) assigned the four-digit prefix #9278 to CDS as a sponsored Pre-LOU in Canada. The ROC has said that LEIs will operate under a federated operating model, and it has endorsed various agencies on the ground in leading market centers.
The deadline for Canadian entities to report qualified securities transactions and use LEIs to identify all trade counterparties is Oct. 31, 2014.
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"The beginning of OTC Derivative Trade Reporting in Canada represents the most current extension of the LEI as a mandatory aspect of transaction reporting," Bill Hodash, DTCC managing director of business development, said in an emailed press release. "DTCC has built up a great deal of experience from the start of similar reporting in the U.S., Europe and Asia, and are applying that experience to this collaboration with CDS."
Education is key
Hodash told us that one of the lesser known but important responsibilities that comes with the pre-LOU role is educating the market. "Even though the LEI initiative is very successful and it's moving along very quickly, as far as adoption as a global standard, there's a lot more work to be done on educating all financial market counterparties on the LEI, the regulatory requirements, the risk management benefits to the industry and regulatory community. That's something that needs to be done market by market."
It's one thing for a rule to be passed, and most of the financial institutions are aware of what needs to be done, but Hodash said the rules for LEIs and trade reporting affected a lot of nonfinancial counterparties, and word needs to get out. The rules of LEIs call for self-registration, so the entities must come to the endorsed pre-LOUs and request and register for the LEI and reference data. So market-wide education will help adoption rates in any country.
At last count, he said, there were 5,465 Canadian entities already issued LEIs, likely because they were already interacting with OTC derivatives in the US and Europe, so they were already bound by rules. The Oct. 31 deadline will pick up the rest of the counterparties that execute domestically with financial institutions in Canada.Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio