The Commodity Futures Trading Commission (CFTC) today selected DTCC and SWIFT to supply legal entity identifiers (LEIs) to registered entities and swap counterparties for CFTC swap data reporting under the Dodd-Frank Act.
The identifiers will be used by market participants to identify counterparties and by regulators for systemic risk monitoring and mitigation, market transparency and market abuse prevention purposes. The SWIFT-DTCC identifiers will be called interim compliant identifiers (CICI) by the CFTC until a global LEI system is established, which is expected in March 2013, according to a joint statement by SWIFT and DTCC. After the global LEI system is established, CICIs are expected to become LEIs.
In preparation for the launch of LEIs, DTCC and SWIFT already had assigned and validated information on more than 24,000 identifiers for legal entities, which can be downloaded from the Global Financial Markets Authority (GFMA) Web site.
The CICI provided by DTCC-SWIFT is the only available identifier that satisfies all requirements of the commissions swap data reporting rules, and can be provided to market participants sufficiently in advance of the initial compliance date for swap data reporting to enable compliance with the rules, the CFTC said in a statement today.
SWIFT and DTCC say firms involved in the OTC credit and interest rate derivatives markets will be able to register for and be assigned a CICI using DTCC and SWIFTs system before the CFTCs transaction reporting and recordkeeping rule becomes effective. That will be 60 days after the final swaps definition is published in the Federal Register by the CFTC.
The regulator previously finalized the swaps definition but has not published it in the register, although it is expected to do so soon.
International bodies including the Financial Stability Board (FSB) and the G-20 have gotten on board with the LEI concept, with a global system of identifiers eventually planned. Regulators and industry bodies say LEIs will help them as well as market participants calculate counterparty and systemic risk in the global financial markets.
In a statement today, GFMA praised the CFTCs appointment of SWIFT and DTCC as the LEI/CICI supplier. A uniform, globally consistent legal entity identification solution is critical for improving risk management in the financial industry, the organization said in a statement. It will give regulators a powerful tool for monitoring systemic risk, and firms a better way to monitor counterparty exposure.
Michael Bodson, president and CEO of DTCC, says the group plans to move rapidly to provide CICIs to organizations that will be required by the CFTC to submit transactions to swap data repositories. Those organizations will need to use CICIs to identify dealers and counterparties around the world.
In addition to helping the industry cost-effectively meet this regulatory reporting requirement, providing identifiers and validated reference data associated with the entities will also provide important risk management benefits for the financial industry, Bodson says.
Chris Church, CEO and global head of securities at SWIFT, called the CFTC appointment a major milestone and a great step towards helping the industry resolve a major challenge affecting the global financial markets. Church says CICIs/LEIs will minimize systemic risk and drive down costs for the industry.
DTCC and SWIFT say they are working with the Association of National Numbering Agencies (ANNA) to incorporate National Numbering Agencies as federated registration and validation facilities for LEIs, which has been recommended by the Financial Stability Board and G-20.
DTCC, SWIFT, ANNA and ISO previously had been recommended by a group of industry trade associations led by GFMA to maintain various aspects of the global LEI system. The ISO 17442 standard will be the standard format for LEIs.
(CG)