LEI, UPI and UTI Identifiers
At the 2009 G20 Pittsburgh Summit and in response to the lack of adequate information available during the 2008 financial crisis the G20 Leaders agreed that OTC derivatives contracts should be reported to trade repositories (TRs) in the hope that by centralizing the collection, storage and dissemination of OTC derivatives data it would "improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse".
The reporting to TRs, also known as Swap Data Repositories (SDRs) in the United States, would allow Regulators to "have a global view of the OTC derivatives markets, through full and timely access to the data needed to carry out their respective mandates", additionally the trade repository data held in the TR "must be comprehensive, uniform and reliable and, if from more than one source, provided in a form that facilitates aggregation on a global scale".
In September 2014, the Financial Stability Board (FSB) published "Feasibility study on approaches to aggregate OTC derivatives data". One of the study's conclusions was that
"it is critical for any aggregation option that the work on standardisation and harmonisation of important data elements be completed, in particular through the global introduction of the Legal Entity Identifier (LEI), and the creation of a UTI and UPI”
There are two methods of data aggregation which may assist Regulators in their objectives: legal entity and product aggregation. The LEI would offer the ability to uniquely identifier legal entities that are counterparties to OTC derivatives transactions. Presently discussions are underway to include information on the hierarchical relationships and other affiliations of the entity such as foreign branches (see news). Such reference data could be used by Regulators to conduct legal entity aggregation. For an introduction to the LEI visit our page here. The purpose of the unique product identifier (UPI) being to uniquely identify a particular level of classification of an asset class or sub-asset class. The purpose of the unique trade identifier (UTI) being to uniquely identify a trade across different jurisdictions throughout the entire trade lifecycle. However the complexities which arise are:
- different asset classes and sub classes can fall under different Regulatory supervision, for example, swap with the CFTC and security- based swaps under the SEC;
- the definition of reportable products can differ by jurisdiction;
- reporting exemptions can differ by jurisdiction and
- compliance dates can differ by jurisdiction.
As a result, both counterparties to a trade may not have an obligation to report all trades or trade components in the same jurisdictions, creating challenges for determining whether a UTI is required and which party should create it, never mind how to construct the identifier. This leads to an inability to aggregate and analyze transaction data on a global basis. However as yet there is no global regulatory standard for the creation of a UTI.
In November 2015 the FSB published Thematic Review on OTC Derivatives Trade Reporting Peer Review Report. The report highlighted 15 findings, finding number 12 was:
"Currently, the lack of consistent, harmonised trade and product identifiers and uneven use of the global Legal Entity Identifier, as well as access limitations, makes it difficult for many authorities to accurately aggregate and analyse data, even within some jurisdictions, and especially on a cross-border basis.”
The lack of standards for identifiers can exacerbate issues in reconciling trades, which results in trades often being counted multiple times. Multiple counting is caused by many problems, including: (i) failure to match reports where two-sided reporting is mandated; (ii) multiple non-matched reports from cleared trades; (iii) uncertainty about who has the reporting obligation (trading venue, central counterparty (CCP), dealer, broker, etc.) and (iv) requirements to report in more than one jurisdiction.
One of the recommendations from the review was:
"Since universal global identifiers (such as LEI, UPI, UTI) and harmonised data standards are expected to improve data quality in TRs, jurisdictions are strongly encouraged to support the development and adoption of such identifiers and data standards and should look to international guidance in this area. ”
Efforts have been made to find a unified solution, following the FSB feasibility study, the FSB requested the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) to develop global guidance on the harmonization of data elements which are reported to TRs and which are important for the aggregation of data. The FSB is also working with CPMI and IOSCO to provide impetus and coordination for the further development and implementation of uniform global UTIs and UPIs.
In November 2014, CPMI and IOSCO established a working group for the harmonization of key OTC derivatives data elements, including for UTIs and UPIs. The mandate of this working group is to develop guidelines regarding the definition, format, and usage of key OTC derivatives data elements, including UTIs and UPIs, and develop global guidance on harmonization of key data elements that are reported to TRs and are important to aggregation. In August 2015 a consultative report on harmonization of the UTI was published, followed by the publication in September 2015 of a consultative report on harmonization of a first batch of other data elements. Consultative reports on harmonization of the UPI and on a second and third batch of other data elements will be published going forward. CPMI and IOSCO plans to issue final guidance on UTI and UPI by end-2016 and on other data elements by the end of 2017. In the interim the International Swaps and Derivatives Association (ISDA) has released an Industry Best Practice approach to UTIs for regulatory reporting which covers generation, communication and matching. The ISDA has also launched UTIPrefix.org, a service that enables counterparties to obtain a UTI prefix for derivatives trade reporting.
In 11 FSB member jurisdictions reporting obligations are in place covering products in five asset classes: commodity, credit, equity, foreign exchange, interest rate. These jurisdictions are: Argentina, Australia, Brazil, Canada, the six participating EU member states (France, Germany, Italy, The Netherlands, Spain, UK) and the US. In addition, Japan, Korea and Mexico have reporting obligations in place covering products in four of the five asset classes. In eight other jurisdictions, there is some reporting is in place, while in two jurisdictions no reporting is yet in place although they plan to have started reporting by the end of 2016. Three of the eight jurisdictions with partial reporting already in place plan to expand reporting requirements by the end of 2016.
A number of jurisdictions report that the requirements in place cover over 90% of the OTC derivatives trading taking place in their jurisdictions. However around a third of jurisdictions have some exemptions in place, allowing OTC derivative transactions of selected types, or traded by certain entity types, or by financial entities with a relatively small notional of OTC derivatives outstanding, not to be reported to TRs.
Trade repositories in operation in FSB member jurisdictions
TRs and TR-like entities authorised and operating as at September 2015
|TR name||Location||Jurisdictions in which
is authorised to operate
|Chicago Mercantile Exchange Inc.||US||Canada, (US)|
|CME European Trade Repository||UK||EU|
|DTCC-DDR||US||[Australia], Canada, (US)|
|DTCC Data Repository – Japan||Japan||[Australia], Japan|
|DTCC Data Repository – Singapore||Singapore||Australia, Singapore|
|HKMA-TR||Hong Kong||[Australia], HK|
|ICE Trade Vault||US||Canada, (US)|
|ICE Trade Vault Europe||UK||EU|
|KDPW Trade Repository||Poland||EU|
|Korea Exchange (KRX)||Korea||Korea|
|CJSC National Settlement Depository (NSD)||Russia||Russia|
|OJSC “Saint-Petersburg Exchange” (SPBEX)||Russia||Russia|
|SAMA TR||Saudi Arabia||Saudi Arabia|
|Banco de México||Mexico||Mexico|
|Bank of Korea||Korea||Korea|
|China Securities Internet System||China||China|
|Financial Supervisory Service||Korea||Korea|
|Mercado de Valores de Buenos Aires||Argentina||Argentina|
|Mercado Abierto Electrónico||Argentina||Argentina|
|Mercado Argentino de Valores||Argentina||Argentina|
|Mercado a Término de Buenos Aires||Argentina||Argentina|
|Mercado a Término de Rosario||Argentina||Argentina|
|Total: TRs and TR-like entities||
( ) indicates application pending / under consideration in indicated jurisdiction; [ ] indicates recognition/prescription in place for these TRs in Australia.
CO = commodity, CR = credit, EQ = equity, FX = foreign exchange, IR = interest rate
This information may be incomplete and may be changed at any time without notice, check the original document here on the FSB website.
Comments, References & Further Reading:
- Commodity Futures Trading Commission (CFTC): 17 CFR Part 45. Publication Date: 13 January 2012
- CPMI-IOSCO: Harmonisation of the Unique Transaction Identifier (UTI), consultative report issued by CPMI-IOSCO. Publication Date: 19 August 2015
- CPMI-IOSCO: Report on OTC derivatives data reporting and aggregation requirements Final Report. Publication Date: January 2012
- Financial Stability Board (FSB): Feasibility study on approaches to aggregate OTC derivatives data. Publication Date: 19 September 2014
- Financial Stability Board (FSB): Implementing OTC Derivatives Market Reforms . Publication Date: 25 October 2010
- Financial Stability Board (FSB): Thematic Review on OTC Derivatives Trade Reporting Peer Review Report. Publication Date: 4 November 2015
- Financial Stability Board (FSB): OTC Derivatives Market Reforms Tenth Progress Report on Implementation. Publication Date: 4 November 2015
- European Securities and Markets Authority (ESMA): Final Report Review of the Regulatory and Implementing Technical Standards on reporting under Article 9 of EMIR. Publication Date: 13 November 2015
- G20: Pittsburgh Declaration
- Grody, Allan D. and Hughes, Peter J., Risk, Data and the Barcodes of Finance (September 28, 2015). Available at SSRN:click here
- International Swaps and Derivatives Association (ISDA): Unique Trade Identifier (UTI): Generation, Communication and Matching. Publication Date:20 July 2015