Counterparty Risk Management and the Global Legal Entity Identifier (LEI)

35 Pages Posted: 22 Nov 2014

See all articles by Alistair Milne

Alistair Milne

Loughborough University - School of Business and Economics

Paul Parboteeah

Loughborough University - School of Business and Economics

Date Written: November 20, 2014

Abstract

The global legal entity identifier (LEI) system is a recently launched standard for unique, universal and unambiguous identification of financial market participants endorsed by the leadership of the G20 and supported by the Financial Stability Board and financial regulators in all the major jurisdictions. This paper uses a variety of sources of information to assess (i) the business impact of the LEI, and associated reporting and clearing requirements, on OTC derivatives markets business; (ii) and the application of LEI and associated relationship data (eg ownership) to managing and monitoring OTC counterparty and systemic financial risk. It finds that these regulatory measures have had unintended costs (prompting withdrawal of firms from OTC derivatives markets; imposing unnecessarily large though largely transitional costs of compliance); and while the LEI will yield substantial industry benefits a considerable amount of work remains yet to be done if it is to be useful for the measurement and management of counterparty and systemic risk.

Keywords: OTC derivatives, counterparty risk, CVA, regulatory compliance, financial regulation, systemic risk, standard setting, financial data management

JEL Classification: G20, G28, M15

Suggested Citation

Milne, Alistair K. L. and Parboteeah, Paul, Counterparty Risk Management and the Global Legal Entity Identifier (LEI) (November 20, 2014). Available at SSRN: https://ssrn.com/abstract=2528436 or http://dx.doi.org/10.2139/ssrn.2528436

Alistair K. L. Milne (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Loughborough
Leicestershire, LE11 3TU
United Kingdom

Paul Parboteeah

Loughborough University - School of Business and Economics ( email )

Epinal Way
Loughborough, Leicestershire LE11 3TU
United Kingdom

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