The Legal Entity Identifier (LEI) initiative is an effort to establish a global system that assigns reference numbers to uniquely identify entities involved in global securities trading markets. By using a global identification system, the industry can apply LEIs to mitigate financial risk, increase financial stability and provide new transparency into securities transactions. The system is intended to make it easier for firms and all other financial intermediaries to identify one another.
Each identifier will likely have the following information: name, address, country, and entity status of the corporation. However, even if such information changes, the LEI would not. The LEI number would only change if the legal entity changed, in the case of a new partnership, for instance. In short, the creation of the LEI system is expected to aid many of the information technology systems that support post-trade processing and pave the way for a more regulated financial system.
Overall, the primary function of the LEI standard is intended to organize data including risk information, subsequently allowing firms to respond to risks and providing regulators with the tools to effectively analyze these risks. The LEI system would also make it easier for firms to share information, particularly those firms that work across borders.
By allowing firms to analyze data in one place, a global LEI system could increase efficiency, especially in terms of post-trade processing. Moreover, LEI’s will make it simpler to draw connections among family companies.
Many regulatory and global standards bodies such as International Standards Organization (ISO) and the Financial Stability Board (FSB) have been helping develop and establish the LEI system in time for a launch in March 2013.