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WHERE IS THE OFF RAMP ON THE “SPEED and SPEND” HIGHWAY

It would seem that taken to its logical conclusion the “industry”
would continue to spend huge amounts of money speeding up its acquisition and access to market, order, trade and execution data. I wonder for what purpose?

Surely each firm’s increment of speed or data acquisition
advantage is met with another’s step up in spend rate to one-up and gain temporary advantage.  This speed and spend frenzy is overlaid on VERY important capital and contract market infrastructure that is the life blood of the global economy. The transactions that flow through its communication pipes and computers allow capital to seek its best uses while supporting the techniques of risk management that is supposed to mitigate the risk of each transaction and/or a portfolio of such transactions.

It seems to me that as an industry we are failing to understand
that it is mainly our customers that pay for the costs of maintaining the speed and spend highway. We will surely lose their trust when the whole thing goes “pop” AGAIN. Then where are we?

Let’s get real, get our “industry” leadership to get us to a better place before the regulators take us AGAIN to the woodshed, perhaps this time to permanent purgatory!

The FSB’s statement today on a going forward framework for the LEI initiative reaffirms both their seriousness and their diligence in confronting one of the most serious gaps in the global financial system’s infrastructure. The lack of a global identification system for financial market participants and the products they own, trade and process has inhibited risk aggregation for observing the contagion of systemic risk. It has cost billions annually in unnecessary infrastructure costs at global financial institutions. It has spawned numerous financial market utilities whose primary existence is purposed on resolving ambiguities in data identification and in reconciling data quality issues. Its absence has been a factor in headline grabbing operational risk events, in regulators’ inability to see that which they are mandated to oversee, and in preventing the fulfillment of the financial industry’s long sought vision of straight-through-processing.

My firm and the group of global technology leaders and other stakeholders that we have assembled for accommodating the FSB’s LEI requirements looks forward to working collaboratively with all stakeholders toward a successful first implementation of a globally federated identification system for financial market participants. See:

 Global Identification Standards for Counterparties and Other Financial Market Participants ... Journal of Risk Management in Financial Institutions - Special Issue on Counterparty Risk, Vol. 5, No. 2 at http://ssrn.com/abstract=2016874

   --Allan D. Grody, President, FInancial InterGroup Holdings Ltd.   

Gentlemen - words like "nirvana" and its equivalent "boiling the ocean" are remnants left over from the can't do crowd. We have regulatory compulsion (or will have if the G20 stays the course) for identifying uniquely, unambiguouusly and universally every financial market participant  (the LEI) and the products they own,trade and process (the UPI). 2-3 million of these, 80 million of those - not very big or troublesome at all! What is troublesome is the thought that it will be just another number - we cannot let that happen. For example we have alreday organized a consortium to tackle the STP problem and to make sure that the transition from multiple and proprietary business entity identifiers is short lived. For example the same federated servers that support the distributed LEI utility in our proposal to the FSB and the CFTC will support mapping software to resove proprietary codes into LEI's and LEI's into proprietary codes - all in the network. See our proposal by clicking on www.ssrn.com/abstract=2016874

Gary:

      GS1 is a global non-profit federation.  In the US it operates as a 501 c 6  non-for-profit organization. It has only one purpose in life - to administer a globally unique number. The number is  freely available. It allows interoperability and leaves in place all business interests to create added value services. Not unlike the  english language, which allows everyone to use it  freely but also be able to create commercial models around poetry, prose and great works of literature.

Proprietary numbers have a place as long as the commercial provider shows added value to its clients and links to the GS1 Registry (this is to be accomplished through regulatory compulsion, the one new thing that will actually allow a globally unique, non-proprietary numbering convention to occurr) . Thereafter, interoperability is assured, both for regulators and the financial institutions who, either through their data vendors or directly,  will link up and map to the new LEI. Legacy systems can slowly be changed  to use the LEI directly as systems are decomissioned over time.

Chris:

       While your telephone analogy concern is well founded, there is a business model in existence today that has been around for nearly four decades, that has solved the unique identification problem in the global commercial trade supply chain. Now in partnership with our firm, we are proposing to share this system with regulators and the financial services industry for solving the same problem in the global financial supply chain.

GS1 (www.GS1.org) operates a federated model with Member Organizations in 110 countries. The federated model allows for local involvement and, where required local regulatory oversight. However, it operates its self-registering numbering assignments from a single pool of numbers administered through a distributed data model.

In this way GS1 has  uniquely, unambiguously and universally identified 1.5 million companies and 40 million products across 25 diverse global industries. The same numbers and system, already a ISO sanctioned standard that is used to identify these businesses today are proposed for use as the LEI (Legal Entity Identifier) for the US Treasury's OFR (and the analogous UCI - Unique Counterparty Identifier for the CFTC and the UIC - Unique Identifier Code for the SEC). See http://www.gs1us.org/sectors/financial_services and click on gs1_responses_to_requests_for_comment for these publically available proposals.

The UK cabinet offices interest in competing identity assurance services fits well with our proposal to have public auditors apply their assurance function to the LEI and its minimum data attributes. We also see XBRL playing a role in creating templates for the LEI so that it can be “certified” at its source of origination.