The European Securities and Markets Authority issued a statement to support the smooth implementation of Legal Entity Identifiers requirements under the Markets in Financial Instruments Regulation.

MiFIR obliges EU investment firms to identify their clients that are legal persons with Legal Entity Identifiers (LEIs) for MiFID II transaction reporting. Trading venues equally are obliged to identify each issuer of a financial instrument traded on their systems with an LEI code when making daily data submission to the Financial Instruments Reference data System (FIRDS).

In the last few weeks, ESMA and national competent authorities (NCAs) through numerous indications learnt that not all investment firms will succeed in obtaining LEI codes from all their clients ahead of the entry-into-force of MiFIR on 3 January 2018. The same may be the case for trading venues’ non-EU issuers whose financial instruments are traded on European trading venues.

In that context, and to support the smooth introduction of the LEI requirements, ESMA said it will allow for a temporary period of six months that: (1) investment firms may provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf; and (2) trading venues report their own LEI codes instead of LEI codes of non-EU issuers currently not having their own LEI codes. This approach is shared by ESMA and NCAs. More details are available in ESMA’s LEI statement.

LEI for clients as legal persons. As ESMA’s statement notes, the U.K. Financial Conduct Authority must temporarily amend a validation rule in its transaction reporting system, the Market Data Processor (MDP).  “We will do this as soon as possible, but that change will not be made by 3 January,” the FCA said in a response statement.

“We will communicate further with executing firms and Approved Reporting Mechanisms (ARMs) on this issue, including the date when we intend to make the change to the validation rule related to the LEI issuance date,” the FCA stated. “Until then, executing firms should not seek to submit reports that would not normally pass that validation. We will have the facility to accept these reports when the validation rule change has been made.”

The FCA continued: “We continue to expect firms to make every effort to secure a clients’ LEI before trading on their behalf. Our analysis shows that trading with missing LEI is likely to represent a very small fraction of total trading volumes.”

Concerning LEI for issuers, “venues should continue their efforts to populate missing LEI data for issuers,” the FCA stated. “Supervisors will be in contact with venues to discuss their progress in reducing the number of missing LEIs.”

Updated transparency calculations. In other news, ESMA last month published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. This updated version mainly reflects changes in the classification of the instruments and the related parameters and resubmission of data by some trading venues. This new version is the one to be used by market participants, infrastructures, and authorities under the new regulatory framework from 3 January 2018.

MiFID II’s implementing measures on transparency for financial instruments require NCAs to compute and publish transparency calculations on financial instruments, including transitional ones prior to the date of application of MiFIR. NCAs from the European Economic Area (EEA), except for Poland, have delegated to ESMA the compilation of TTC. ESMA previously provided TTC for non-equity instruments in July and September 2017.

ESMA said it has performed these calculations “with due care and to the best of its ability. However, given the scope and complexity of the calculations, including the various underlying data sources, future corrections of the TTC cannot be ruled out. ESMA expects to continuously supplement and update the information provided, where necessary.”

The TTC will be applicable starting 3 January 2018 and the equity instruments TTC will apply until 31 March 2019 and for bond instruments (liquidity assessment) until 15 May 2018. Further information is available on ESMA’s website.

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