In a bid to get a better handle on financial transactions, such as equity and currency derivatives, the Reserve Bank of India has invited limited bids from about six entities, including depositories, depository participants and custodians, to issue unique identification codes to market participants.

One or two of the selected entities are likely to be tasked with the responsibility of implementing a global Legal Entity Identifier (LEI) system that will uniquely identify parties to financial transactions.

Among others, National Securities Depository Ltd, Central Depository Services (India) Ltd and Stock Holding Corporation of India Ltd have been invited by the central bank to bid for becoming the local operating unit (LOU) to establish the LEI system in the country, said sources clued in to the development.

The global financial crisis of 2008 has spurred the development of a global LEI system. The RBI is the nodal agency for overseeing the LEI system in India

According to the RBI, LEI is a unique global identifier for each legal entity operating in the financial markets.

LEI can help in identifying participants in different trading, clearing and settlement systems, thus facilitating aggregation of exposures and identification of linkages across markets as well as institutions, both domestic as well as global.

KEY OBJECTIVES

The Financial Stability Board (FSB) has observed that “Such a system (LEI) would provide a valuable ‘building block’ to contribute to and facilitate many financial stability objectives.”

The objectives include: improved risk management in firms; better assessment of micro- and macro-prudential risks; facilitation of orderly resolution; containing market abuse and curbing financial fraud; and enabling higher quality and accuracy of financial data overall.

The LEI system would reduce operational risks within firms by mitigating the need for tailored systems to reconcile the identification of entities and support aggregation of risk positions and financial data, which impose substantial deadweight costs across the economy. It would also facilitate straight-through processing.

FSB was established in 2009 to coordinate at the international level the work of national financial authorities and international standard-setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies.

The RBI, the Securities and Exchange Board of India and the Ministry of Finance are the members of FSB from India. (The Hindu)