A global identification system, similar to the commercial barcodes, is being designed around regulatory mandates at the global level through the G20 and at the local level through sovereign market regulators. It is being coordinated through the Financial Stability Board, a standards body created by the G20 to instigate and coordinate regulations to stabilize the global economy.
The first implementation of this system is being tested for trading, reporting and clearing of swaps transactions. The intent is to observe the risk exposures associated with these transactions. The system has been inaugurated by requiring each counterparty and each financial supply chain participant in a swaps transaction to obtain a unique code, the Legal Entity Identifier (LEI). It is then intended that these codes will become associated with its parent or controlling entity.
It is planned to extend the LEI to all financial market participants involved in the supply chain of all financial transactions. In parallel, unique codes for instruments and contracts, the Unique Product Identifier (UPI), and the Unique Transaction Identifier (UTI) for observing an audit trail throughout a transaction’s life cycle will follow a similar mandated trajectory, first for swaps transactions then for all financial transactions. The ultimate goal is to develop the electronic equivalent of the unique codes found in commercial barcodes – the ‘Barcodes of Finance.’ This would permit computerized data aggregation and matching of financial transactions for any specific firm, counterparty, contract, instrument or market and, ultimately for all firms in all markets for global systemic risk analysis and straight-through-processing.
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Number of Figures = 10