No LEI, no trade!
From January 3rd 2018, following the implementation of MIFID II and MIFIR, all European companies needs a LEI-number (Legal Entity Identifier) to trade in financial instruments admitted to European trading venues. This means that a LEI-number is required for companies entering into derivative contracts (following EMIR which entered into force in 2012) and trading financial instruments.
LEI is a code unique to a legal entity or structure, and was introduced after the financial crisis in 2008. National legislators encountered the difficulty to fully understand the systemic and firm-specific risks in transactions on financial markets, and legislators decided to impose LEI-requirements to enable every legal entity or structure that is a party to a financial transaction to be identified in any jurisdiction.
Financial transaction-reporting and LEI
Investment firms executing trades in financial instruments on behalf of a client needs to report the trades to its national FSA, including its client’s LEI if it is a legal entity. If the client does not have a LEI as of January 3rd 2018, it cannot trade in financial instruments on European trading venues! The term “financial instrument” refers to e.g. stocks, bonds, ETFs and derivatives. The term “trading venue” is broad and includes regulated markets, multilateral trading facilities (MTF) and organized trading facilities (OTF).
Who reports financial transactions and what needs to be reported?
Investment firms provide investment services to third parties or engages professionally in investment activity, no. verdipapirforetak / sw. värdepapperföretag. These services and activities include investment advice, portfolio management, execution of client orders, reception and transmission of orders. They must report financial transactions to their national FSA.
The event triggering the reporting obligation is a transaction, i.e. the buying or selling of a financial instrument or the entering or exiting of a derivative contract. In short, the information that has to be reported may be divided in three: trade details (price, quantity and trade date and time), parties and financial instrument (ISIN).
Does my firm need to obtain a LEI number – and how can it obtain it?
If your firm intends to trade financial instruments on any European trading venue, either on its own account or through an investment firm executing the trade on its behalf, it needs a LEI to execute the trade. No LEI, no trade!
A LEI number can be obtained by contacting a LEI issuing organisation (Local Operating Units), which is accredited and qualified to validate LEI registrations within the EU, such as Bloomberg or NordLei.
Status in Sweden and Norway
As EMIR is implemented in both countries, companies entering into derivative contracts are already under the obligation to have a LEI.
Swedish legislation implementing MIFID II and MIFIR will enter into force on January 3rd 2018. The requirement to have a LEI for trading in financial instruments takes effect on that date. Norway has just announced the implementation of MIFID II and MIFIR in national legislation entering into force on January 3rd 2018 as well. Is advisable that concerned actors obtain a LEI in order to be eligible for trading financial instruments when the legislation enters into force.
If you are uncertain if your company needs a LEI-number or need assistance in obtaining one, or have any other question to this article, please do not hesitate to contact Espen I. Størseth at firstname.lastname@example.org or email@example.com.
UPDATE: As of December 4th 2017, the Norwegian FSA adopted two regulations fully implementing MIFID II and MIFIR in Norway, taking effect on January 1st 2018.
Link to the Norwegian FSA’s press release here
Link to MIFIR-forskriften here
Oslo/Stockholm, November 9, 2017