Corporate Actions and LEI Data

Seventeen different types of corporate actions trigger LEI data updates, according to a consultative paper published in late July by the LEI Regulatory Oversight Committee (ROC). The paper proposes data model and process enhancements to make these updates easier to track and timely. We’ve reviewed the thirty-page paper and provide a summary and some comments.

Corporate Actions Resulting in LEI Updates

These are the corporate actions that trigger LEI data updates:

• Legal or Trading Name Change
• Legal or Headquarters Address Change
• Merger
• Acquisition
• Reverse Takeover
• Demerger/Spinoff
• Transformation of an international branch into a subsidiary (and vice versa)
• Bankruptcy, Liquidation or Insolvency
• Dissolution
• Break-up
• Umbrella fund changes to stand-alone fund

A fully detailed list can be found in Table 1 of the paper. This table also details the effect of the corporate action on the LEI’s status, reference data, and relationship data. We believe it’s worth studying if you want to fully understand the proposal or are seeking a more in-depth understanding of the LEI data model.

Many corporate actions, such as a cash dividend, don’t result in an LEI data update. An appendix to the paper lists just these types of corporate actions. The LEI ROC is seeking feedback as to whether they have missed or mischaracterized any corporate actions.

Data Change History

The paper’s leading proposal calls for adding a searchable history of data updates to the LEI data model. This history would include the effective date of the corporate action triggering the update.

LEI registrants are obliged to update reference and relationship data as they change. Additionally, most of the corporate actions identified in the paper result in data updates to fields that already exist in the LEI data model. However, there is currently no way to search the public data for these updates. When a field, such as legal name, is updated, the updated value simply replaces the previous value in the next publication of LEI data. There is no record made in the data of the date this change became effective, and no straightforward way to find the previous value.

The ROC’s proposed searchable history would specifically track changes to legal names, trading names, legal address, and headquarters address. It would also track the dissolution of an entity, the creation of a spinoff, a change from an umbrella to a stand-alone fund and the transformation of an international branch into a subsidiary or vice versa.

LEI Smart already detects and maintains a history of all LEI data updates, including the above fields, by finding all changes from the prior day’s publication. We then generate customized notifications for our clients so their data stays current. Because inclusion of effective date will improve data quality, we support this proposal.

Minimizing Lapsed LEIs

Two of the paper’s proposals, if enacted, will reduce the number of lapsed LEIs. A lapsed LEI has an entity status of ACTIVE and a registration status of LAPSED. The registration status is set to LAPSED if the LEI’s registrant doesn’t renew the LEI by its annual renewal date.

One proposal calls to refine the definition of INACTIVE to capture entities that legally still exist but have no active operations or meaningful economic activity. An example is a fund that received regulatory approval but never launched. Currently, the LEI for such a fund will likely be lapsed. The proposal calls for the entity status of the associated LEI to be set to INACTIVE with no entity expiration date set and a registration status of RETIRED. This status would be reported by the fund manager or the parent entity of an inactive subsidiary.

Such self-reporting would capture many but not all cases. We additionally have the case where the entity has legally ceased to exist and no party remains or knows to report this information to the LOU where the LEI is registered.

These cases could be detected by the second proposal, which calls for leveraging corporate action data feeds to determine LEI status and improve the timeliness of data updates. The paper notes the challenges of using such a feed, such as increased cost and the difficulty in mapping LEI to the feed’s identifier. Additionally, we think GLEIF might face difficulty attempting to license a commercial corporate actions feed to update a publicly available data source that includes a history of some of those actions.

Despite the potential complications of using a corporate actions feed, we strongly support these two proposals. Those who work closely with LEI data recognize that the issues these proposals address are responsible for a significant number of lapsed LEIs. In concert with regulations that mandate renewal, like we see in MiFID II, the so-called lapsed LEI problem will be well on its way to resolution.

Other Proposals

The paper includes several other proposals that fill gaps in the LEI data model with regards to corporate actions. These proposals call for:

• a way to retrieve predecessor entities in the case of a merger
• an indicator of a spin-off relationship
• a flag indicating an entity is under liquidation
• input on processing reverse takeovers

Conclusions

We think the implementation of the enhancements outlined in the paper will result in a meaningful improvement in the quality and usability of LEI data.

The implementation of some of the proposals would be easily done, while others would be significantly more complicated. We hope the LEI ROC adopts the same approach it took to relationship data: not delaying valuable enhancements in an attempt to cover 100% of the complicated cases.

Since the paper is a consultative document, it includes a questionnaire that the public can use to submit comments. The deadline for comments is September 29th. LEI Smart plans to submit comments, including those opinions shared here.

A final version of the paper will be published once comments have been received and discussed. No final publication date has been projected yet.