August 7, 2018
After an LEI is issued, the data associated with it can change. A counterparty could amend its legal name or change jurisdiction. Or, a corporate action might result in a new LEI for a client. These sorts of updates are more varied and frequent than is generally recognized. Failing to update in-house data to reflect these changes can result in a hefty fine, trade breaks, or unrecognized risk exposures.
This post reviews the different kinds of LEI data updates and the rate at which they occur. It provides a simple back-of-the-envelope calculation for estimating the number of changes impacting your data set.
Types of updates
LEI data is much more than a twenty-character identifier and a legal name. There is a rich data model associated with the LEI that includes trade and operating names, addresses, jurisdiction, business form, ownership, and entity lifecycle information.
This additional data is a significant value-add for consumers of LEI data, but as noted above, these data attributes can change over time. These revisions are reflected in the public LEI data, but you need to monitor them to ensure you’re catching those that matter to your firm, such as:
- merger, acquisition or ownership change
- legal or trade name change
- legal or headquarters address change
- bankruptcy or dissolution
- upcoming renewals of your firm’s own LEIs
Some of these events, such as a merger, may result in the client or counterparty receiving a new LEI. If you don’t process the data update reflecting this event, you’ll incorrectly identify that party in your transaction report.
How frequently does this data change?
It’s true that LEI data changes less frequently than other types of financial data such as quotes, prices, or transactions. By comparison, LEI data looks downright static, but it’s not.
The rate of change in LEI data generally runs a bit higher than 10% per year. If you track many funds, your rate will likely be somewhat higher as buy-side data tends to change more quickly. If you are interested in how this figure was determined, feel free to email me for details.
Some simple math
We now have enough information to estimate the number of LEI updates impacting an entity list. Let’s assume we have an LEI list of customers and counterparties that numbers 50,000 entries - a realistic data set by industry standards.
A 10% annual rate of change gives an estimate of 5000 updates to this list over the course of a year. That’s an average of 20 per business day.
An automated, straight through processing solution for managing these updates is recommended in this case. It will be more accurate, timely and cost-effective than an ad-hoc manual process.
Take the size of your entity list and multiply it by 10% for a rough estimate of the number of LEI updates that impact your list over the course of a year. If it’s been a while since you updated your LEI data, consider an LEI Checkup.