WASHINGTON, Nov 29 (Reuters) - The U.S. Office of Financial Research, created to help improve financial market data gathering, wants to establish a universal system for identifying financial firms and market transactions.
The Office of Financial Research (OFR), established under the Dodd-Frank regulatory reform enacted earlier this year, is in response to the 2007-09 financial crisis when it was nearly impossible to track transactions in instruments like derivatives.
In a submission to be posted in the Federal Register on Tuesday, the OFR says it will invite comments on “desired characteristics for a Legal Entity Identifier” that would make it easier to identify and track transactions.
Identifiers would serve a similar function to the routing numbers that banks use on checks and that identify the financial institutions on which they are drawn.
“There is currently no universal system for identifying the legal entities that participate in financial markets,” which presents obstacles for both regulators and policy makers, the OFR said.
“Because there is no industry-wide legal entity identification standard, tracking counterparties and calculating exposures across multiple data systems is complicated, expensive and can result in costly errs,” the OFR said.
“In the worst case scenario, transactions are broken or fail to settle because counterparties have not been properly identified,” the submission said, adding it was a problem for regulators as well because they need to be able to identify parents and affiliates of broker-dealers.
The OFR is housed at the Treasury Department and is now being led by Lewis Alexander, a counselor to Treasury Secretary Timothy Geithner.
The proposal on identifiers for financial firms is the first to come from OFR, but regulators already are pushing for such a system to make it easier to track market transactions.
In separate proposed rules approved on Nov. 19, the Commodity Futures Trading Commission and Securities and Exchange Commission each proposed requiring market participants to use unique legal entity identifiers.
They said the identifiers could be produced by or for an internationally recognized standard-setting body and used for all reporting of swap and security-based swap transactions.
The White House must appoint a director for the new office but that is not expected to happen until early next year. Treasury Deputy Secretary Neal Wolin told Congress that the administration wants someone with real experience and “capacity” in data collection and application in the post. (Reporting by Glenn Somerville, editing by Leslie Adler)