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© Sammy Chowdhury 2014 All Rights Reserved.
Legal Entity Identifier “LEI”: How LEIs will
Change the Way Financial Services Companies
Run and Win on Data.
Sammy Chowdhury, PMP, CISA
Partner, enableIT LLC.
NY Archives Week, 2014
The Archivists Round Table
October, 7th , 2014Credit: Patrina
© Sammy Chowdhury 2014 All Rights Reserved.
About me
• Entrepreneur. Help clients lead and compete on analytics and
knowledge.
• Experience in delivering complex projects in Risk, Regulations, Data
and Ethical Hacking space for CITI, JPM, Deutsche, and other TBTF
Banks.
• Certified Project Manager (“PMP”) and Information Systems Auditor
(“CISA”).
• BSc. Information Systems: University of Texas.
MSc. Information and Knowledge Strategy: Columbia University (‘14).
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© Sammy Chowdhury 2014 All Rights Reserved.
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• Do you know who you are dealing with ?
• LEI Standard: its adoption and potential
• Dodd Frank Record Keeping Rules and Derivatives Records
• Changes in Financial Data Management
• Recap
Agenda
© Sammy Chowdhury 2014 All Rights Reserved.
Bud Fox: How much is enough?
Gordon Gekko: It's not a question of enough, pal. It's a zero sum game,
somebody wins, somebody loses. Money itself isn't lost or made, it's
simply transferred from one perception to another.
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Greed is good !
Photo Credit: Extratv.com
© Sammy Chowdhury 2014 All Rights Reserved.
SNA to visualize Counterparty Exposure leveraging LEI
Cross-ownerships of CDO ( Collateralized Debt Obligation) Counterparties. Data Source: ProPublica.com
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© Sammy Chowdhury 2014 All Rights Reserved.
Research Undertaken at Columbia UniversityPrimary research:
20 personal and telephone interviews with Chief Data Officers, Regulators, and
Data Scientists.
Secondary research:
• The Case for the CDO, Peter Aiken
• The IBM Data Governance Unified Process, Sunil Soares
• Selling Information Governance to the Business, Sunil Soares
• IBM Red Book on Reference Data
• Enterprise Data Management Council (“EDMC”) Data Maturity Model
• Competing on Analytics, Jeanne Harris
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© Sammy Chowdhury 2014 All Rights Reserved.
Leveraging the LEI
The LEI:
Enhanced Legal Compliance
• Dodd-Frank
• AML/OFAC
• FATCA
LEI-Driven Business Analytics
– Differential Pricing terms
– Differential Settlement terms
– Fraudulent Trading Behavior Analytics
004L5FPTUREIWK9T2N63
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© Sammy Chowdhury 2014 All Rights Reserved.
Rules:
• Rule: Swaps Dealers (SD) and Major Swaps Participants (MSP) are required to maintain all
communications leading to the execution of swaps, including electronic mail, instant
messages, and oral communications.
• Rule: Trading records for swaps need to be identifiable and searchable by transaction and
counterparty
• Rule: Pre-trade, trade and post-trade voice communications relating to a swap need to be
captured, tagged, retained, and searchable.
• Rule: Swap records must be readily accessible to the SDs and MSPs. (by next business
day for voice or within 72 hours)
• Rule: Swap trade records must be stamped in UTC to the nearest minute. Details are
below:
17 C.F.R. § 45.2
17 C.F.R. §§ 23.201 - 23.203
17 C.F.R. §§ 1.31-1.39
Retention Schedule: For Transactional records- life of a swap (15-25 yrs.), plus 5 years,
Voice communication-1 year and Non-transactional records- 5 years from the moment
record was created.
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Purpose: Financial institutions engaged in Swap trades of any description, now are required to
have the ability to quickly and accurately reconstruct trades, including related pre- and post-
trade communications and to stamp records with the UTC time to the nearest minute. Don’t do
it? Face the wrath of the regulators (CFTC, SEC, and CFPB).
Dodd Frank Record Keeping Rules
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© Sammy Chowdhury 2014 All Rights Reserved.
Dodd Frank Record Keeping Rules Contd.
Beyond Retention (Analytics):
• Real-time analysis across phone, e-mail
and IM can identify wrongdoing and stop it
in its tracks
• Customer dissatisfaction can be monitored
and escalated in real time
• Improved Risk Analytics via LEI.
How to Comply:
• Update your Records Retention Schedule to
reflect the new retention rules;
• Inform impacted business users of the changes
and their new responsibilities;
• Update any applications, systems, or repositories
that use retention rules to manage the regulated
records using WORM storage technology for near
term through archival.
Challenges:
• The challenge is to retrieve a coherent set of
documents relating to a trade in short order to
hand over to a regulator. Pretty simple for post-
trade activity where a trade ID has been
assigned. Something of a nightmare for pre-trade
activity.
• In almost 50% of cases, the metadata is not
available in phone calls to match who is on the
other side of the conversation because of the
large number of blocked Caller ID’s. Also, where
outbound calls are made to a switchboard, the
ultimate recipient could be more than one person
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© Sammy Chowdhury 2014 All Rights Reserved.
Record Types According to 17 CFR 23
Presentations
• Advertising Material
• Policies and Procedures
• Communications such as email
• Social Media
• Instant Messages
• Recorded phone conversations
• Web pages
Transaction Order Records (Filled, Unfilled, Cancelled)
• Including but not limited to purchases or sales, contracts,
invoices, receipts, documents of title, correspondence,
journals, memoranda, ledgers, confirmations, and risk
disclosure documents.
Business Records
• Governance
• Financial Records
• Complaints
• Sales and Marketing
Material
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© Sammy Chowdhury 2014 All Rights Reserved.
AS
SE
T-
CE
NT
RIC
EN
TIT
Y-
CE
NT
RIC
Business Silos at HSBC by Asset
class
– F&O (Futures and Options)
– EQD (Equity Derivatives)
– FI (Fixed Income)
– FX (Foreign Exchange)
– OTC (Over The Counter)
Each line of business has a
front, middle and back office
Depending on the instruments
being traded the Front Office is
very different
The Middle Office and The
Back Office often use shared
data sources.
FIRM-WIDE
ENTITY MDM
LEI Standard
Entity ID
Standard
1
Entity ID
Standard
2
Entity ID
Standard
3
Entity ID
Standard
4
Entity ID
Standard
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Change 1: Breaking Asset-Based Data Silos
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© Sammy Chowdhury 2014 All Rights Reserved.
Change 2: Shifting Data from IT to Business
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Do data assets need an executive owner like any other corporate asset? • As organizations begin answering, “Yes,” they are introducing a new role: the Chief Data
Officer (CDO). • In 2003, Capital One named Cathryne Clay Doss the industry’s first Chief Data Officer. Now,
the CDO position is becoming more common on executive rosters, primarily at financial institutions and large public institutions that are flooded with data.
• Analyst firm Gartner predicts that 25 percent of large global organizations will have appointed CDOs by 2015.
The new hero of Big Data and Analytics: The Chief Data Officer, IBM Executive Report, 2014
© Sammy Chowdhury 2014 All Rights Reserved.
Current State: Reacting to Regulations
* Regulatory Reporting Change Management, aware of William Bridges’ “Valley of Despair” transitions, supported by 5 Disciplines of Change by Align Consulting.
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© Sammy Chowdhury 2014 All Rights Reserved.
Future State: Proactive Change Management
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© Sammy Chowdhury 2014 All Rights Reserved.
Recap
Banks need more Records Managers now than ever before to meet
regulatory compliance requirements. As Records Managers:
We need to know Dodd Frank, Volcker Rule, SEC and FINRA rules regarding
Record Keeping.
We need to be aware of the critical shift from Asset-class centric to Entity-
centric data management, driven by LEI.
We are increasingly playing the role of Regulatory Change Business Analysts
and PMs to support the Chief Data Office (Metadata, Dictionary, RDF, OWL,
FIBO etc.)
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© Sammy Chowdhury 2014 All Rights Reserved.
Suggested Reading
• Brose, M. (2014). Handbook of financial data and risk information. 1st ed.
Cambridge: Cambridge University Press. Volume I and II.
• Chance, D. (2008). Essays in derivatives. 1st ed. Hoboken, N.J.: John Wiley &
Sons.
• Hull, J. and Hull, J. (2014). Options, futures, and other derivatives, Ninth edition.
Upper Saddle River, N.J.: Pearson/Prentice Hall.
• Bartlett, R. (2013). A practitioner's guide to business analytics. 1st ed.
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© Sammy Chowdhury 2014 All Rights Reserved.
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Thank you
Sammy Chowdhury
enableIT LLC
44 Wall St. 9th Floor
NY, NY, 10005
+1 646 209 7319
sammych sammych1
© Sammy Chowdhury 2014 All Rights Reserved.
Sources and Acknowledgements
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1. http://marketsmedia.com/trade-reconstruction-requirements-hit-swaps-market/
2. http://www.bloomberg.com/enterprise/content/uploads/sites/2/2013/09/Dodd-Frank-Offering.pdf
3. http://www.darkokravos.com/dodd-frank-recordkeeping-rules-summary/
4. http://www.intelligentvoice.com/assets/Beyond_Dodd_Frank.pdf
5. http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03607usen/GBE03607USEN.PDF
6. http://www.patrina.com/support/rules-regulations/otc-derivatives-markets-recordkeeping/
Special Thanks to Alive Merchant and Julie Maher for inviting me to present at A.R.T and my Columbia University Capstone
Project Team members.
