Economics of LEIs?

lostinrates

Global standardised Legal Entity Identifier...if every company going to have to have one, with a googled estimated average cost of $10 mill per year per institution...

Is this a significant insurance against financial hiccups and frauds and managing counterparty exposure or a liability best geared to making the LEI issuing companies (?) or the country in which this is to be based a nice little earner?

what's the point and how would it work in practise?

(shock, economics question for the lir corner!)

michaels

A nice concise link would help - most companies don't have a turnover of $10m in their entire existence.

lostinrates

concise is difficult.....google search gave this first. I was reading a really long thing about this this week, so won't give that link.

http://www.securitiestechnologymonitor.com/blogs/-27908-1.html

lostinrates

e.g. the US want it, sure, but how about the rest of the world, will Asia bow down and accept a US originated (and policed?) idea? EVERY business? I'm scuppered of they apply it to microbusiness...as are most SMEs!

STing

Many countries will simply not comply with this US standard, or take very slow steps toward implementing it, effectively kicking the idea into the long grass. Nations, for example, have had grea difficulty getting data out of tax havens.

I can't see how the proposals can be made enforceable.

Generali

Ok, this is a tricky one without turning into the most boring poster on MSE (probably not for the first time!).

The proposal is that every institution involved in buying and selling products in markets or interacting with them in some way (eg as a sole trader) would have a unique identifier that would be passed between parties to a trade. For example, if I as Generali Investment Partners buy some shares from LIR Brokers Limited, I have to give you my code of Generali451 and you give me your code of LIRXXX32. This would be lodged as a part of the trade we strike and would again be communicated as a part of 'settlement' (the point at which the asset and cash change hands).

I understand that a part of the problem with winding up Lehmans is that the liquidators don't know who traded with Lehmans and exactly what was traded. That makes it very hard to realise the value of the assets. This is most likely to to competence and staff numbers rather than corruption IME.

I don't really see any problem with doing this as such. It'll be a pain but it might help at the margins with stopping money laundering I guess and it would be pretty easy to force people based in the Caymans etc take part.

The thing for me is that it spectacularly misses the point. The problem is that there are a small number of massive investment banks that are so big and complex that nobody, including the firms themselves, have any idea as to what the risks are that are actually being taken. If the bets that they take go wrong then it threatens the whole financial system as we have seen. The solution to that is to limit the size of investment banks so that when one goes bust it doesn't matter. Companies go bust, that's capitalism. To pretend that a certain sub-section of companies is exempt from going bust is ludicrous.

Retail banks for example are likely to be toast in a few years as we know them today. You'll be banking via your supermarket or phone company. Why would you go to a special building to do your banking? You don't do that to buy insurance or holidays any more.

The biggest economic impact would be on trade. Anything that increases the cost of trade means that less of it happens. That reduces economic output and efficiency.

michaels

What is a market? If michaelsxx69 sells something to Generali451 on ebay does that count? Or is it only financial markets? How about my spread betting accounts in the Caymans, would they need o record every time m1chaelsxx69AU goes short on gold? Would the NSA then be able to track every transaction I had ever made?

Generali wrote: »

Ok, this is a tricky one without turning into the most boring poster on MSE (probably not for the first time!).

The proposal is that every institution involved in buying and selling products in markets or interacting with them in some way (eg as a sole trader) would have a unique identifier that would be passed between parties to a trade. For example, if I as Generali Investment Partners buy some shares from LIR Brokers Limited, I have to give you my code of Generali451 and you give me your code of LIRXXX32. This would be lodged as a part of the trade we strike and would again be communicated as a part of 'settlement' (the point at which the asset and cash change hands).

lostinrates

Generali wrote: »

Ok, this is a tricky one without turning into the most boring poster on MSE (probably not for the first time!).

Never.

The proposal is that every institution involved in buying and selling products in markets or interacting with them in some way (eg as a sole trader) would have a unique identifier that would be passed between parties to a trade.

As Michaels asks, what is an institution/market. e.g. what about people who self manage small portfolios? what is a market...?

I understand that a part of the problem with winding up Lehmans is that the liquidators don't know who traded with Lehmans and exactly what was traded. That makes it very hard to realise the value of the assets. This is most likely to to competence and staff numbers rather than corruption IME.

This is what made me interested in this

I don't really see any problem with doing this as such. It'll be a pain but it might help at the margins with stopping money laundering I guess and it would be pretty easy to force people based in the Caymans etc take part.

How, how would you force people. I don't see caymans/traditional tax exiles as much as a ''problem'' so much as politically no real issue....the east might feel America should butt out though, no? Whether or not they have an issue with the identifier.

The thing for me is that it spectacularly misses the point.

Aha! see not boring at all, whole bit of that interesting.

The biggest economic impact would be on trade. Anything that increases the cost of trade means that less of it happens. That reduces economic output and efficiency.

But also, potential anti trust issues, no? Even assuing its limited to strictly financial markets it risks, with costs, putting smaller players out of the affordabilty of paying for it, there by feeding back into the ''too big to fail'' issue, not just ignoring the REAL issue but compounding it?