MiFID II LEI grace period to end on 2 July

ESMA confirms there will be no extension to the six-month grace period implemented just two weeks before MiFID II went live on 3 January this year.

A six-month grace period for MiFID II’s legal entity identifier (LEI) reporting requirements will end as anticipated on 2 July, according to the EU markets watchdog.

The European Securities Markets Authority (ESMA) confirmed that the grace period will not be extended, meaning firms must use LEIs to report trades as part of a widely-deemed controversial concept known as ‘no LEI, no trade’.

ESMA said that it has witnessed a surge in LEI coverage for both issuers and clients since the grace period was put in place, and therefore an extension to the delay of implementation is unnecessary.

Vice chairman at the DTCC, Larry Thompson, told The TRADE that with no further extension market participants must prioritise the application of LEIs before the rules are implemented next month.

“ESMA’s announcement that no additional forbearance will be afforded to market participants means they need to make it a priority to apply for their LEIs ahead of the July 2 expiry date,” Thompson said.  

“Furthermore, if firms outside Europe which transact in European markets do not put the necessary measures in place to comply with the MiFID II LEI requirement by this time, they simply will not be able to trade with European counterparties.”

ESMA decided to delay the implementation of LEIs under MiFID II just two weeks before regime went live on 3 January. The financial watchdog explained that the last-minute reprieve was an attempt to ensure a smoother introduction of the reporting rules.

The ‘no LEI, no trade’ concept was the subject of industry-wide debate ahead of MiFID II, with firms highlighting potential unintended consequences for those without an LEI. In fixed income specifically, market participants warned that many bond instruments did not have LEIs, meaning firms were tasked with creating them.

A panellist highlighted at The TRADE’s Overcoming MiFID II Data Challenges event last year that at the time some 90% of sovereign issue bonds and between 50-75% of all corporate bonds did not have an LEI.

“These are not insignificant numbers, and it is about the creation of [LEIs]. It is a massive implementation problem, and some people have to go out and create them, and clearly apply them to the fixed income world,” David Bullen, founder of Bullen Management, told delegates at the event.