ISIN — the 12-digit alphanumeric international securities identification code and longstanding standard for identifying securities for cross-border trading and post-trade processing — is facing an unlikely competitor, a proprietary code designed by commercial data giant Bloomberg.
The 27-member board of directors of the Object Management Group (OMG), an international organization concerned with data integration standards, is set to endorse an open symbology methodology developed by Bloomberg as a global financial standard on Tuesday at its quarterly technical meeting in Austin, Texas.
That symbology has become so inseparable with Bloomberg’s issuance of its financial instrument global identifiers, or FIGIs for short, that for all practical purposes the OMG will be giving FIGIs their endorsement as an international identification standard for financial instruments. The OMG’s board, which are listed on the website only by the companies represented, includes technology giants but no financial services firms.
How did Bloomberg get such clout? It took a preemptive strike to throw any other contenders out of the running. It approached OMG, an international not-for-profit technology standards consortium, over a year ago with the ultimate goal of having its proprietary number, previously called the Bloomberg Global Identifier (BBGID), blessed as the official identification code for all types of securities.
Bloomberg didn’t exactly ask for OMG to give FIGI its vote of confidence. What it asked for was that the OMG approve Bloomberg’s open symbology, but with OMG and Bloomberg managing to intertwine the two so closely they have become one in the same. “The OMG is inviting public comments on a proposed framework for the Financial instrument Global Identifier specification offered by Bloomberg,” said the OMG press release announcing the request for comments in May 2014.
The FIGI is the centerpiece of Bloomberg’s open symbology initiative, which is based on the idea of free and open access to key identifiers. The symbology specifies the structure and semantics of global identifiers, how they are constructed and validated, and their relationship to other financial information. Other data vendors could come up with their own ID codes to meet the open symbology’s criteria, but the fact that the OMG will endorse Bloomberg’s may leave no room for anyone else’s. The full FIGI specification can be found on OMG’s website.
Two OMG committees have already approved of Bloomberg’s proposal on open symbology, says OMG’s chief executive Richard Soley. After the Tuesday vote, which Soley expects to confirm OMG’s adoption of the Bloomberg symbology, the OMG will post an initial draft of the open symbology on its website with the goal of having a final draft completed within two years.
Quick Approval Process
OMG apparently didn’t need much convincing on the merits of Bloomberg’s open symbology and FIGIs. It only received eight comment letters and won’t make any of the letters public so it could not be determined who else was in favor of the idea or might have been opposed. No proposals were sought from any other organizations and the OMG relied solely on Bloomberg’s unsolicited proposal to make a decision on ID codes for financial instruments. In the OMG’s request for comment, it mainly asks respondents to agree or disagree on Bloomberg granting OMG a worldwide royalty free license to edit, store, duplicate and distribute both the specification (as corrected) and works derived from it (such as revisions and teaching materials).
How much of an impact OMG’s blessing will have on the use of FIGIs by financial institutions and regulatory bodies is anyone’s guess. ISINs already populate trading reports, investor reports, and middle and back office corporate actions, securities masterfiles, and clearance and settlement applications. Financial firms use them to match up or reconcile underlying information with counterparties and third-party service providers to ensure they have an agreement on just what financial instrument has been bought or sold and how trades must then be cleared and settled — cash exchanged for assets. Assigned by national numbering agencies in the country where the security is issued, ISINs are considered the mainstay for cross-order trading and post-trade processing functions. Local identifiers, which are often incorporated into the ISINs for that country, may be used for domestic transactions.
In assigining FIGIs, Bloomberg has established a similar structure as ISINs, a 12 digit alphanumeric code, making their potential adoption that much easier. The potential for differences in underlying data aside, buy and sell-side firms don’t have to ask their IT departments to make any coding changes to any applications to accommodate longer or shorter data fields.
Despite the OMG’s prominent status and pending decision, the Association of National Numbering Agencies (ANNA) has been silent. Until now that is. The group of 118 national numbering agencies which issue ISINs for more than 120 countries around the world released a press statement on September 10 saying that numbering agencies had expanded the issuance of ISINs to more types of derivatives and structured products, bank loans and combined instruments.
With ANNA serving as the registration authority for ISINs and the International Organization for Standardization (ISO) as overseer of development of the ISINs, it becomes apparent that a battle has emerged between which ID code will have the most influence. OMG officials insist that FIGIs aren’t meant to usurp ISINs as identification codes, but they are not shy to sing FIGIs praises. And in doing so they are relying on the same marketing language as Bloomberg.
“There are numerous securities for which no ISINs have been issued,” insists Soley, citing a figure of about 197 million FIGIs issued compared to only 26 million FIGIs. With such a small overlap, the identification codes are not competitive but “complementary.” What’s more, a financial instrument won’t change its FIGI even if undergoes a corporate action. Not so with ISINs, allegedly making it more difficult to keep track of the issuer.
Need for Change
Bloomberg would not make any of its executives available for comment on Friday and wouldn’t respond directly to any of FinOps Report’s emailed questions. Instead it offered FinOps a prepared presentation which explicitly highlighted the merits of FIGIs over ISINs. The presentation indicated that the alleged shortcomings of ISINs were known as early as 2003 when the Reference Data Working Group and Reference Data Coalition, sponsored by a group of industry trade associations and individual firms, concluded that ISINs alone “were not sufficient for unique identification of securities.” That is because the ISIN includes the financial instrument’s place of issue, not where it is listed.
The groups considered a number of options, including changing the ISIN or turning to other standards each of which was rejected for at least one reason, such as not meeting additional requirements for timeliness and commonality. Those standards included relying on vendor proprietary identifiers; combining ISINs with MIC codes issued by SWIFT which would highlight the place of listing; and relying on a combination of IDs called Sedols issued by the London Stock Exchange and MICs. Vendor proprietary identifiers would meet both the uniqueness and timeliness factors but “competition and commercial interests are significant obstacles likely making this option fail the commonality requirement,” the reference data groups concluded.
A subsequent reference data and standards working group committee created in 2013 by the buy and sell-side operations group ISITC also found ISINs were lacking in uniqueness. They don’t provide the level of detail needed to know on which exchange a particular financial instrument was traded. Bottom line: one ISIN-identified instrument can be trading in multiple locations, which creates, according to the ISITC committee, the risk of “reporting incorrect transactions, holdings and or valuations on multiple reconciliation messages.” Those messages involve matching the books and records of what was bought and sold and for how much among counterparties and their service providers. However, when the ISITC committee evaluated alternative standards, it ultimately decided that ISINs remained the “best available non-proprietary global identifier.”
ISIN identifies financial instruments at the global level only so there is one ISIN for a specific issue of IBM common stock, not matter where it trades. By contrast, FIGI identifies financial instruments at both the global level (permitting 100 percent mapping to and from ISIN), but also at the composite — typically country — and exchange level, thus addressing the issue raised by data committees of where the instrument is trading.
Bloomberg also claims ISINs only cover bonds, commercial paper, stocks and warrants. By contrast, FIGIs cover commodities, currencies and “an ever growing list of additional instruments. ” However, Bloomberg did not specify the asset classes in its presentation.
ANNA Fights Back
Naturally, ANNA is quick to dispel Bloomberg’s stance of FIGI’s superiority over the ISIN. “It is important to highlight that ISIN is an established international standard that has been globally accepted as robust and fit for purpose,” says ANNA’s Chairman Dan Kuhnel in response to emailed questions from FinOps Report. “Inserting a proprietary code, such as the FIGI, into the world of standards which clones the format of the ISIN will only bring confusion and risk to the market and user community.”
Kuhnel, who is also director of primary markets and fixed income securities at international securities depository Euroclear Bank in Hong Kong, also disputes any claims that FIGIs address more asset classes than ISINs and ISINs inappropriately change when an issuer undergo a corporate reorganization. “The scope of the FIGI does not cover more instruments. We believe the ISIN standard is just as comprehensive in scope as the intended scope of FIGIs,” he says, noting far more asset classes now covered under the ISIN code.
So just why are there far more FIGIs issued than ISINs? It might have less to do with the number of asset classes covered than the fact that FIGIs may cover the place of listing as well as other standard identifier information. Therefore, there could easily be multiple FIGIs for each security, as opposed to only one ISIN.
When it comes to why an ISIN might change if an issuer undergoes a corporate action, the reason is far more practical than punitive, as Bloomberg implies. “Whether or not an ISIN changes when an instrument undergoes any type of structural change depends on whether shareholder rights are affected. If new securities confer the same rights as the existing ones, then the same ISIN is maintained,” he says. “If not, the new instrument is not fungible with the existing one and needs to be identified separately.” If that’s the case, users of the new ISINs still won’t have trouble keeping track of the issuer, because they are notified of the change in ID code.
Just who would prefer FIGIs instead of ISINs? That remains unclear given ISINs prevalence in the international financial community, particularly in post-trade operations. So far, FIGIs appear to have been embraced by exchanges, reflecting Bloomberg’s dominance in front-office trading desks.
Cost vs. Cost
What is clear is that Bloomberg does stand to gain financially from issuing FIGIs. While the Bloomberg identifiers are freely available without cost or restrictions on use, buy- and sell-side firms must still pay licensing fees for datafeeds if they wanted to see any underlying reference data.
By contrast, financial firms gain immediate access to the local numbers, ISINs and all the relevant underlying data when they use ISINs, explains Kuhnel. They can either receive the information from data vendors such as Bloomberg through the vendors’ licensed data packages, or they can also receive the information directly from the numbering agencies. As a rule of thumb, the agencies, which are paid by issuers to generate ISINs for new issues, will either give the data away for free or on a minimal cost-recovery basis.
ISINs for US securities, which incorporate CUSIP numbers, have historically an exception to the free or low-cost availability of ISINs, because they come with CUSIP licensing fees. A dispute with the European Commission over its licencing fees ultimately forced CUSIP Global Services, the US ISIN-issuing agency, to alter its CUSIP fees for European users of ISINs. Bad feelings over CUSIP licensing policies endure, and some industry watchers believe the CUSIP issue is a vulnerability in the dominance of ISIN as a global identifier.
Nevertheless ISIN has the advantages of entrenchment and an established global network of registration agencies. Given that national numbering agencies obtain and maintain the reference data on ISINs directly from issuers and Bloomberg has to dig up the information on its own, it is uncertain whether the quality of data is the same given the same instruments.
Will FIGIs usurp ISINs as the identification code for financial instruments? Not if ANNA can help it. The last sentence in the organization’s press release issued on September 10 gives some inkling it is striking back to level the playing field. “The ANNA Service Bureau, which is wholly supported by ANNA’s network and currently houses the largest database of ISINs and related data is in the later stages of a comprehensive multi-standard correlation project to support advanced recordkeeping and analysis by the global financial industry,” it said. Translation: financial firms will soon be able to receive ISINs on financial instruments with a MIC code — or indication of the place of trading — as an optional additional data field.
Such a scenario appears to allow ISINs the ability to incorporate the quality of uniqueness which they have been lacking to date. However, it remains to be seen how financial firms will integrate ISINs and MICs in unison in their trade and post-trade functions and reports. So far, MICs haven’t been included.
In winning the OMG’s blessing, Bloomberg could become the first data vendor to pose a significant challenge to the ISIN’s virtual monopoly on financial instrument identifiers for cross-border trading and processing of securities transactions. It is now up to ANNA to come up with a viable alternative and for financial firms to determine whether they are ready to adjust to another ID code.
Update September 20, 2012
The Object Management Group confirmed on Friday that its board of directors voted unanimously at a meeting in Austin, Texas on Tuesday, September 16 to approve Bloomberg’s open symbology and FIGI codes as a global standard.