Bloomberg finally got its wish for FIGIs– acceptance of its securities ID codes as a standard– but whether that equates to popularity for trade and post-trade operations managers remains to be seen.
Trade, middle, and back-office operations, and compliance managers at buy and sell-side firms can now be certain that Bloomberg’s financial instrument global identifiers (FIGIs) are on a level playing field with the CUSIP Global Services CUSIPs and international securities identification codes for US securities thanks to FIGI’s approval by the Accredited Standards Committee X9. The non-profit organization endorsed by the American Standards National Institute, just gave its blessings to FIGI as an ID standard for US securities. Until recently, FIGIs have been playing second fiddle to CUSIPs which won X9’s blessings forty-five years ago.
Although FIGIs earned the endorsement of the Object Management Group in 2014, the organization doesn’t have the same clout as X9; OMG is a technology standards-setting group, while X9 focuses on financial services. X9 has four categories of members– A,B,C, and E of which category A is the most influential with representatives from the American Bankers Association, BNY Mellon, Citigroup, JP Morgan, CGS, and Bloomberg. CGS is operated on behalf of the ABA by S&P Global Market Intelligence. It could not be determined how long Bloomberg has been lobbying X9 for approval for FIGIs or why X9 finally acquiesced. Bloomberg and X9 declined to comment for this article.
Financial firms and market infrastructures– exchanges, clearinghouses, and securities depositories– use identification codes to keep track of the securities in which they trade and transactions they process; the ID codes are also used for investor and regulatory reporting. CGS issues 9-digit alphanumeric CUSIP codes and 12-digit alphanumeric international securities identification codes for US securities. CUSIPs are typically used in the US market, while ISINs are used in cross-border transactions; CUSIPs are embedded within ISINs. Numbering agencies abroad also issue local codes and ISINs for securities issued in their markets.
In assigning FIGIs, Bloomberg has established a similar 12-digit alphanumeric structure to ISINs making their potential adoption easier. Buy and sell-side firms don’t have to ask their IT departments to make any coding changes to integrate them into front, middle and back-office systems. Nonetheless, it is doubtful that FIGIs will ever replace CUSIPs and ISINs any time soon despite being free because CUSIPs and ISINs have been around a lot longer. CGS started issuing CUSIPs and ISINs fifty three years ago while Bloomberg began issuing FIGIs in 2009. At that time they were known as Bloomberg Global Identifiers and were rebranded as FIGIs in 2014 when OMG gave its endorsement. The idea was to distance Bloomberg from FIGIs so the identifiers could be perceived as “independent.” However, with Bloomberg remaining as the registration agent for FIGIs, their affiliation with Bloomberg remains undeniable.
Issuers don’t have to pay for FIGIs and neither do financial firms using them. Bloomberg does not charge fees for a download of multiple FIGIs and reference data which can be obtained through its openfigi.com website. In contrast, CGS charge issuers which ask for CUSIPs and ISINs to identify their financial instruments and it charges financial firms which download its datafiles anywhere from a few thousand dollars to hundreds of thousands of dollars. The annual fee depends on the number of ID codes accessed, number of business lines, as well as the number of regions using the codes. CGS’s fees– particularly for ISINs– have been a bone of contention for some financial firms who note that numerous other numbering agencies don’t charge for issuing and accessing ID codes.
For now, FIGIs appear to be a nice-to-have, but not essential ingredient for securities reference databases. “Regulatory requirements, not cost, will likely drive the use of FIGIs,” says Mark Davies, chief executive of Element-22, a London-based data management and governance consulting firm. “If regulators allow FIGIs to be used in addition to CUSIPs or ISINs as identification codes, financial firms may decide to use FiGIs more and connect them to CUSIPs and ISINs.” The consensus among operations, compliance. and data managers at a dozen US fund management firms, banks. and broker-dealers who spoke with FinOps Report over the past week is that FIGIs will remain complementary to CUSIPs and ISINs. They will either link FIGIs to CUSIPs and ISINs themselves or rely on third-party vendors or exchanges to provide ready-made links. So far, FIGIs appear to be favored by trading desks, reflecting the dominance of Bloomberg terminals and analytics in the front-office, while middle and back office operations desks prefer CUSIPs and ISINs.
CGS doesn’t appear threatened by X9’s new endorsement of FIGIs and suggests there is no level playing field, because it has the upper hand. Here is what it had to say in a statement to FinOps Report: “CUSIP Global Services is the recognized leader in providing primary sourced, reliable, and transparent security and entity identification. For more than five decades, CUSIP’s critical role in the global financial services industry has been based on the consistent delivery of scalable, dependable, and innovative solutions to security identification developed in partnership with the industry. We look forward to continuing to deliver value through CUSIP as a fundamental building block for the global financial services industry and through the expansion of CGS’s critical industry partnerships.”
However, if Bloomberg has its way, CGS won’t be able to sit on its laurels for long. Bloomberg’s long-term strategy is an open secret to data management professionals. Bloomberg, they speculate, is hoping that by giving FIGI the same endorsement as CUSIP as a US standard, X9 will prompt more US regulators to approve of the use of FIGIs in their reporting requirements. When that happens there might be more widespread acceptance of FIGIs among middle and back-office operations managers.
The broker-dealer watchdog, Financial Industry Regulatory Authority, allows FIGIs to be used to identify eligible fixed-income securities in over-the-counter transactions reported to the Securities and Exchange Commission-approved TRACE system. “For TRACE, firms can report using the TRACE symbol or CUSIP code,” says a spokesman for FINRA. “To use FIGIs, firms may cross-reference using the FIGI to the TRACE symbol and report using the TRACE symbol.” He declined to say whether Bloomberg was in discussions with FINRA concerning the use of FIGIs for other regulatory reporting requirements.
Bloomberg could also decide to go for the even bigger prize– use X9’s endorsement to win approval for FIGIs from the International Organization for Standardization as a global securities identification standard. Should that occur FIGIs would be on a level playing field with ISINs. Despite the FIGI’s similar construction to an ISIN, Bloomberg has touted the FIGI as a superior ID standard. There is only one ISIN for a specific issue of common stock while there may be multiple FIGIs. That is because ISINs identify securities at the global level while FIGIs also do so at the country and exchange level. Bloomberg was unsuccessful in persuading European regulators to allow FIGIs to be used for MiFID II and EMIR reports and in 2017 Bloomberg failed to win ISO’s approval as a global standard after it asked X9 to withdraw its proposal for FIGIs from the voting of ISO’s influential TC68 committee; X9 is a member of that committee. Bloomberg never explained why it did so.
Last year Bloomberg and its partner cryptoasset data giant Kaiko lost out to Etrading Software for ISO’s approval of FIGIs as the standard ID code for digital assets, such as cryptocurrencies and tokens. However, in January 2021, Bloomberg and Kaiko nabbed OMG’s blessings for FIGIs as a standard ID code for digital assets. A statement issued by OMG that month indicated that Kaiko would issue the nine-digit alphanumeric FIGIs for digital assets sometime this year. So far that hasn’t happened, based on a search of openfigi.com.
The impact of X9’s endorsement of FIGIs as a US standard on US financial firm remains uncertain. What is certain is that it generated a loud noise. Now it is up to the securities industry to decipher what the noise means.