If you think you have been fleeced by CUSIP Global Services and others for paying licensing fees for nine-digit alphanumeric identification codes for US securities you might be entitled to a chunk of at least US $1 billion in compensation if a jury decides you’re right.
All you must do is be part of an eligible group of financial firms participating in a class action lawsuit filed by US broker-dealer Dinosaur Group and Switzerland’s fund management shop Swiss Life Investment Management in a New York court against CGS, its former parent S&P Global, its new owner FactSet, and the US bank trade group American Bankers Association. Dinosaur Group and Swiss Life want a jury to decide how much CGS and its cohorts should pay clients of CGS for charging them exorbitant licensing fees by stifling competition in the US securities identification market. CGS, S&P Global, the ABA, and FactSet, allege Dinosaur Group and Siwss Life Investment Management, violated the Sherman Act, which prohibits anti-competitive behavior, as well as US copyright law. The defendants could never have engaged in their “exploitative conduct” and charged “monopolistic fees” in a competitive market which they prevented under the guise of copywright restriction. CGS was bought by FactSet for $1.925 billion in January 2022 after the European Commission forced S&P Global to divest CGS before it could complete its purchase IHS Markit.
Nine-digit alphanumeric CUSIPs and 12-digit alphanumeric international securities identification codes for US securities are the lifeblood of the trading and post-trade financial market. Buy and sell-side firms need the reassurance they are referring to the same securities when communicating with customers, counterparties and service providers. CGS issues CUSIPs under contract to the American Bankers Association which owns the copywright to the CUSIP system launched in 1968. The acronym CUSIP stands for the Committee on Uniform Security Identification Procedures which was established by the ABA to organize the financial market. Since 1968 CGS has issued 92.8 million CUSIPs. CGS also issues 12-digit alphanumeric international securities identification codes for US securities; ISINs contain CUSIPs. CUSIPs are typically used in the domestic US market, while ISINs are popular for cross-border transactions.
The class-action lawsuit marks the second time CGS has been hit with legal action. In 2011 after a three-year investigation prompted by complaints from European data trade groups and fund management associations, the European Commission accused CGS of abusing its dominant position as the sole agency assigned to issue ISINs for US securities. The EC ordered CGS to offer its clients in the European Economic Zone Area a downsized version of its ISIN datafeed on a cost-recovery basis. Financial firms would continue to access the same ID codes, but with limited descriptive data. In 2014 in response to requests from the Bond Association of America, the Investment Adviser Association and the Government Finance Officers Association, former SEC Commissioner Daniel Gallagher suggested the SEC review CGS’ pricing policies, but no investigation was ever made. Presumably, SEC considers CGS’ licensing fees outside its jurisdiction because it has no oversight over CGS.
The annual licensing fees paid by financial firms to access CUSIPs and reference data, say Dinosaur Group and Swiss Life, collectively come to more than US$100 million a year; the ABA earns royalties. . The fee each client pays depends on the number of CUSIPs it stores, the number of business lines using the CUSIPs, and the number of regions. Should Dinosaur Group and Swiss Life along with members of the affected class prove CGS and the other defendants violated US anti-trust regulations, they could collectively recoup over US$1 billion in past payments and damages based on the timespan in question. To be entitled to any compensation, a financial firm must have been paying CGS licensing fees for the past four years.
In their lawsuit, Dinosaur Group and Swiss Life paint an alarming picture of how CGS strongarms financial firms to pay fees to receive a feed of CUSIPs and reference data on US securities. For starters, if a financial firm refuses to acquiesce to CGS’ terms, CGS will cut it off from receiving CUSIPs. However, if a financial firm threatens a lawsuit, CGS’ salespeople will back off indicating they have no confidence in their copywright claims. They will then successfully corner the client later on. S&P Global, CGS, the ABA. and FactSet, allege Dinosaur Group and Swiss Life squashed any competition to CUSIPs by putting a squeeze on data vendors which distribute CUSIPs to financial firms. CGS forces a data vendor to require that their clients sign separate licensing agreements with CGS if they want access to CUSIPs and other identifying information. If a data vendor refuses to do so, it will be penalized by not receiving any datafeeds with CUSIPs, or any ratings from S&P Global, which is also a prominent ratings agency.
The heavy-handed tactics used by CGS, its prior and current parents, and the ABA to prevent competition and charge license fees are unjustified, say Dinosaur Group and Swiss Life, because neither the CUSIP system nor individual CUSIPs can be copyrighted. CUSIPs do not result from any artistic, literary or any other esthetic or subjective consideration, but rather a convention established over 50 years ago which strictly determines the format of the CUSIP and each digit within it. “A structure is so rigid and predictable that an issuer knows the CUSIP of its next issue before it receives the CUSIP with no need to hear from CGS. Novelty, creativity or subjectivity, which are the hallmarks of a copywright, would prevent CUSIPs from being used on electronic transaction systems because they could no longer read and process CUIPs to identify their underlying financial instruments, say the plaintiffs. Therefore, according to Dinosaur Group and Swiss Life neither S&P Global, CGS, the ABA, nor FactSet have the legal right to control the use of CUSIPs by financial institutions. Because they cannot control the use of CUSIPs, they have no right to impose either license agreements or license fees.
Despite their claims to the contrary, the CGS and its cohorts haven’t dampened Bloomberg’s drive to promote its FIGIs as legit identification codes for US securities. FIGIs are based on “open symbology”– the ideaw of ree 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 financial information. Bloomberg recently appeared to have scored a major victory to establish the credibility of FIGIs when the X9 standards committee of the ABA leveled the playing field between CUSIPs and FIGIs by giving FIGIs its blessing as a US standard, akin to CUSIPs. Until then, FIGIs had been endorsed by the Object Management Group, a technology and data integration trade group. By contrast X9 represents some of the US’ largest financial institutions. However, the ABA and CGS aren’t willing to give Bloomberg any more clout as evidenced by their attempt to block the use of FIGIs in SEC Form 13F filings. In a joint letter to the SEC, which sought feedback on proposed amendments to Form 13F, the ABA and GCS suggested the inclusion of FIGIs would lead to “inefficiencies and errors.”
A dozen data management and operations managers contacted by FinOps Report predict that Dinosaur Group and Swiss Life will be unsuccessful because of the high burden of proof to win antitrust and copywright lawsuits in the US. The US Supreme Court has ruled that a firm operating as a monopoly can charge any price it wants without violating antitrust laws while the European Union can declare a price too high or too low as a violation of antitrust laws. At the very least the legal saga has drawn attention in the US market to a longstanding issue many firms hoped — but never expected — to be thrust into the limelight.