ANNA FIXes Tech Specs for OTC ISIN Allocation

If operations and IT managers of the biggest trading firms and trading platforms have been wondering exactly how they’ll get their hands on International Securities Identification Numbers (ISINs) for over-the-counter derivatives when they need them for transaction reporting under Europe’s Markets in Financial Instruments Directive (MiFID), they found part of the answer last week.

Even before mega swap dealers and trading platforms have had their first look at the real-time ISIN delivery engine being developed by the Association of National Numbering Agencies (ANNA), the trade group published the FIX Protocol-based connectivity specifications for direct access to the new service.

What good is connectivity if you don’t have a system yet? It may look like the cart before the horse, but ANNA argues otherwise. “It’s currently budget season for 2017,” explains Alan Dean, an ANNA board member and co-convenor of the study group tasked by the International Organization for Standardization (ISO) to create an ISIN-based product identifier for OTC derivatives. “The systemic integrators and trading venues that want fully automated no-touch service for obtaining these ISINs need to know now what they’re facing in terms of integration into their front office systems.”

ANNA’s objective: “Our goal is to help them make sure they have the necessary resources to get the work done when the engine becomes available to them early next year, so that they will be production ready in January 2018,” says Dean, who is also head of the Sedol Masterfile, LEI and Corporate Actions for the London Stock Exchange.

January 2018 is when the second incarnation of MiFID 2 comes it effect.  The initiative aims to offer investors a choice of trading venues by promoting the creation of new alternative trading platforms to compete with incumbent local exchanges. Systematic internalizers, historically called market makers, also have the option to match buy and sell orders internally. Regardless of where trades are executed, MiFID requires systematic internalizers, trading platforms, and others to report to trade repositories all transactions using ISINs to identify the financial instruments involved. MiFID 2 also makes reporting of some OTC derivatives a requirement for the first time.

National numbering agency members of ANNA are responsible for issuing twelve-digit alphanumeric ISINs, Classification of Financial Instruments (CFIs)  and local identification codes for exchange-traded financial instruments. The codes help traders, operations specialists, market infrastructures, regulators and investors keep track of just what is being traded, cleared and settled.

The expansion of ISIN coverage to OTC derivatives creates a different kind of challenge — the requirement for codes to be delivered in real-time. That is far faster than national numbering agencies have typically worked. Instead of requiring national numbering agencies to upgrade their technology and processes for OTC derivatives, ANNA decided to build a new fully automated “numbering agency”to issue the ISINs more rapidly and archive the reference data related to the OTC derivatives.

What’s Available

So what do potential users of ISINs get if they click the link in the announcement from ANNA? It’s a technical document aimed at IT and operations staff, defining the FIX-based messages that will move between the user systems and the ISIN allocation engine. The messages will transmit the data necessary to register for a new ISIN or make queries about ISINs for OTC derivatives that may already exist.

The choice to rely on the FIX protocol, according to ANNA, was based on its current high level of use for trade execution. ANNA officials say that the FIX-based message types can support a variety of derivatives taxonomies, including those based on messaging standards such as FpML, FIX protocol and ISO 20022, as well as taxonomies used by regulators. The FIX Trading Community, the trade group that developed the FIX protocol, co-sponsored the ISO-sponsored study group.

The data requirements for the FIX messages will be released in December, and will be based on the ISO FpML taxonomy. That taxonomy, in turn, is derived from the derivatives taxonomy of the International Swaps and Derivatives Association (ISDA), which was used by the ISO SG working on the ISIN-based identifier for OTC derivatives. FpML, short for financial products markup language, is a message protocol often used to exchange trading and post-trade information on swaps and other derivative products.

Systematic internalizers — high-volume swap dealers– and trading platforms, among others, are expected to directly link their own front-office operating systems to the ISIN allocation engine operated by eTrading Software, a London-based technology shop. In addition to being ANNA’s technical partner handling development of the ISIN allocation engine, eTrading has just been named as the managing services partner for the new ANNA Derivatives Service Bureau (DBS). Management and technology consultancy BearingPoint was appointed “trusted advisor” to assist ANNA with funding and revenue models, governance framework and the recruitment of the system provision partner for providing and managing the infrastructure of the DBS.

ANNA recently announced that the DSB will be incorporated as a special purpose vehicle. So will the established ANNA Service Bureau operated by CUSIP Global Services (CGS), North America’s numbering agency, and SIX Financial Information, Switzerland’s national numbering agency. The ASB, which has been working under a contract with ANNA since 2001, is responsible for consolidating ISINs for equities, fixed-income instruments and exchange-traded derivatives, allocated locally by national numbering agencies. The two service bureaus will be operated separately, each with its own board of directors. It remains to be seen if the ASB’s new structure will prompt new data product offerings and possibly extend its reach beyond its historical base of data vendors.

Having clinched its role in the world of ISINs for equities and fixed-income instruments, ANNA also appears to be winning an  ongoing battle with data giant Bloomberg. Reportedly, Bloomberg has so far been unsuccessful in promoting its financial instrument global identifiers (FIGIs) to European regulators as an alternative identifier for reporting purposes.

The ISO-sponsored study group was created in the wake of the decision of the pan-European regulatory agency European Securities and Markets Authority in 2015 to advocate using ISINs for transaction reporting under MiFID. That mandate precluded any discussion of Bloomberg’s FIGIs.