This report provides a summary of the inaugural REDAC General Meeting (June
20) and the REDAC Steering Committee Meeting (July 10). Full details will
be included in separate reports and posted on
http://www.fisd.net/referencedata/default.asp shortly.
Unique Instrument Identification
The REDAC/RDUG white paper on Unique Instrument Identification has been
posted (http://www.fisd.net/referencedata/20030605uiipaper.pdf)
and is getting fairly broad visibility. FISD has been invited to speak on a
number of platforms about reference data and the results of our efforts on
instrument identification. The paper has been well received and the key
points have been validated. At the most recent meeting of the ANNA Service
Bureau’s (ASB) ISIN User Group, the ASB indicated that it would also
consider adding official place of listing and (perhaps) other data elements
to the ASB data feed. Look for more details shortly.
LSE SMF Testing
The London Stock Exchange (LSE) has released a rollout strategy for the new
SMF product. The “go live” date is scheduled to be 26 January, 2004. A
number of user firms have asked FISD/REDAC to help coordinate testing among
interested participants to make things as efficient as possible. The
initial goals are to create a master roster of companies interested in
participating in the testing process and to develop a firm testing schedule.
User firms are suggesting we establish two test days between vendors and
their customers to ensure that organizations that subscribe to multiple data
vendor feeds are able to test all systems/datafeed in a simulated live
environment. Participants have expressed a desire for all data vendors to
use the test data/test SEDOL codes provided in the LSE’s Scenario Testing
Service.
Data vendors and financial institutions interested in taking part in this
coordinated testing process should provide full contact details of the
person responsible for testing coordination. A number of organizations have
indicated there will be a “code freeze” during December 2003 – and therefore
prefer testing to occur in October/November. We are actively seeking
feedback on preferred dates. Please send your requests/constraints to
matkin@siia.net
LSE
Test Script ;
LSE
Test Overview ; LSE
SEDOL Web Link
Business & Legal Entity Identification
The issue associated with defining the interrelationships among entities,
issuers and products was the primary topic of discussion at the July 10
REDAC Steering Committee meeting. There is still a lot of confusion about
this issue – primarily because there are multiple issues at work and all the
dimensions have not been fully articulated or agreed to by the key industry
participants.
We do know that establishing the correct links between legal entities is an
essential part of starting a new counterparty relationship as well as a
regulatory requirement associated with KYC and AML and an operational risk
obligation associated with the Basel II accords. Not only do market
participants need to be able to identify each other’s business entities,
they need to identify individual funds as part of the post-trade allocation
process. In addition, firms want to be able to link multiple securities in
their master files to the issuers of those securities in a standardized
way.
I believe it is safe to say that there is agreement that the industry would
benefit from a common identification system for business and legal entities
that could be used by all segments of the industry. The core question
before REDAC is whether the assignment, maintenance and cross-referencing
requirements associated with the creation of a standard identification
system is practical, operationally viable and commercially possible?
In a general sense, I believe the issue can be roughly segmented into two
areas of activity:
- The first deals with risk management and the fact
that firms have a difficult time doing compliance research on legal entity
relationships (particularly within cash markets). At this stage, there is
agreement that existing compliance procedures are inefficient –
particularly when communicating with counterparties. However, firms are
currently doing their internal due diligence and have already invested in
systems and procedures to ensure they are in compliance with their
obligations.
- Is there widespread interest in developing a more
efficient industry-wide approach to compliance research?
- Will commercially available vendor products that
are designed to link business entity information with financial
securities – such as the new Security to Entity CrossWalk Service
(launched by Standard &Poor’s/Telekurs Financial/D&B) -- fill the
operational risk gap?
- In addition to establishing the appropriate
hierarchical relationships, is the industry looking for a standard
identifier to facilitate better communication with their
counterparties? If so, how would that number get assigned and
maintained?
- The second deals with fund entity identification and
the challenges of doing cross-referencing between proprietary internal
account numbers among counterparties. The goal is to improve
post-execution trade processing capabilities and help move toward the
automation objectives associated with STP.
The way I understand the issue – an investment manager will place an order
(with post-execution requirements for allocation and instructions for
settlement) with a broker who executes the trade. The investment manager
gives the broker and its global custodian the details of each allocation.
The custodian in turn instructs the local clearing agents to settle each
allocation as a discrete trade in the relevant national/international
settlement system. Automating the order execution, trade allocation and
the settlement process is the objective of STP.
The problem is that the instructions come in all different formats with
all sorts of internal identifiers. The lack of a standard identifier
makes it difficult to automate these processes. Proprietary solutions (Omgeo’s
Oasys and CTM) help fill this gap by cross-referencing internal
identifiers on a bilateral basis. But, some concerns associated with
these proprietary solutions have been expressed including the fact that
industry-wide use of proprietary infrastructures are far from universal,
there is no linkage at the business entity level, and there is a
maintenance problem associated with corporate actions, name changes and
mergers.
Please note – there are two other important points to consider. First, the
absence of such identifiers has been cited as a key weakness of GSTPA model
and second, the successful adoption of the FIX 4.4 STP model will be
dependent on non-Omgeo and Alert participants having a set of identifiers.
RDUG Proposed Standard Fund Level Identifier
Simon Leighton-Porter (Citigroup) working on behalf of the UK Reference Data
User Group (RDUG) has developed a proposal for creating a standard
identifier using a format based on BIC to represent a unique entity and its
funds (NOTE: this proposed identifier is not a BIC, it just uses the BIC
format). The RDUG proposal promotes real-time enrichment of allocation and
confirmation messages with SSIs by industry participants who do not use one
of the proprietary SSI databases such as Alert and SID. RDUG suggests this
proposal will be fully compatible with proprietary databases and could work
alongside Omgeo and DTCC offerings – these are not mutually exclusive.
RDUG Fund Level Identification Paper
·
Is there sufficient industry-wide agreement on the need for a
standard fund level identification scheme to improve the efficiency of
securities processing?
·
Do industry participants see any problems with the logic of
the RDUG proposal or the recommendation to base the identification scheme on
the BIC format?
·
RDUG is suggesting SWIFT as the logical registration and
issuing agency for the proposed standard fund level identifier. What are
your views?
·
We see a potential close relationship between this proposal
and the ISO TC68/SC4 International Business Entity Identification
initiative. What are your thoughts on the relationship between the RDUG
recommendation and the IBEI proposal?
RDUG New Chair
John Gubert (HSBC) has relinquished his role as chair of RDUG. The new RDUG
chair is Alan Plom of Gartmore Investment Management. Steve Kelly and I had
a conference call with Alan to ensure the continuation of the strong working
relationship between RDUG and REDAC. We’re pleased to report that Alan has
been appointed to sit on the REDAC Steering Committee. His contact
information is +44-207-374-3013
alan.plom@gartmore.com
Market Data Definition Language (MDDL) and 15022 DFD
Just to remind everyone – MDDL is our XML specification for market data and
covers all data elements necessary to account for, analyze and trade
financial instruments. In essence, everything required to set-up master
files and price financial instruments – including corporate actions.
There are two components to MDDL – a unified format for exchanging data so
that information can be efficiently passed from one system to another and a
uniform glossary of terms, definitions and relationships among data elements
(data model) so that users know what they are looking at with absolute
precision. We are now at version 2.1 – covering basic set-up information
for virtually every asset class on a global basis.
It is the vocabulary component – the information architecture level --
focusing on common names and common values that is most important for REDAC
participants. The objective is to have agreed terminology and transparent
definitions so that people working with the data delivered by lots of
sources can understand what they are working with and use it as appropriate
for their specific application.
The vocabulary for MDDL becomes extremely important in that we are working
very closely as part of the new ISO activity designed to create the 15022
compliant market data model -- including messaging requirements and a
central repository for all terms, definitions and relationships throughout
the transactions lifecycle. The 15022 data model is being facilitated by
ISO working group 11 under Technical Committee 68, Sub Committee 4
(TC68/SC4/WG11). FISD was just named as a direct liaison to TC68/SC4 and is
working (Along with FIX and SWIFT) to expand the 15022 data field
dictionary. As such, the MDDL vocabulary will be integrated into the 15022
DFD and become the ISO vocabulary for “market data.” REDAC members can
participate in this process through FISD’s relationship with ISO.
For more information please contact James Hartley (FISD Technologist) at
303-322-1393 jhartley@siia.net or
visit the MDDL website.
SIA and Standards
REDAC and the standards activities associated with reference data have
caught the attention of the Securities Industry Association (SIA). FISD has
been working with SIA over the past two months to craft a synopsis of the
structure and current challenges of standard reference data and messages
impacting institutional STP. The goal of our efforts is to assist SIA in
crafting a response to the plethora of standards initiatives and to help
determine which activities they will get involved with and which
concepts/recommendations they will endorse.
The discussions mirror the REDAC agenda and are focused primarily on the
requirements for unique instrument identification, the challenges associated
with business entity identification and the importance of creating a
consistent vocabulary within 15022. Discussions have been very positive and
I look forward to getting SIA more involved in the activities of REDAC.
REDAC General Meeting
More than 60 people attended the REDAC General Meeting on June 20. Steve
Kelly (Goldman) provided the group with an over of REDAC structure and
activities. Jim Leman (Citigroup) gave an update on the relationship
between REDAC, FIX 4.4 and the SIA standards coordination activities. Sandy
Throne (DTCC) gave a presentation on ISO standards and procedures. FISD
gave a presentation on the REDAC approach to issue management and what we
are doing to ensure coordination of activities on a global basis. Interest
was high and the feedback has been extremely positive.
REDAC the Practical Challenge
ISO Standards and Procedures
