Bloomberg’s Figi extends crypto inroads

In markets, as in the natural world, order is often born from chaos. Just like an erratic swarm of bees building a carefully structured hive, the moments of greatest turmoil in finance can be the crucibles for an enduring organizing principle.

This was how the Cusip system was born, for example. In the 1960s, when US stock markets were overwhelmed by record trading volumes, the New York Stock Exchange had to shut down for part of each week to allow the back office to catch up with the pace of transactions. To address the problem, an industry working group got together and designed a code to uniquely identify securities, helping firms and market infrastructures to work out exactly who owned what.

Many more types of identifiers have emerged since then, but the circumstances are often similar—when a particular market grows or encounters some new pressure, identifiers come into their own.

The past few years have been particularly turbulent for cryptocurrency markets, which have enjoyed spikes in trading volume as well as periods of instability and ignominy. Yesterday, crypto prices swung dramatically after rumors that the Securities and Exchange Commission had approved bitcoin ETFs in the US—rumors that were confirmed later in the day. Such fluctuations underline the need for systems supporting the effective functioning of crypto markets.

Identifiers are beginning to answer that need. Bloomberg, the registration authority of the Financial Instrument Global Identifiers (Figi), has now extended the identifier’s coverage to incorporate almost 8,000 crypto assets. The milestone reflects the growth of crypto markets as well as the increased uptake of classification standards in the rapidly developing sector.

Like most other identifiers, Figis can be assigned to a range of assets. Alongside Kaiko, a crypto data provider and the sole certified provider of Figis apart from Bloomberg, the data giant issued the first Figis for crypto assets in 2021, starting with Bitcoin and Ethereum instruments denominated in fiat currencies. Now, the two companies have identified areas where cryptocurrencies are increasing in volume and ramped up issuance, making Figi the most widely used open identifier in the space.

Ambre Soubiran, CEO of Kaiko, says that the expansion of the Figi beyond traditional asset classes “marks a significant step in standardization efforts. By offering a consistent identification system, Figis enhance transparency, simplify regulatory compliance, and ultimately lead to greater market efficiency.”

Code names

In its simplest form, an identifier is a code made up of letters and/or numbers that points toward a particular thing or category of things. In financial markets, they act like bar codes in a shop, helping firms to keep track of what assets they have in stock and what they have traded.

But identifiers are also just one part of a layer of associated data that provides more descriptive information about an instrument.

“An identifier is an intrinsic part of your reference data. A bond, for example, will have maybe 50 different fields explaining what that bond is. Things like the term, the yield, the date of maturity, the issuer, etcetera. And included in there will be a unique identifier. If you don’t have one of those, you have to collect the reference data from source for the data to be usable by an institution. And if that identifier is owned by a third party, it’s going to be expensive for you to get access to it. Plus you’re going to have to match that identifier with your copy of the reference data,” explains Tim Baker, managing director at software company Expero.

For this reason, identifiers are often deeply entrenched within firms’ infrastructures, making it difficult for new identifiers to enter the field. The Figi lost its bid to get accredited by the International Organization for Standardization (ISO) in 2019, in a ballot fraught with politics and competitive interests.

Since that setback, Bloomberg adjusted its strategy, pursuing independent approval from the various countries that were sympathetic to the Figi in the 2019 ISO ballot. The identifier has become an official data standard in Brazil and the US. It has also been accepted by the Monetary Authority of Singapore for fund reporting, and mentioned in regulations in the UK, Australia, and Hong Kong in relation to specific use cases.

In the US, the SEC allowed investment managers to provide the Figi in addition to the standard Cusip for identifying securities when filing a transparency disclosure called Form 13F. In the first quarter after the change, 10% of investment managers used the Figi voluntarily, something which Richard Robinson, chief strategist of open data at Bloomberg, takes as an indication of the identifier’s popularity.

Still, he says, there is work to be done explaining the need for identifiers to markets, particularly given how esoteric the subject is. “People misunderstand them and don’t realize that ‘standard’ doesn’t mean ‘one thing for everything’. Because that’s too general to be of use to anyone. I liken it to nails and screws. There’s different screw types and different nail types for different materials that you need to put together. It’s very easy to see that in the physical world, but when you get into the digital space, the same problem still exists,” Robinson says.

One way in which the Figi differs from most other identifiers is that it is based on the MIT open-source license. This means that the identifier along with some metadata is available free of charge via the OpenFigi API and website, which are currently returning around 11 billion hits per month.

“All other identifiers are just the identifier, and you have to somehow get the descriptive information afterwards. But Figi is an identifier driven by descriptive information—on the exchange level, the asset level, etcetera,” Robinson says.

Figis are assigned at three different levels: asset, currency pair, and trading platform. This means that within the metadata for a single crypto Figi, users can find associated information and incorporate it into their data model. 

“You might say, ‘I just want to trade Bitcoin’. But how do you trade that? You trade it against another currency. So now there’s a pair involved. That means you have to identify the other side—for example Bitcoin/Ethereum. But it’s also traded on five different exchanges. And they’re not really fungible because if you bought it on one exchange, you can’t sell it on another. So for pricing, valuation, and inventory management, you need to know exactly what exchange you have a particular asset on and what you’re evaluated and traded against,” Robinson says.

Cryptic crypto

With regulators struggling to work out how exactly cryptocurrency markets should be overseen, sources agreed that identifiers would be a key step in bringing transparency and efficiency to the sector. 

“There’s definitely a need for an identifier. The challenge with crypto is that it’s a distributed market—it doesn’t have an exchange. There isn’t a centralized authority like an SEC who can dictate how this stuff should work,” says Expero’s Baker.

Due to the lack of established standards and the sheer number of available currencies, the cryptocurrency market is particularly convoluted.

“One of the issues that Kaiko came to us with is that every exchange had its own numeric or alphanumeric. So BTC, ETH, or BTX… All different ways of expressing the same thing. And then maybe they had a ‘dot something’ to signify the exchange,” Robinson says.

Kelvin To, founder of data management and analytics provider Data Boiler Technologies, points out that almost one in five Americans are now investing in crypto. With a mass market comes the need for standardization and structure, he says, and those who succeed in getting their scaffolding in place first can reap big rewards.

“Financial institutions are building the infrastructure. They are building all the bridges and toll roads. And when transactions flow across the highway, they can charge rent on it,” To says.

The Figi is free to use and under the governance of the standards consortium Object Management Group, but some market participants are concerned that if the Figi gained a dominant position in the identifiers space, Bloomberg could use the vast web of data attached to the Figi to make its own data more attractive, pulling more paying clients into its ecosystem.

Expero’s Baker says that an identifier provided by a big player like Bloomberg will always have a hard time gaining the industry’s trust. “Even though it’s open source, and it’s independently run, I think there’s always going to be a level of suspicion,” he says.

But in the world of crypto, there are also advantages to having an identifier provided by a big name, as DataBoiler’s To points out. “Institutional players in the crypto space will welcome this,” he says. “It signifies that TradFi’s job of resurrecting DeFi is complete. Before, people were asking, ‘What is FTX? What is Coinbase?’ Now everyone recognizes the brand names of players involved in the crypto space.”