European Users Join Forces to Push for Revised ISIN to Replace the Use of Vendor Symbology

LONDON - European market data associations have come together to promote the use of a revised ISIN code and abolish vendor identifiers, officials tell Inside Reference Data.

Data consumers want to encourage data vendors to abolish the use of proprietary codes, and force vendors to only use ISIN codes in data products. The group, including users from the UK, Scandinavia, Germany, Belgium, the Netherlands, Switzerland and France, suggests regulators should force vendors to use ISIN codes, arguing that banks are regulated and depend on high-quality data.

According to the users, current practices are enabling data vendors to monopolize the market, and the service level is not fully transparent. The change in the use of symbology is expected to help improve data quality and solve many of the symbology challenges in the market today.

Zurich-based Frank Verstraeten, a member of the Swiss Information Provider User Group, says it would improve data quality and transparency if all vendors used a revised version of the ISIN code, or another open identifier standard rather than using proprietary codes. "I think it would also be an advantage to vendors as it would give them new business opportunities, and increase competition, which customers are requesting," he says.

In fact, there is widespread support for improving standardization in the reference data industry. Princeton-based Ed Ventura, president, Ventura Management Associates, says exclusively using a single, authoritative source such as ISIN codes would make securities identification consistent, which would theoretically provide for direct matching of trades leading to fewer breaks.

London-based Dan Kuhnel, chairman of the Association of National Numbering Agencies (Anna), says organizations come up with other security identifiers for a variety of reasons, but in reality nobody has to come up with a local identifier if its sole purpose is to uniquely identify a security.

Some market participants suggest the user group may be able to force the change through, even without regulatory involvement. "I don't see what's there to stop users saying we only want to do business with vendors who use ISIN codes. I don't see why they need legislators," says Bill Nichols, convenor of the ISO Working Group 1 (W^G1), covering the ISIN.

Yet, others suggest this has to come from the top. Ventura says forcing vendors to use only ISIN codes in their products will "absolutely require the establishment of regulations to develop and administer. There is no way something as such can occur without a mandate."

The change is also set to have significant ramifications for all market participants, and Ventura says firms would need to look at all their internal processes and systems to ensure there is capability to process on the ISIN. "This will require development time and expense," he says.

There is also a risk users will still continue with local identifiers and cross-reference the ISIN with local identifiers, which could impact data quality. Ventura says to avoid this happening the focus must be on allowing open sourcing without consumption fees, and it must be a requirement for all market participants, not just vendors, to use the ISIN code - issuers will need to use the codes, and the buy-side will need to use them to match the trades.

In fact, market participants also recognize the change will take time to implement. It is not easy changing the extensive use of local identifiers. London-based Paul Kennedy, European business manager, reference data, Interactive Data, says forcing vendors to only use a revised version of the ISIN code in their products could cause widespread disruption to clients as existing schemas can be deeply embedded into client systems and workflows. "We believe a more effective solution is for vendors to be able to incorporate the clients' symbology of choice within their services, allowing the vendors to use their cross-referencing capabilities to help meet client needs," he says.

Meanwhile, the idea proposed by users is that the ISIN code should be revised to cover all asset classes, products and markets to facilitate the move and reduce the need for local identifiers. At the moment, the ISIN does not have the same coverage as some of the proprietary codes.

Revised ISIN Update

Yet, the coverage of the ISIN is already about to be expanded. W^G1 reconvened in 2008 to provide a draft international standard (DIS) for the five-year review of the ISIN standard, and the group submitted the updated standard to ISO in late December. The group proposes expanding the standard to cover new areas, including structured products and contracts for difference, and clarified the process to expand coverage for new instruments, with additional guidelines to Anna, to avoid requiring changes for every new type of instrument in the future.