‘Feature, not a bug’: Bloomberg makes the case for Figi

For decades, the US government has been exploring ways to modernize the collection and dissemination of financial information to make reported data more transparent, consistent, and useful to regulators, investors, and consumers. These efforts culminated in the enactment of the Financial Data Transparency Act (FDTA) of 2022. 

The act directed nine US financial regulators, including the Federal Reserve, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC), to jointly establish new data standards that support easier collection and dissemination of information by the agencies. It specifically requires the agencies to include in the new joint standards the use of “common identifiers” that are non-proprietary and available free of charge under an open license.

On July 28, the group came out with their initial conclusions, indicating the set of common identifiers that meet the rigorous standards set forth under the FDTA for both entities and financial instruments.

While US government agencies don’t always agree, their conclusion was very clear: The Financial Instrument Global Identifier (Figi) is the appropriate identifier that fits the bill for the identification of financial instruments. Developed by Bloomberg, the Figi became a free, open data standard in 2014 after Bloomberg assigned all rights and interest in it to the Object Management Group (OMG), an international, non-profit open-membership standards consortium.

To dispel some of the myths about the Figi, we offer the following information on its benefits for regulators, investors, and consumers.

Figi is a publicly available identifier that uniquely identifies financial instruments across all asset classes and comes with core metadata that enables that identification. Just like the Cusip, the Figi is accredited as a US national standard. But unlike other financial identifiers, the Figi is in the public domain with no commercial terms or restrictions on usage and is available free of charge for use by all market participants. 

It works in concert with other identifiers like the Unique Product Identifier (UPI) and the Classification of Financial Instruments (CFI), and was built to be interoperable with other standards and identifiers, regardless of whether those other identifiers are open or proprietary.

Figi usage

One of the arguments being made against the use of the Figi is that it is “untested”. In fact, it is already widely used by market participants, with 15 billion downloads of Figi data per month, and growing. And far from untested, it is already used for SEC reporting, including in institutional ownership reports. Next year, Figi will also be used in connection with reporting private fund data, as well as for short position reporting and securities lending reporting. The agencies were looking for a proven, demonstrable track record and found it with Figi.

The standard covers financial instruments globally and across asset classes, including common stock, derivatives, corporate and government bonds, as well as those that previously lacked standard identifiers, such as crypto assets and loans. In fact, there are many financial instruments that are not reported with an identifier or use the wrong Cusip today because of a lack of coverage or as a workaround. Using the Figi, these instruments could be reported with an accurate, specific, and permanent identifier.

‘Fungibility’

Another word that has been thrown around a lot in this debate is “fungibility,” which describes the ability of the same identifier to represent a single security regardless of where it trades. The concern of some is that Figi—by providing an option to identify the exchange on which an instrument is traded—will cause confusion in the market. This is wrong as a practical matter but also as it relates to key objectives of the FDTA. 

Figi is not just a financial identifier, but also an innovative data model supported by metadata. This allows Figi to provide data at the common share class level like Cusip, but also gives access to additional granular information at the country and exchange level for stocks that trade on multiple venues or different countries and currencies. 

This is a carefully developed feature, not a bug. For the purposes of regulatory oversight, the capacity for the industry to expand and collapse trading at a venue level as a free additional function is an enormous asset.

Cost concerns

Champions of other identifiers will argue that the FDTA’s Figi recommendation will cause a costly re-build of reference data infrastructure. Within the context of the Figi versus Cusip debate, it is hard to see how utilizing a free open-source identifier for government reporting will result in greater costs than reliance upon a proprietary service. More broadly, Congress and the agencies have clearly concluded the benefits outweigh the costs. We agree with their expert assessment.

Other questions have been raised about whether the FDTA is just about entity identification. The statute, which is the culmination of years of discussion on securities-level identifiers, is clearly about harmonizing data broadly. The idea that not one, not two, not three, or four, but all nine US financial regulators are wrong on this point is baffling.

Despite this, some have argued that the application of the FDTA to securities-level data would cause market disruption. This is nonsense. Congress certainly has sought to promote market stability and the agencies proposing the FDTA’s rules are experts on and tasked with ensuring financial stability. The effort to improve the efficacy of identifiers is driven by the Financial Stability Oversight Council (FSOC), its members, and its Office of Financial Research.

It is also worth underscoring that the purpose of the FDTA is to facilitate the use of data that is required to be reported to the federal government. It has zero impact on the use of identifiers for other purposes, including trading and clearing. We will continue to see multiple, complementary identifiers that serve multiple, different purposes. The market is already well served by these complementary identifiers.

Finally, nine US agencies expressly rejected the Cusip and the Isin for the purposes of financial reporting under the FDTA. These actions are consistent with prior US government recommendations to consider ending preferential treatment for the Cusip—for example the SEC’s 2021 decision to permit the use of Figi for 13F filings. 

Rejection of Cusip flows from the FDTA’s statutory mandate to provide open-source, non-proprietary data that permit consistent identification of data elements and assets—a goal which would be thwarted by the fact that two different assets can be identified by the same Cusip and the same asset can have two or more Cusips over its life.

In advance of the release of the proposed rulemaking, some sought to guess where the agencies were heading. Now that we have the advantage of seeing the conclusions of the regulatory establishment, we believe implementation of the FDTA—with its reliance upon open-source data—will increase the utility of data provided to the government, enhancing transparency and market efficiency. We look forward to the next step in this process.

Steve Meizanis is the global head of symbology, Figi and LEI services at Bloomberg. Richard Robinson is the chief strategist of open data and standards at Bloomberg.