Instrument Classification Challenges Spark Call for Standards Review

Messaging standard ISO 20022 may help improve the system for accurately classifying financial instruments, according to a speaker at the International Securities Association for Institutional Trade Communication (ISITC) Europe quarterly meeting in London on July 15.

In relation to the management and timely maintenance of classifications, London-based Martin Sexton, consultant at London Market Systems, said one of the options worth exploring is to manage instrument classifications in the ISO 20022 repository.

“The repository contains hundreds of code lists and, at the end of the day, a classification is merely a code list, albeit with structure,” he said.

The question is if the existing Classification of Financial Instrument (CFI) standard, ISO 10962, can be used as a starting point, or if there is a need to develop a new standard.

London-based Paul Kennedy, business manager, reference data, Interactive Data and audience member at the ISITC meeting, questioned whether the industry should look to the CFI standard to try to overcome the global instrument classification challenges the industry faces today.

“The CFI would have to evolve from where it is today, as in its current mode it has not been deployed universally. Perhaps a redesign of the CFI standard within the International Organization for Standardization (ISO) could be the more appropriate way forward,” said Kennedy.

Sexton said the current CFI standard, made up of six characters, lacks granularity, and would not be fit for purpose.

Speakers said the variations between different versions of the standard continue to cause complications, and some questioned how much longer the industry will be willing to put up with challenges related to using the current system before developing a new standard.

“It could be better to go for a classification with specific requirements clearly defined. I believe we have to go back to basics, look at the requirements,” said Sexton.

Many organizations have already created classifications internally and these are all fairly similar, he said, adding that it may just be about consolidating those efforts and moving forward from there, he explained.

Meanwhile, discussions around whether the existing Classification of Financial Instrument standard, ISO 10962, is fit for purpose are not new. Earlier this year, the EDM Council announced it was aiming to compile a list of requirements for the code to send to the ISO, following concerns from members that the revised version of the code will be complex to use (Inside Reference Data, April 2010).

Carla Mangado