Regulators recommend Figi over Cusip, Isin for reporting in FDTA proposal

Last week, nine US regulators—including the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission—proposed to require the use of the Figi securities identifier in financial reporting to government agencies. The move comes among other proposed rules as part of the Financial Data Transparency Act, which seeks to establish the use of open-license and machine-readable data standards in communications between regulators and financial institutions.

In addition to endorsing XBRL formatting for the transmission of data and the Legal Entity Identifier (LEI) for entity identification, the proposal made recommendations for financial instrument identification. The agencies wrote that they had considered other leading identifiers such as Cusip and Isin, but instead endorsed the Figi, an open-license identifier developed by Bloomberg in 2009 and adopted in 2014 by a standards consortium called the Object Management Group (OMG).

“While these identifiers are widely used, they are proprietary and not available under an open license in the United States,” the agencies wrote.

The regulators also affirmed their endorsement of the UPI, launched last year by the Derivatives Service Bureau, for the reporting of swaps and security-based swaps.

The Figi was recognized as an official US data standard in 2021 alongside Cusip after lengthy fights to gain accreditation from both the International Organization for Standardization (ISO) and the Accredited Standards Committee X9, a non-profit body responsible for setting financial services standards with backing from the American National Standards Institute. While the Figi eventually succeeded in front of X9, efforts to secure favor with the ISO failed in a landslide 2019 vote that revealed the extraordinary passion and politics that enshroud standards-setting.

The Isin and the Cusip are machine-readable and both predate the Figi, having been created in 1981 and 1964, respectively. The Cusip and its licenser, Cusip Global Services, were created by the American Bankers Association, which maintains patent rights, while CGS is operated on the ABA’s behalf by FactSet, which purchased the identifier service from its former operator S&P Global for $1.9 billion in 2022, ending a 53-year partnership.

The 12-digit Isin is the primary identifier of financial instruments outside the US and Canada. The numbering system is governed and maintained by the Association of National Numbering Agencies.

In a statement, Cusip Global Services railed against the regulators’ FDTA proposal, saying that it contained a “fatal flaw that undermines the intent of the law and risks creating a costly and distracting operational challenge for financial market participants.” It disputed the usefulness of the Figi, writing that regulators overlooked its “fundamental” lack of fungibility, a quality that ensures consistency in the alphanumeric codes used to identify specific securities across venues.

As Cusip managing director Scott Preiss wrote in a recent guest column for WatersTechnology, the Cusip for Microsoft common stock—594918104—is the same at any execution venue. “With the Figi, by contrast, there is a different identifier for each exchange where Microsoft common stock is traded—a list of now more than 200 and growing,” he wrote.

“We are concerned that the administrative burden associated with requiring market participants to switch away from the Cusip and use a new and largely untested taxonomy for reporting financial instrument data will create unnecessary confusion and introduce significant new errors and costs for market participants, including individual investors,” Cusip’s statement continued.

As the FDTA is currently written, mandating use of the Figi in regulatory reporting won’t impact the use of Cusips or Isins in trading, settlement, or clearing, where the Depository Trust & Clearing Corporation requires Cusips in order submissions. It also won’t bring relief to firms who say that fees associated with market data and reference data are becoming untenable.

However, with CGS, the ABA, S&P Global, and FactSet embroiled in an ongoing antitrust case in the Southern District of New York, the regulators’ Figi endorsement may hint at further trouble down the line for the premier identifier of North American securities.

David Blaszkowsky, co-chair of the OMG’s Financial Sector Domain Task Force, says the Figi was developed under the auspices of OMG by industry experts, that it’s based on modern data methodology that takes advantage of the most current data methods and thinking, and that the Figi aligns with OMG’s open data principles and rigorous technical methodologies. He also notes that it identifies the full range of financial instruments, including crypto assets.

“[Figi] was adopted by industry participants based on industry needs. There is no obligation—as far as I’m aware—for companies to choose not to use other identifiers,” Blaszkowsky says. “This is about what the FDTA requires, and ultimately, what the individual agencies choose to mandate.”

Though the Figi is newer than some of its peers, as is its accreditation, it’s not an unfamiliar concept to the industry, nor is it precisely a taxonomy. Rather, it is a data model, and it is notably the only securities identification system to be created in this format.

A taxonomy is hierarchical, which means all lower levels of the system inherit all properties of the parent, like a tree. For example, the Classification of Financial Instruments, or CFI—an identifier used complementarily with the UPI for swaps, forwards, and non-listed options—is a taxonomy.

A data model is more flexible; whether that quality is a virtue or vice is up for debate. Each Figi iteration can represent the same things in different contexts. A Share Class Figi, which is assigned to all equities and funds, is the fungible and consistent iteration. Composite Figis include the security’s country and multilateral trading facility contexts in their make-up. The lowest level is an Exchange Level Figi, which represents the securities once they trade on an exchange.

In fixed income, fungible bonds have separate Figis prior to the “funge” date, according to its documentation. After the funge date the amount outstanding is increased on the original bond, and the Figi remains unchanged. The Figi also remains unchanged with the funged bond even though it is no longer active, according to OpenFigi’s asset allocation rules.

[Figi] was adopted by industry participants based on industry needs. There is no obligation—as far as I’m aware—for companies to choose not to use other identifiers

David Blaszkowsky, OMG’s Financial Sector Domain Task Force

According to API metrics from OpenFigi, there were 15 billion calls globally to the OpenFigi API in July, while there have been 85 billion API calls since the start of 2024. Much of this activity is for mapping jobs, in which users retrieve Figis corresponding to the other existing identifiers and map or reconcile those Figis to users’ internal records.

One reference data expert tells WatersTechnology that an issue with the Figi is that it doesn’t offer enough associated reference data in addition to a verbatim identifier in some cases, such as certain bonds. Using the example of a federal home loan bank bond, they say the Figi lacks some critical fields, such as call dates, obligor, associated LEI, bond type (such as fixed versus step-up) and associated yield calculation type, coupon frequency, and more. To get this information in one place, a user would need access to an alternative data source, such as the Bloomberg Terminal or Bloomberg Anywhere, which are proprietary and costly.

The source says this could complicate regulators’ and firms’ abilities to conduct in-depth risk assessments, create a new general transparency challenge, and cause users to incur hidden costs.

However, the proposal, as it stands, calls only for an open and non-proprietary identifier, for which Figi fits the bill. This supplemental reference data comes at a premium cost, whether it’s obtained from the Bloomberg Terminal, through a standard Cusip license, or from another data vendor.

“As the registration authority for the Figi (which is owned by the non-profit Object Management Group), Bloomberg supports the proposed joint standards, under the FDTA, to adopt the Figi as the official common identifier for financial instruments,” said Steve Meizanis, global head of symbology, Figi and LEI services at Bloomberg, in a statement to WatersTechnology. “The Figi is the only identifier that meets the requirements of the proposed rule, as it is open source, freely redistributable, and available at no cost to the public. Used by the industry for over a decade, OpenFigi.com gets over 15 billion API calls for the Figi and associated metadata per month, globally. The Figi’s innovative data model approach brings more transparency, interoperability, and flexibility to financial markets.”

The public comment period for the proposed FDTA joint standards will remain open for 60 days following publication in the Federal Register.