Users Call for Uniform Exchange Symbology Standard

New York - Following announcements of changes in exchange symbology in the US, data consumers have come together to propose the introduction of an industry-wide product symbology standard, officials tell Inside Reference Data.

The issue, which was also in the spotlight two years ago, when market participants warned that several ongoing symbology initiatives could lead to inconsistencies and implementation issues, has been raised again as listing exchanges start preparations to begin using five-character root symbols.

In November 2008, the SEC approved its exchange symbology plan, the National Market System Plan for the Selection and Reservation of Securities Symbols. Since April 2009, exchanges have been eligible to implement five-character symbols, and several exchanges have now announced their project plans.

In March, Nasdaq announced it will introduce new trading symbology, effective from September 1, 2010, in preparation for the industry's listing and trading of five-character root symbols. "Nasdaq will introduce new symbology as permitted by the National Market System Plan for the Selection and Reservation of Securities Symbols," says a company spokesperson.

BATS has also updated specifications to accommodate up to eight-character long symbols, while the NYSE has no plans to introduce five-character symbols at this point. "We recognize the need for a common symbology and have been talking with our member firms and other exchanges about working toward this, and will have more information on the subject soon," says an NYSE spokesperson.

Market participants are concerned they will dedicate resources to fix the symbology changes that have already been announced, and that there will be more changes going forward. Instead, data managers suggest there should be one uniform symbology project where all necessary changes could be made once.

The introduction of the five-character root symbology was intended to create a level playing field between exchanges, as it is typically important for listed companies to keep the same symbology when moving from one exchange to another, and from April 2009, this should in theory be possible.

The problem for users is the varied changes and timelines, and in response to this, industry association Financial Information Forum (FIF) sent a letter to the US Securities & Exchange Commission (SEC) in March, raising concerns about the implementation impact of the changes and inconsistencies in the market.

A spokesperson at the SEC says: "We understand the exchanges are exploring ways to resolve their differences."

FIF called for the SEC to get involved, and highlighted the need for a uniform suffix convention. In the letter, it asked the SEC to either suggest to International Standards Reservation Authority participants to postpone the introduction of five-character root symbols until a consistent approach has been set, or urge them to create a uniform suffix symbology that is easier for the industry to adopt.

New York-based FIF advisory committee chair Tom Jordan, says he is positive the situation will be resolved. "I think they will come up with a consistent way of doing it," he says.

The Need to Go Global

Meanwhile, some market participants say the call for a uniform symbology could also be taken to an international level. "It would save the industry an enormous amount," says a data manager. The international open product symbology standard could set guidelines for what the exchange symbology should look like - should there be punctuation, decimals, suffixes or intelligent keys?

"I think we should be thinking about an international standard. If we had that, we could at least build our databases the same, and we would be able to unambiguously communicate to our counterparties, exchanges and industry utilities, which would increase efficiency, interoperability and reduce operational risk," says New York-based Norman Brower, executive director, reference data solutions, Morgan Stanley, adding there is no wrong or right in terma of what the standard should look like, but "wrong is not having a standard, right is having a standard."

Yet, some suggest the industry must start small and get it right in one region to prove to the market it is possible to agree on a standard before taking it global. FIF's Jordan says it is a big undertaking to take it to an international level, but if you can get the two largest exchanges in the US involved, it would benefit the market.

Still, the lack of standard product symbology is a recurring theme. There are clear benefits of agreeing on a standard from an operational and cost perspective, and it has been talked about for years. "It could help us simplify our systems, and we could have consistent modelling," says Brower, explaining that having a standard international specification would mean the firm could build the system once, and stop having to put symbology projects on the road map on a regular basis.

Princeton, New Jersey-based Ed Ventura, president, Ventura Management Associates, says the symbology issues have always created a high degree of exception processing and overhead. "With standards in place, along with the move to centralized clearing for all transactions, some of these issues will be significantly reduced if not fully eliminated. The benefit to the industry is clear: less breaks, which means greater accuracy and improved timeliness," he says.