Reference Data Bible - FISD

Unique Security Identification - Issues, Definitions & Examples

The global movement to shorter clearing and settlement cycles is driving reference data, symbology and unique security identification issues into the forefront of the financial information industry’s agenda.

The challenges associated with numbering schemes start by recognizing that financial institutions buy and sell a variety of instruments -- that can be issued, priced, traded and settled in many ways. As such, different types of identifiers are relevant at various levels for a variety of functions. The underlying problem is that the international standard (ISO 6166 ISIN) alone is not sufficient for the automation requirements of STP. ISIN is a unique issue identifier, but it is not always a unique security identifier. ISIN alone is not sufficient for unique identification because one ISIN can be shared among offerings in multiple locations where each offering may have slightly different characteristics that nonetheless have significant impact.

This example of Siemens Common Stock (despite the fact that the illustration is dated) provides a good illustration of the challenge. The issue is listed on three markets – Frankfurt, Zurich and Paris. The Frankfurt and Zurich listings are registered in Germany. The Frankfurt listing trades in Euros and the Zurich listing trades in Swiss Francs. The Paris listing is registered in France and trades in Euros. The Frankfurt listing can also be traded on Tradepoint.

Issue	Siemens Ords
ISIN	DE0007236101
Register	DE			FR
Market	Deutsche Boerse Frankfurt	Zurich	Tradepoint	Euronext Paris
RIC	SIEGn.f	SIEGn.S	SIEGn.TP	SIEGP
SEDOL	5727973	5735233	5727973	5751615
CCY	EUR	CHF	EUR	EUR

ISIN Alone is Not Sufficient

• ISIN is a unique issue identifier, but not always a unique security identifier.
• ISIN alone is not sufficient because one ISIN can be shared among multiple offerings in multiple locations.
• ISIN is valid for front-office systems and for aggregation of global positions.

Official Place of Listing

• The official place of listing (OPOL) identifies primary and secondary markets where the security is listed. In this example, the OPOL is Frankfurt, Zurich and Paris.
• OPOL is needed to assist in differentiating the security in the case of multiple listings. A market issuance in multiple locations will be subject to different settlement, pricing, tax/corporate event treatment, and allocation of national numbers.

Register Level Identifier

• Register is the “place” where legal records of security ownership are held. This security attribute is important for determining transferability across markets and to help route the security to the correct place of settlement and holding.
• Register can span different listed securities and different currencies, can be inferred from OPOL, and must be known at the point of trade execution to ensure that the risk is manageable.

Event Related Identifiers

• There are attributes associated with financial instruments that are not “identifiers” but are still critical data elements.
• CSD Bridge Link details are used to determine if a security can be delivered from one place of settlement to another and must be present at the time of a trade decision for risk management purposes. CSD Bridge Link identifier does not exist.
• Place of trade is needed as a practical matter for due diligence and market compliance (i.e. for trade execution problems, transaction related taxes, trade related statistics, etc.). Place of trade is also an attribute of the trade.

The core problem is that there are too many numbers but none that uniquely identify all attributes required to the necessary level of granularity for precision. ISIN is needed as the issue level identifier for aggregation of positions. OPOL and register are indicative data elements that are attributes of a security, known by issuers and can be collected. CSD bridge link and place of trade are attributes of a transaction and important. The fundamental security identification problem is the inability to derive OPOL (and possibly register) from ISIN.

The industry needs identification numbers to be accurate to facilitate the objectives of automation and risk management. All instruments that are traded should have a number and that number should be accurate, timely, well maintained, precise and available/usable on reasonable terms and conditions – and satisfy the full lifecycle of a trade, from decision making to execution, through settlement, reporting, valuation and position keeping.

Current Status of Discussions

This issue has been actively discussed among FISD members, ANNA and numbering agencies since April 2001. The results of FISD research on the “requirements for uniqueness” have been evaluated and validated by practitioners from a diversity of segments within the industry – as well as by the LSE research associated with extension of SEDOL. Four options for addressing the issue have received the most attention.

1. Market data vendors agree with the definition of the problem and have addressed it as part of the design of their proprietary symbology. There are significant commercial and intellectual property challenges that would need to be addressed to apply a vendor proprietary symbology to address this issue on an industry-wide basis.
   
2. ANNA agrees with the definition of the problem but maintains that its members (numbering agencies that are not exchanges) are not in position to guarantee the collection of OPOL and register level information.
   
3. The ANNA Service Bureau is in position to collect OPOL and link it to ISIN and is interested in doing so – but has not received authorization from the ANNA members to provide this additional data product as part of the ISIN feed.
   
4. The London Stock Exchange agrees with the definition of the issue and has proposed the extension of SEDOL to address this problem. LSE is moving forward with its plan to extend SEDOL.

Clarification of SEDOL Proposal

LSE is a member of ANNA and is the national numbering agency for the UK. LSE has been operating its Security Master File (SMF) service for 30 years and currently provides information (including global SEDOL codes) on over 400,000 securities traded on UK and international markets.

LSE is running out of numeric SEDOL codes and is moving to alphanumeric codes to address this problem. This is the primary motivation for the extension of SEDOL. In addition, LSE understands and agrees with industry requirements for unique and precise security identification and believes that it can address this problem by adding data elements/new fields to the SMF service. Here is an overview of the LSE approach:

Current SEDOL Service	Proposed SEDOL Service
7 Digit Numerical Code	7 Digit Alphanumeric Code
SEDOL allocation at Place of Listing Level (OPOL) but not comprehensive	SEDOL allocation at Place of Listing Level (OPOL) for listed securities (multiple SEDOL codes for a security in the case of multiple listings)
Links between SEDOL and ISIN	Links between SEDOL and ISIN (multiple SEDOL codes will be linked to a single ISIN in the case of multiple listings)
New SEDOL codes issued in 3 working hours	New SEDOL codes issued in near real-time via 24/7 web browser
Foreign securities allocated SEDOL codes on request	Proactive allocation of SEDOL codes for all listed securities (listed fixed income and listed equities)
On request assignment of SEDOL codes for instruments that are not officially listed	On request assignment of SEDOL codes for instruments that are not officially listed
Corporate Actions not covered comprehensively for foreign securities	Corporate Actions covered comprehensively
End of Day Feed	Intraday Feed
No Internet Database Access	New Internet Browser access to database
MIC unpopulated (SEDOL codes do not indicate the place of trade)	MIC will be populated to identify where the instrument trades
Proactive maintenance of UK	Proactive maintenance GLOBALLY

LSE/SEDOL Terms and Definitions

Agreement on a common vocabulary in discussions associated with unique security identification is absolutely critical. Semantics and slight differences in terms and definitions create confusion in the industry and divert attention away from the objectives of these activities.

We suggest substituting Official Place of Listing (OPOL) for the use of the terms “market level identifier” and “country level identifier” in these discussions. “Market level” can mean different things. It can mean “exchange” or “official exchange” or “country” – depending on the application.

We further suggest elimination of the concept of “primary market” and “secondary market.” Most people agree that “primary market” means the first place of listing in the home country. The term “secondary market” can refer to a “place of listing” for true multi-listed instruments or for “exchange/ECN trading privileges.” The critical requirement is to identify where the precisely defined instrument trades. We suggest the use of the term “place of trade” to identify where an instrument trades. The place of trade can be identified using the MIC. The following is our recommendation of the requirement as applied to the LSE/SEDOL proposal:

• Unique issue identifier = ISIN: Important for security roll-up, risk management, overall position keeping and trading decisions.
  
• Unique instrument identifier = Official Place of Listing (OPOL) = SEDOL: Important for portfolio valuation, fungibility issues for multi-listed instruments, corporate action issues across OPOLs, risk across OPOLs/currencies, position keeping, settlement, VMU interaction (cross-bridge settlement, SSI) and arbitrage across currencies/markets/OPOLs.
  
• Intra-day trading identification = Place of Trade = SEDOL + MIC = vendor codes = exchange ticker codes: Important for intra-day pricing decisions, arbitrage and market compliance.

It is our understanding that many international security master systems use SEDOL at the Official Place of Listing (OPOL) level. The core complaint has been that SEDOL does not cover all listed instruments or all places where the instrument is listed – and therefore has not been a perfect link among other numbering/symbology schemes.

Changing SEDOL to reflect a numbering scheme at a Place of Trade level would have significant implications for most master database’s cross-referencing schemes – and make it very difficult to perform needed functions at the OPOL level. This would have serious and expensive ramifications for large global institutions. Extending SEDOL to cover all listed instruments, all places where the instrument is listed (OPOL) and all places where the instrument trades (MIC) would appear to solve the requirements for unique instrument identification with minimal implications to systems.

Unique Security Identification Project: Status of FISD Inquiry

As requested during the March 14 ANNA User Group meeting, FISD has been conducting an open inquiry into the requirements for unique security identification. We have held two working meetings in NYC, one in London and two via global conference call. Participants included representatives from the following organizations:

ADP, Bank of New York, Bloomberg, Bridge Information Systems, Capital Group, Chase Manhattan Bank, Citicorp, Credit Suisse First Boston, The Depository Trust Company, Goldman Sachs, HSBC, Investors Bankers Trust, J.P. Morgan/Chase, Lehman Brothers, Mellon Trust, Merrill Lynch, Metamatrix, Moody's Investor Service. 110 Ltd., Standard & Poor's/CUSIP, State Street Bank, S.W.I.F.T., Reuters, Swiss America Securities, Telekurs Financial, Thomson Financial, T. Rowe Price, Wachovia Securities

Our first objective was to document the security identification requirements for each segment of the industry by specific function (e.g. trading, investment management, pricing, settlement, clearing, compliance, position holding, risk management). Our second objective was to determine which of those identification requirements was an attribute of a security (e.g. in the domain of numbering symbology) and which was an attribute of a trade (e.g. in the domain of STP). Our third objective will be to translate the requirements into a proposed industry-wide solution.

Based on the results of our inquiry so far, we believe that a three-level product identification scheme will be required to help the industry meet the objectives of automation, cost-mitigation and reduction of trade failures -- including:

• unique issue level identifier (ISIN);
• identifier for place of official listing and
• register level identifier for settlement compatibility

The Problem

Financial instruments can be issued, priced, traded and settled in many ways. As such, different types of identifiers are relevant at various levels and are used to convey information about the market on which the security is listed, the clearing system through which the trade will clear, the CSD where the trade will settle and the register to record changes in security ownership. There are a number of reasons why a multi-level product identification scheme might be desirable. In particular:

1. New exchanges, ECN's and ATS's operate in markets where previously there was only one exchange. That means that a single security may be registered and traded on more than one exchange/ECN/ATS in the same geography. The proliferation of cross-border marketplaces also means that current identifiers (such as ISIN, CUSIP, SEDOL) can't be relied on to uniquely identify the market where an instrument trades.
   
   
2. Exchanges are developing multiple trading linkages allowing their members trading access to securities held on other exchanges. In essence, securities registered on one exchange may be traded on a linked exchange. Registers of securities are not exchange or country dependent and the same security can be registered across [in] one or many locations and traded in each. Where an instrument is held in more than one register, settlement issues can arise if client orders are taken/filled without explicit reference to the register required. At the point of trade (where reference is made to the register of the security) the speed of the transfer of different listed securities can be gauged. This would then prompt a decision on the suitability of settlement dates [of the ongoing delivery]. Where an instrument in one register can be traded on multiple markets, efficient operations processes will require a common identifier at the market level.
   
   
3. In addition, inter-depository links allow settlement to occur in multiple locations. In essence, the means of settling trades in an instrument is becoming less a property of the instrument, and increasingly driven by the market or counter-party preferences.
   
4. Finally, there are pricing/valuation/currency variations for a single instrument trading in multiple locations. Security pricing needs to be referenced at the market level

Consequently, the relationship between a security, an exchange, the price and a settlement system has become a multiple of the possible permutations of register, exchange/market center and settlement system for a security. As a result, ISIN alone no longer provides an unambiguous pointer to trade and settlement location -- or security price. The expectation is that historically rare trade failures associated with incorrect sourcing and delivery of securities will become a more significant problem.

Illustration

Issue	Siemens Ords
ISIN	DE0007236101
Register	DE			FR
Market	Frankfurt	Zurich	Tradepoint	Paris
RIC	SIEGn.f	SIEGn.S	SIEGn.TP	SIEG.P
SEDOL	5727973	5735233	5727973	5751615
CCY	EUR	CHF	EUR	EUR

This is an example of SIEMENS ordinary shares.

issue identifier (per the ISO-6166 standard and the ISIN Guidelines for fungibility) but not always a unique security identifier. One ISIN can be shared among separate issuances of a single security. As an issue identifier, the ISIN is important for front-office systems and for aggregation of global positions.

ISIN alone is not sufficien

t for unique identification because it cannot identify a specific listed security (or issue currency of each issuance).

The place of official listing identifies where the security was originally listed. In the above example, there are three places of official listing -- Frankfurt, Zurich and Paris. The place of official listing is needed to differentiate the security in the case of multiple listings. A market issuance in multiple locations will be subject to different pricing, tax and/or corporate event treatment. Some could argue that the Register value can be derived from a market indicator. The key problem is the availability of the Register value to all market participants.

ISIN + Official Listing is probably sufficient for unique identification since it is unlikely that two different registers will be used for an issue in a single place of official listing.

The preliminary conclusion from the discussions seem to suggest that all three elements -- ISIN, place of official listing, and register identifier -- are needed to uniquely identify a specific security.

Other Components of Uniqueness

Participants created a number of detailed documents outlining all the criteria needed to satisfy uniqueness as part of the inquiry process. The analysis included the requirements from the investment management, trading, custody, numbering assignment, pricing and risk management processes.

In summary, there was virtual agreement that issue identification, place of official listing and register/home CSD are all attributes of a security and required for unique identification. The other attributes including trading venue, settlement location, and place of safekeeping/clearing agency are all required for determining uniqueness but are attributes of a trade and in the domain of STP. For example:

• Place of Trade: Required for trade reporting and to determine entitlements
  
• Place of Settlement: Used in conjunction with ISIN will provide a specific settlement location identifier. Also can be used in pre-matching for T+1.
  
  In addition, there are other attributes associated with the security rather than the trade, that are not strictly "identifiers," but that may help clarify the identification.
  
• Currency: All forms of currency are needed -- home market, settlement, trading, and holding. Used for dividend payments, trade routing, position keeping.
  
• Holding details: Including place of incorporation, country of issue, issue type, trading incremmnet/lot size, unit/par, mat/demat, bearer/registered, DR designation and restrictions (such as limits on foreign ownership).