FISD General Meeting

1
FISD General Meeting

• 23 March 2004
• Hosted by Euronext
• Paris, France

2
General Meeting Agenda

• FISD New Operating Structure
• Market Data Business Issues
• Billing and Reporting
• Data Usage
• Fragmentation Roundtable
• Securities Processing Automation
• Reference Data Standards
• MDDL
• Industry Standard Distribution Protocol

• Industry Updates
• FISD Meeting Schedule and Operations
• Reception hosted by

3
FISD Recent Highlights

• Operations
• Membership stable (95 companies)
• New FISD governance structure adopted (12/03)
• FISD visibility and influence is growing
• Meetings strategy solidified
• Market Data Business Issues
• Billing strategy well received
• VRXML for reporting being adopted
• VRXML for electronic invoicing being discussed
• Data usage/redistribution activity initiated
• Regulation
• Activity heating up on a number of fronts

• Securities Processing Automation
• MDDL 2.2 launched
• mddlQuery and mddlService specifications
  initiated
• fisdMessage at beta
• Reference Data Coalition (REDAC) working (ISITC,
  SIA, RDUG, ISO)
• UII recommendations adopted (LSE and ASB)
• REDAC/RDUG/ISITC Working Group on UII
  implementation
• FISD named as direct liaison to ISO TC68/SC4
• FISD invited to serve on WG8 (business entity
  identification) and WG11 (market data model)

4
FISD Operating Structure
5
FISD Operating Structure

• Overall goal is to operate more effectively (plan
  for growth, use of available resources, more
  efficient decision making, leverage our position
  as the global representative of the market data
  industry)
• Four New Advisory Committees
• Market Data Business Issues (issues affecting the
  business of market data including
  billing/reporting, contracts, data usage, MD
  policies)
• Securities Processing issues (issues affecting
  automation of securities processing including
  reference data, MDDL, symbology, data
  distribution)
• Operations (issues affecting FISD including
  membership, meetings, data quality, web
  communications, budgets)
• Governance (issues affecting FISD members
  including appointment of Executive Committee,
  external relationships and the development of
  FISD regulatory positions)
• Projects are managed by Working Groups (billing,
  VRXML standard management, redistribution, MDDL
  and reference data)
• All members are characterized by interest code
  (update your records and the records of your
  colleagues!)

6
Market Data Business Issues

• Overall Objectives
• Protect intellectual property rights
• Reduce the cost of administration
• Improve the accuracy and efficiency of billing
  and reporting
• Simplify inventory reconciliation
• Rationalize contracts and market data usage
  policies and procedures
• Simplify and automate market data procurement

7
FISD Billing Strategy (Summary)

• Initial objectives are about building a standard
  infrastructure for efficient market data
  administration
• Focus is on the entire information chain (not
  just exchange reporting)
• Incremental progress is OK but it must be in
  line with the overall strategy
• Strong business case and industry alignment is
  needed because administration is not the top
  industry priority
• Its time to start thinking (again) about
  creating a central billing and reporting utility

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Billing Strategy (infrastructure steps)

• VRXML to become the global reporting and
  invoicing format (standard input/output and
  common glossary are fundamental)
• Standardize data elements into the VRXML glossary
• Precision, transparency and consistency
• Standard naming conventions
• Controlled vocabularies
• Document all reporting validation rules
• Take advantage of VRXML schema
• Business rules repository is possible
• Promotes (but does not require) uniformity

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Billing Strategy (infrastructure)

• Modify VRXML as the global invoicing standard
• Entire information chain (vendors as well as
  exchanges)
• Automatically map to inventory (simplify
  reconciliation)
• Electronic DAD using VRXML format and glossary

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Current Status of VRXML

• Interest is high, but adoption is slow
• Eight exchanges are taking a serious look
• Seven vendors are in the process of reporting to
  NYSE
• Three inventory systems can generate VRXML
• TCB is a service facilitator
• VRXML mapping and implementation assistance by
  FISD
• IPUG supports the strategy
• VRXML Standard Management
• Glossary Committee exists
• Change management procedures being defined
• FISD is registration agency and maintenance
  authority

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Next Steps

• Electronic invoices
• Users want VRXML reports from exchanges and
  vendors
• Common format for mapping into inventory systems
• Task define where VRXML can be used throughout
  the administration cycle
• Lots of talk about direct reporting and billing!
• The procurement side of the equation
• Account set up and authorization
• Contractual issues
• Standard naming conventions

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Central Reporting Utility?

• Business case is as a mutual entity (all the key
  players are already FISD members)
• VRXML (common infrastructure) makes the concept
  viable
• Utility objectives
• Manage, extend and implement VRXML on an
  industry-wide basis (overcome inertia)
• Collect usage information from subscribers
• Aggregate reports and reconcile errors
• Issue standard electronic invoices
• Collect/remit payment
• Could serve all industry segments, but should
  start with exchanges (centralize the
  administration of exchange fees and remove the
  burden from the vendors)
• Is this idea worth taking to the next step
  (development of a detailed business plan)?

13
Market Data Policy

• Activity in four core areas
• Data usage (redistribution and derived works)
• Subscriber and click on agreements
• Unit of count and multiple access fees
• Enterprise licensing
• Data usage/redistribution is top activity
• Top challenge is still about controlling market
  data redistribution in datafeed environments
• Agreement on the shared objective of protecting
  intellectual property rights and promoting
  widespread (legitimate) data redistribution

14
Market Data Redistribution

• The core problems still exist
• Vendors dont have control over downstream
  redistribution (datafeeds)
• Policies are complex with lots of varieties
• Compliance is covered by contracts that are open
  to interpretation
• Compliance involves many people that dont always
  know about, understand or care about the
  practical side of market data rules
• And yes there are some outright data pirates
• This challenge affects all segments of the market
  data industry

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Redistribution Working Group

• US Futures exchanges (en masse) at WFIC
• Verified and interest by exchange members
  (global)
• Issue definition and prioritization meetings (3)
• Basic plan of action developed
• Informal discussions with FISD members (all
  segments) additional verification
• Redistribution Working Group approved by FISD
  Executive Committee (December 2003)

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Redistribution Outline

• Hypothesis - The lack of control over
  redistribution can result in under reporting,
  unauthorized redistribution, unfair competition
  and revenue leakage (verified)
• Redistribution Categories
• Within Financial Institutions (authorized to
  receive and redistribute -- wants to comply with
  policies)
• Web Sites (market data is a secondary component
  of the application and some outright pirates)
• Electronic Trading Engines (fee waivers to
  encourage electronic trading can exchanges put
  the cat back in the bag?)
• Derived Data (do exchanges and vendors have the
  right to charge for use of proprietary data in
  the creation of derived products?)

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Redistribution - Four Core Issues

• Contractual and Licensing
• Flexible terms and conditions for a wide variety
  of applications
• Simple and cost effective to administer
• Rational enough to ensure compliance
• Communication Mechanisms
• Clarity of market data policies for all
  applications (real world)
• Ability to communicate requirements throughout
  the information chain
• Entitlement Control
• Difficult to track downstream applications
  (multiple redistribution channels)
• Willingness/ability of vendors to assume
  liability for data they cant control
• Business Models and Pricing
• Flexible price/value models to cover a wide
  variety of applications
• Ensure a level playing field without
  cannibalizing existing revenue streams

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Redistribution - The Initial Focus

• Control and management of market data usage by
  financial institutions
• Authorized to receive/redistribute data
• Fully intend to comply with policies
• Under reporting and unauthorized redistribution
  is assumed to be either a misinterpretation of
  obligations or a breakdown in communication about
  requirements along the distribution chain
• Exchanges view redistributors and institutions as
  partners in this initiative

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Redistribution The Initial Approach

• Compliance letter to compliance officers within
  financial institutions
• Four steps
• Understand obligations (proprietary rights
  framework and contractual requirements)
• Provide accurate and timely reports (compliance
  begins with good reporting see VRXML)
• Establish effective internal processes and
  procedures (technical and administrative)
• Open a dialogue with the exchanges (compliance
  can be complex dont guess or ignore)

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Redistribution Other Ideas

• Market data compliance toolkit -- to help
  institutions audit their use of market data and
  implement effective policies and procedures
• Amnesty and safe haven incentives -- to
  alleviate concerns about admitting past errors
  and getting back on track
• Education and awareness materials -- to spread
  the gospel about proprietary property and the
  importance of compliance
• Ongoing FISD dialogue on the rationalization of
  market data policies as appropriate

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Fragmentation Roundtable

• Open discussion on the factors driving change in
  the global financial industry and what they
  mean for FISD members
• Global battle for liquidity
• Technological change
• Globalization
• Regulation
• Economics and business models

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Securities Processing Automation

• Establish a common reference data infrastructure
  for securities processing to help reduce costs,
  manage risk and meet regulatory requirements
• Provide a coordinated global voice on SPA
  requirements and priorities
• Influence the ISO standards process to ensure the
  output is consistent with industry requirements
• Monitor the standards implementation to ensure
  that the results are functional, operationally
  viable and commercially acceptable

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Reference Data Connection

• Reference data is in the spotlight
• Inconsistent/inaccurate reference data is the
  cause of internal STP failure
• Over 30 of transactions break because of poor
  quality reference data
• Costs to repair trades .. to correct mismatches
  from settlement delays to maintain security
  master files and from trade failure are
  significant
• Reference data is everywhere, decentralized and
  relies on manual operations (40 of a trade
  record)
• Global information architecture and reference
  data push to normalize data, synchronize master
  files, reduce infrastructure costs and promote
  information exchange
• Data standards are needed to facilitate automation

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Four Pillars of Reference Data

• Goal is to reduce costs and manage operational
  risk (efficiency is the mantra)
• Four core components
• Identify all financial instruments (multiple
  listings)
• Identify all business entities (processing
  efficiency and regulatory compliance)
• Identify all data elements associated with the
  financial instrument lifecycle (TDR)
• Define a common distribution protocol for
  accurate and efficient processing

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Instrument Identification (UII)

• Precise instrument identification is fundamental
• ISIN alone is not sufficient (multiple listings)
• Official place of listing (OPOL) is needed for
  instrument identification
• Place of trade is needed for intra-day pricing
• FISD/REDAC paper on UII requirements (global
  validation)
• London Stock Exchange and ANNA Service Bureau
  product offerings both meet the criteria

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Instrument Identification (next steps)

• FISD/REDAC/RDUG/ISITC Working Group on UII
  implementation
• Document errors caused by UII problems by asset
  class and function
• Assess how issue can be resolved by adopting UII
  scheme (at 15022 message level)
• Cost/benefit analysis (business case) to
  establish implementation priorities
• Group is active. Additional specialists are
  needed. Get the right people within your firm
  engaged now (or dont whine at the conclusion)

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Business Entity Identification

• Real processing and regulatory compliance
  problems exist
• There is no international standard for linking
  legal entities and portfolios under management
• Identifiers are needed for
• Due diligence to set up new accounts
• Communication of trade processing information and
  for automated post trade allocation/settlement
• Regulatory compliance and timely reporting of
  transactional information and entity
  relationships
• Managing risk requirements for grouping entities
  (Basel II and G-30 recommendations

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Identifiers are Needed for a Variety of Functions

• Counterparty and Issuer
• Risk Management
• Basel II
• Internal risk mgt.

• Counterparty identification
• on Transactions
• Orders
• Trades
• Settlements
• Payments

Collateral Management

• Regulatory Reporting
• KYC and AML
• Financial Services
• Act
• Patriot Act

• Legal Agreements
• Documentation
• Account set-up
• Customer relationship

• Data Management
• Capture / Sourcing
• Look-up Cross-referencing
• Maintenance

Corporate Research
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Entity Identification (status)

• Working Group 8 (international business entity
  identification) has been approved by ISO TC68/SC4
• Mission to provide a global scheme for
  uniquely identifying all business entities
  playing a role in the lifecycle of a financial
  instrument
• WG8 is active. FISD is a member. There are lots
  of difficult issues to address.
• Practitioners and operational experts are invited
  to participate in the design/structure debate
• Get the right people within your firm engaged now
  (or dont whine at the conclusion)

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Standards for Content (MDDL)

• Standard terms, definitions and relationships for
  all market data elements
• Eliminate confusion about the meaning of terms
  regardless of source
• Ensure completeness of terms for any application
• Common data format for efficient processing
• Logical basis of any reference data strategy
  (information architecture level)

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Standards for Content (status)

• Working Group 11 (data model and market data
  vocabulary) has been approved by ISO TC68/SC4
• Mission to produce a data model that provides
  a single standard for describing a financial
  throughout its lifecycle
• All data elements and their relationships within
  the information chain from issuance thru asset
  servicing
• WG11 is active. FISD is a leading member.
• MDDL vocabulary will become an ISO standard
• FISD, FIX and SWIFT (15022) are all participants

32
WG11 Approach
Goal is to define the data model components with
enough precision to cover the full range of
processes and applications
33
Content Standards (status)

• The TDR component parts are real
• ISO is on board and moving relatively quickly
• Business process model already exists (WG10)
• 15022 data field dictionary already exists
• MDDL specification and vocabulary for market data
  already exists
• Practitioners and operational experts are needed
  to help define the business and data model. This
  one is MDDL essential.
• Get the right people within your firm engaged now
  (or dont whine at the conclusion) notice a
  trend here?

34
Industry Standard Protocol

• fisdMessage to compress streaming XML to be as
  efficient as existing datafeed distribution and
  it works!
• The business case for a standard distribution
  protocol is compelling
• Reduce costs one set of software to receive and
  distribute data means less infrastructure costs
  for integrating data from multiple sources
• Bring static (reference data) and streaming (real
  time pricing) applications toward the same market
  data content standard
• Users are interested because of the economies of
  scale in design, production and maintenance of
  datafeeds, processing systems and applications
• Plus the extensibility benefits of XML

35
The Standards Landscape
Ownership Stake
Telekurs
American Bankers Assoc. (ABA)
SP
CUSIP
Contracts
Maintains
ISO Standards
Part of ISIN
Local Identifiers(65 in total)
LSE
DB
SEDOL
CFI
ANNA
DUNS
Maintains
Developed
Ownership Stake
Registration Authority
BSI (UK)
ISIN
Business Entity Identification
Legal Entity Identification
Instrument Identification
ISO
ASB
SWIFT(Network)
MIC
US Representative to ISO
RDUG
REDAC
SWIFT(Reg. Authority)
BIC
Registration Authority
Facilitation
TC68
ANSI X9D (US)
SIIA
15022
Agreement to make ISO 15022 XML Aware
Membership
WG11
FIX Protocol Limited
WG8
CFI
WG10
TBMAAMF
ConvergenceISO 15022 XML
FISD
Adopting
Membership
Owns
Omgeo
Recommenda-tions
ISDA
FIX
ALERT
Developed
Adopting
Owns
Membership Involvement
ISTIC-IOA
Developed
Standard (Reference Data or Message)
XML Conformance Standards
OASIS(XML Conformance Standards)
MDDL
FpML(Derivatives)
XML Conformance Standards
Organization
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Obstacles to Standardization

• Standards development processes are fragmented
  (global industry coordination)
• STP as a business priority (ROI is hard to
  measure)
• Organizational inertia is difficult to overcome
• Questions remain about operational viability and
  commercial acceptability
• Standards processes (difference between a
  standard, a utility and a value-added proposition

37
MDDL Direction and Status

• JAMES HARTLEY
• Chief Technologist, FISD
• MDDL Architect and Vocabulary Editor

38
Topics

• Change in Versioning Guidelines
• New Documentation Strategy
• Status of mddl Specification
• mddlQuery and mddlStatus
• Development of fisdMessage

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Change in Versioning Guidelines

• Version in beta for about 3 Months
• Ongoing changes (perhaps frequently)
• Specific targets for content
• Promoted to draft When Mods Complete
• Begins review and adoption processes
• Promoted to final After about 3 Months
• No more modifications
• Ready for production with announced content

40
New Documentation Strategy

• Focus on Items Necessary for Implementation
• How To for specific data content
• Snippets (fragments) showing correct MDDL
• Fully document existing terms and content
• Next Stages
• Tutorial, based on snippets and how to
• MDDL Overview (business, content, guidebook)

41
mddl Status as of 2004/04/01

• MDDL 2.2 Elevated to final
• At direction of MDDL Steering Committee
• No more modifications
• MDDL 2.3 Elevated to draft
• To promote adoption on release cycle
• MDDL 2.4 Started
• With all pending modifications

42
Pending Content for mddl

• On Hold
• Corporate Actions addition pending priority
• Risk Enhancements pending active participation
• Current Active Participation
• debtDomain (and other primary domains)
• indicatorsDomain/interestRateClass
• foreignExchangeDomain
• Data necessary for exchange datafeeds

43
mddlQuery and mddlService

• Formal Release Based on Participation
• Need members to validate/implement concept
• Your active participation is needed
• In Development
• Loosely tied to fisdMessage specification
• As part of the streaming demonstration

44
Development of fisdMessage

• Most Active Topic of All Contacts
• More than other MDDL items combined
• Have Begun Discussions with FIXML
• Looking to use same compaction scheme
• FIXML requirements a subset of MDDL
• Demonstration Planned
• XML for Market Data 21 April in New York
• See http//www.mddl.org/

45
Financial Industry Standard Communication
Protocol Benefits

• Common Vocabulary for Data Elements
• Simplifies process of merging content
• Self-Describing So New Data Can Be Added
• At the convenience of the provider
• Bandwidth Efficient Like Proprietary Feeds
• Uses the same tricks and conventions
• Receiver uses minimal processing power

46
Nominal Market Data System
47
Member/Industry Updates

• Jim Russell, Euronext
• Fabrice Blanc, French Data Vendors Assn.
• Reg Pritchard, Rights Management Ltd.
• VERMEG and SWIFT 15022

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FISD Meetings - Key Dates

• General Meetings
• June 10-11, NYC (SIA show)
• July 14-15, Oslo
• September 22-24, Hong Kong
• December 14-15, NYC (Holiday Party)
• Conferences
• April 21, XML for Market Data (NYC)
• October 13, Administration Seminar (NYC)
• Fall 2005, World Financial Information Conference
  (Madrid)
• Full schedule (and updates) on FISD.net

49
FISD Operations

• FISD Database (shared member resource)
• Update records and pick interest areas
• Add missing people (cover the entire agenda)
• Web Sites (FISD.net MDDL.org VRXML.org)
• FISD Budget (New fiscal year is July 1)
• Welcome New Members (2004) ActivFinancial,
  American Century Investment Management, Inc.,
  Bank of New York, Center for Research in Security
  Pricing, Comtex News Network, Dun Bradstreet,
  Polar Lake, HSBC, MCI, Radianz, Robeco

50
Thank You

• Euronext, Reuters, and Telekurs
• Votre hospitalité
• est le plus avec reconnaissance appréciée
• merci beaucoup