The Data Challenge

1
The Data Challenge

• Michael Atkin
• Financial Information Services Division
• September 18, 2002

2
Agenda

• FISD and mission
• STP is about business process efficiency
• Reference data and the importance of a common
  data set
• Symbology at the core of automation
• MDDL format and data content standards
• A few words about STP for market data
  administration

3
FISD

• Neutral business forum for all segments of market
  data industry globally
• Members are responsible for their own commercial
  and strategic interests
• FISD Agenda
• Commercial/business issues
• Market data definition language (MDDL)
• Symbology and reference data

4
STP in Context

• Definition automated processing of transactions
  from trade inception to settlement
• STP is about business process efficiency (cost
  mitigation and risk management)
• Reduce/eliminate manual intervention
• Reduce delays and errors caused by poor processes

5
Costs are Real

• Tower research indicates that many firms have
  multiple SMF systems (10-150 systems per firm)
• Tower research indicates an average of 58 FTE to
  maintain SMF (some as high as 200 FTE)
• Tower research suggests that 30 of trade
  failures are caused by bad reference data
• SWIFT estimates that 50 of transactions need
  repair (6 per repair)
• SWIFT estimates that 15 of trades fail to settle
  on time (50 per settlement failure)

6
Reference Data A Key to STP

• Data elements underlying and defining the
  customers, securities and transactions that flow
  through financial systems
• Instrument data
• Trade specific data
• Client and counterparty data
• Corporate action data
• Settlement instructions
• Accounting data

7
Why is it Important?

• A common understanding of the underlying data
  elements are essential to trading and settlement
• Sales and research
• Trading and order management
• Regulatory reporting
• Confirmation and settlement instructions
• Asset management

8
Why is it Important?

• Shorter settlement cycles need good quality
  reference data
• 40 of a trade record is composed of reference
  data
• Instruments must be properly identified
• Commissions and accruals need to match
• Counterparty settlement instructions are required
• Identifiers and descriptive data must be accurate
  in the T1 era

9
Security Identification is Critical

• Securities numbering is at the core of reference
  data
• Too many numbers but none of them are able to
  uniquely identify all attributes required for
  precision
• National numbers and ISIN
• The requirements for unique security
  identification

10
The ISIN Story (in four slides or less)

• FISD/SWIFT Specification
• All financial instruments that are issued or
  tradable should have an ISIN
• All numbering agencies need to understand and
  adhere to the ISO 6166 standard
• ISIN must be available prior to the date of
  issuance
• The ISIN feed must contain all relevant
  information necessary to uniquely and precisely
  identify financial instruments
• ISIN needs to be available to the marketplace on
  fair and reasonable commercial terms

11
The ANNA Service Bureau

• SP and Telekurs take over GIAM operations
• ANNA members make good progress on assignment and
  maintenance problems
• ASB is operational and effective
• Commercial issues are moving toward resolution

12
ISIN is still Lacking

• ISIN alone is not sufficient for the automation
  requirements of STP
• ISIN is a unique issue identifier, but not always
  a unique security identifier (one ISIN can be
  shared among offerings in multiple locations)
• Missing data elements are official place of
  listing (for multiple listings) and register
  level identifier (for security routing)

13
ASB versus SEDOL

• ASB as consolidator of ISIN data has an
  opportunity to add place of listing/registration
  to the ASB feed
• Will ANNA allow the ASB to extend its charter?
• London Stock Exchange is interested in extending
  SEDOL to meet industry requirements
• SP is considering extending CUSIP to cover
  multiple listings
• Why not just fix the ISO 6166 standard?
• Why not create a ISIN messaging standard with all
  the data elements included in the feed?

14
Other Symbology Issues

• The requirements of uniqueness
• CFI, restrictions, strike/exercise prices
• Mandatory separation price, dated date
• Extend ISIN to cover options, futures, private
  placements and limited partnerships?
• International business entity identification

15
XML is the Language of STP

• Goal A standard distribution format and
  vocabulary for market data
• Efficient common format means to efficiently
  pass data from one system to another
• Transparent uniform taxonomy to promote a
  common understanding of data content and data
  relationships

16
The Role of Standards

• The industry wants industry-accepted standards
  (not proprietary)
• SWIFT ISO 15022 Data Dictionary focuses on
  trade processing, not descriptive data attributes
  of a security
• Without industry standards for SMF, firms will
  strike bilateral agreements on the meaning and
  use of proprietary codes

17
Market Data Definition Language (MDDL)

• XML-based specification to enable the interchange
  of information necessary to account for, analyze
  and trade financial instruments
• Pricing of stocks, bonds, funds, commodities and
  contracts
• Trade-related information and measures
  (symbology, volumes, statistics)
• Macroeconomic statistics
• Security master file data (corporate actions,
  descriptive data, shares issues, earnings,
  splits, dividends, etc)

18
MDDL Status

• Version 1.0 (equities, indices, mutual funds)
  November 2001
• Version 2.0 (fixed income) beta released June
  2002
• Bond Market Association is using MDDL for its
  Security Master Database project
• WG10 is trying to coordinate XML standards for
  trade processing

19
Financial XML Coordination

• XML is a standard tool, not a standard
• Functional groups are creating XML standards to
  serve their needs
• NewsML, XBRL, MDDL, FpML, SWIFT ML, FixML, RixML
• XML is useful, but coordination and a common
  vocabulary is critical

20
STP for Market Data Administration

• A bit off topic but
• The goal is to
• Reduce friction within the information
  dissemination chain
• Promote efficiency in procurement and payment
  processing
• Develop market data business policies that
  promote commerce
• Reduce the overall costs of market data
  administration.

21
Contact Information

• Michael Atkin
• Financial Information Services Division
• 202.789.4450
• matkin_at_siia.net
• www.fisd.net
• www.mddl.org