The Reference Data Challenge

1
The Reference Data Challenge

• CIO Roundtable
• October 25, 2002
• Michael Atkin, FISD

2
Agenda

• STP is about business process efficiency
• The importance of reference data (common data
  set)
• Security identification at the core of
  automation
• MDDL format and data definition standards

3
STP in Context

• Automated processing of transactions from
  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

4
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)

5
Reference Data

• Data elements to define 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

6
Reference Data Fuels STP

• Reference data is a component of every process in
  any transactions lifecycle
• The goal is a common understanding of data
  attributes
• The lack of standards are big problems
• Consistent data means less manual intervention

7
Security Identification is Critical

• Numbering systems are at the core of reference
  data
• Too many numbers but none uniquely identify all
  attributes required for precision
• National numbers
• ISIN
• Vendor specific numbers

8
The Story on Symbology(Phase One)

• Industry frustration with ISIN
• Problems with assignment, maintenance, customer
  service and dissemination
• Concerns about commercial model
• ISIN alone is not sufficient for uniqueness and
  precision
• ANNA Board finally realizes the problems are real
  and serious

9
The Story on Symbology(Phase Two)

• SP/Telekurs form the ANNA Service Bureau
• ASB takes over assignment, maintenance,
  dissemination and commercial management
• Formation of ISIN User Group (FISD, SWIFT, ANNA,
  ASB)
• Problems of ISIN and STP still remain to be
  addressed.

10
The Story on Symbology(Phase Three)

• ISIN alone is not sufficient for the automation
  requirements of STP
• ISIN is a unique issue identifier, not always a
  unique security identifier
• Place of listing is required for multiple
  listings
• Register level identifier is needed for precise
  security routing
• Some data attributes are missing (e.g.
  restrictions, CFI, strike/exercise price,
  mandatory separation price)

11
The Story on Symbology(Current Status)

• DTCC, SIA Cross-Border Committee, SMPG, BMA SMF
  Portal Project, financial institutions
• ANNA - focus is on ISIN and CFI (but bureaucracy
  is an obstacle)
• ANNA Service Bureau add data elements and link
  to ISIN
• London Stock Exchange extend SEDOL
• Vendors Reuters, SP, Telekurs, Bloomberg all
  looking at commercial strategies

12
Storm Before the Calm

• The light is shining on reference data and
  security identification issues
• There is consensus on the objective with multiple
  solutions being discussed
• Still a gap between US/ROW approaches as well as
  whats needed for specific functional
  requirements
• Dont forget implementation implications and
  commercial challenges
• Keep our eye on the ball -- fewer numbers, better
  symbology linkages, reduce exceptions and
  facilitate automation
• Pay attention! Coordinate requirements! Speak
  with a common voice! Its show time!

13
XML is the Language of STP

• Goal standard distribution format and
  vocabulary for SMF set-up and pricing data
• Efficiency common format means its cheaper and
  easier to pass data from one system to another
• Transparent uniform taxonomy to promote a
  common understanding of data content and data
  relationships

14
The Role of Standards

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

15
Market Data Definition Language (MDDL)

• XML-based standard to enable the interchange of
  information necessary to account for, analyze and
  trade financial instruments
• Security set-up (descriptive data, identifiers,
  corporate actions, etc.)
• Pricing information
• Trade related information and measures
• Version 1.0 (equities) November 2001
• Version 2.0 (fixed income) June 2002 (beta)

16
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, FixML, RixML are
  coordinating activities
• XML is useful, but coordination and a common
  vocabulary is critical

17
MDDL Next Steps

• MDDL niche has been validated and the
  specification is good
• MDDL is coordinating with the other standards
  bodies
• Chicken and egg problem still remains
• Vendors fear commoditization
• Users see value from XML for internal
  applications but how strong is the business
  case?
• Coalesce around MDDL to get the benefits of
  industry-wide specification and motivate vendors
  to support?

18
Contact Information

• Michael Atkin
• Financial Information Services Division
• 202-789-4450
• matkin_at_siia.net
• James Hartley
• FISD Technologist
• 303-322-1393
• jhartley_at_siia.net
• www.fisd.net www.mddl.org