Unique Security Identification Research

1
Unique Security Identification Research

• Preliminary Results
• June 12, 2001
• Michael Atkin, FISD

2
FISD Research Process

• Goal identify (at a granular level) what each
  segment of the information chain requires for
  security identification
• Perspectives of trading, investment/portfolio
  management, pricing, custody, settlement,
  depository, clearing, compliance, risk
  management, database management
• Five meetings and three conference calls since
  Zurich

3
Participants

• ADP, Bank of Ireland, Bank of New York,
  Bloomberg, Bridge Information Systems, Capital
  Group, Citicorp, Clearstream, Credit Suisse Asset
  Management, The Depository Trust Clearing
  Corporation, Euroclear, Goldman Sachs, HSBC,
  Interactive Data Company, Investors Bankers
  Trust, JPMorgan Chase, Lehman Brothers, Mellon
  Trust, Merrill Lynch, Metamatrix, Moody's
  Investor Service, Prudential Securities, 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

4
Words of Caution

• This is a complicated issue
• Instruments can be issued, priced, traded,
  settled and cleared in many ways
• Different types of identifiers are relevant at
  various levels and for a variety of functions --
  one size doesnt fit all
• Overall goal is efficiency and reduction of fails
  -- STP trade mechanics and cross-border
  processing are part of security identification

5
Take A Deep Breath

• This inquiry is NOT complete
• Were not ready to make a definitive statement on
  either industry requirements or probable
  solutions
• Our inquiry is being extended to include both
  instrument and trade identification data elements
• Communication of event attributes are not
  (necessarily) the responsibility of ISIN or the
  ASB

6
An Illustration
7
ISIN Alone is Not Sufficient

• ISIN DE0007236101
• ISIN is a unique issue identifier but not always
  a unique security identifier
• ISIN alone is not sufficient for unique
  identification because one ISIN can be shared
  among multiple offerings in multiple locations
• However, ISIN is important for front-office
  systems and for aggregation of global positions

8
Register Level Identifier

• Register is the place where legal records of
  security
• ownership are held. This is important for
  determining
• whether re-registration is required and is part
  of
• determining settlement compatibility
• Register can span different listed securities
  and
• different currencies
• ISIN Register is not sufficient for all
  functions
• because it cannot identify a specific listed
  security

9
Place of Official Listing

• The place of official listing (POOL) identifies
  the primary and
• secondary markets where the security is listed
• In this example the place of official listing is
  Frankfurt,
• Zurich and Paris
• POOL is needed to differentiate the security in
  the case of
• multiple listings (i.e. subject to different
  settlement, pricing,
• tax/corporate event treatment, allocation of
  national numbers)

10
Event Related Identifiers

• There are attributes associated with a financial
  instrument that are not identifiers but are
  critical data elements
• CSD Bridge Link details - used to determine if a
  security can be delivered from one place of
  settlement to another. Must be presented at time
  of trade decision to be useful for risk
  management
• Place of Trade -- needed as a practical matter
  for due diligence and market compliance (i.e. for
  trade execution problems, transaction related
  taxes, trade related statistics, etc.)

11
Five Core Elements
12
Instrument Identification

• ISIN is needed as the issue level identifier for
  aggregation of positions
• POOL 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 but important
• The fundamental security identification problem
  is the inability to derive POOL (and possibly
  register) from ISIN.

13
Possible Approaches

• Option 1 Create a new security ID number at the
  POOL/Register level integrated into a defined and
  maintained database of relationships between
  securities on a global basis
• Option 2 Create a standard symbology for
  identification of POOL/Register using marketplace
  codes (i.e. redefined MICs)
• More research is needed to identify the practical
  implementation issues associated with POOL