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A-Team Insight Blogs

ANNA Derivatives Service Bureau Leaves Many Questions Unanswered

The story of MiFID II and the selection of the ISIN as an identifier for all instruments in scope of the regulation, including OTC derivatives, has taken another turn, perhaps a final turn, with the Association of National Numbering Agencies (ANNA) pressing on with the build of a Derivatives Service Bureau (DSB) by issuing an RFP for technology to underpin the utility and inviting industry participants to join its product committee – but be quick, the deadline for applications is 8 November, 2016.

While the DSB fulfils ESMA’s technical standards requirement for the use of ISINs to identify instruments under MiFID II and reflects ANNA’s role as the registration authority for ISINs under appointment by the ISO, it leaves many questions unanswered and little time for financial institutions to find budget and implement solutions to support ISINs for OTC derivatives ahead of Q1 2017 industry testing of MiFID II capabilities.

Unanswered industry questions include how well ISINs, which were originally designed to identify equities and bonds, will work with OTC derivatives; why ANNA’s central DSB utility has a monopoly on the allocation of ISINs for OTC derivatives where, to date, ISINs have been allocated by a more federated network of National Numbering Agencies; and why the DSB has been set up as a private, self governed, and perhaps commercial, organisation with little input from the industry.

Equally, the price the DSB, which should work on a cost recovery basis, will require firms to pay for ISINs for OTC derivatives remains unclear, along with ownership of reference data provided by firms to ANNA for the creation of ISINs.

While these issues could cause problems for market participants ahead of and after the January 2018 compliance deadline for MiFID II, ANNA remains unruffled, saying development of the DSB is keyed to full production in January 2018 and that the schedule incorporates time for industry testing and implementation of the service.

ANNA announced its intention to establish the DSB, an open source, real-time platform that will allocate ISINs for OTC derivatives, as a subsidiary at the end of September. It has since selected Etrading Software to implement an ISIN allocation engine for OTC derivatives and provide management services, and named BearingPoint as a trusted advisor in the development of the DSB.

Last week, after the 25 October closure of an ISO study group dedicated to considering how ISINs should be allocated to OTC derivatives, ANNA invited market participants to apply to join a product committee to oversee product governance of the DSB and work out how ISINs can be allocated to different types of OTC derivatives – there are strict limitations on who can apply, no pay, no expenses and perhaps a request for free consultancy.

This week, ANNA issued an RFP for a service provision provider – again there are limits on which firms can respond – that will provide distributed server and cloud services for the DSB and facilitate messaging based on FIX. Once a service provision provider is in place, ANNA expects the DSB to have the capacity for scalable, global service provision of ISINs to OTC derivatives markets for regulatory reporting and business operations.

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