The fee model proposed for ISINs issued for OTC derivatives by the Association of National Numbering Agencies’ Derivatives Service Bureau (ANNA DSB) suggests an implied fee of €0.5 for the creation of each ISIN and free access to the ISIN’s attributes once it has been created. The need for ISINs for OTC derivatives arises from the incoming Markets in Financial Instruments Directive II (MiFID II) regulation, which mandates use of the identifiers for reporting.
The implied ISIN fee and other fees needed to operate the DSB on a cost-recovery basis are outlined in the latest ANNA DSB consultation paper. The paper was issued this week on behalf of ANNA by Etrading Software, the management services provider selected to operate the DSB. The consultation will close on 6 February 2017 with the DSB expected to publish its conclusions based on market feedback by the end of the month.
The consultation on fees is one of three initial DSB consultations including a consultation that closed on 4 January 2017 and considered the work of the DSB Product Committee, which is developing the ISIN for OTC derivatives, and a consultation on the technology and operations of the DSB that closes this week on 13 January 2017.
The consultation paper on the fee model outlines how the DSB could operate on a cost recovery basis and questions whether the model is acceptable to market participants, particularly those that must create ISINs, and whether it is practicable.
Sassan Danesh, managing partner at Etrading Software, says: “If the consumption of ISIN data issued by the DSB is free, the question is how to finance the model. The cost recovery obligation will most likely fall on creators of ISINs and organisations that want real-time automated connectivity to the DSB.”
Etrading estimates the annual operating cost of the DSB issuing around 2 million ISINs a year at €6 million. In the consultation paper, it suggests €5 million of this can be recovered from organisations that want a FIX connection to the DSB. Proposed FIX access fees are €80,000 for single-asset access and €120,000 for multi-asset access. Assuming a total of 50 organisations requiring FIX connectivity and a 50/50 split between those requiring single or multi-asset access, these fees will cover €5 million.
The remaining €1 million will be recovered from regulated ISIN creators paying an implied fee of €0.50 per ISIN – essentially the remaining cost of the DSB divided by the 2 million ISINs expected to be issued – although to sustain a fair model that avoids problems such as firms waiting for others to create and pay for ISINs, the consultation paper proposes fee options including an annual subscription covering the number of ISINs each firm estimates it will create during the year. Ownership of the ISIN data remains with the DSB to ensure free access.
Danesh says: “As the DSB is a new utility that will provide a new service mandated by regulation, we have not had precedents to fall back on, so have based the fee model in the consultation paper on assumptions. I am fairly confident the €6 million cost estimate is in a reasonable range, although we will refine the figure as we go through implementation. I am also of the view that the fee model is pretty cost efficient. The hardest thing to account for at this stage is uncertainty around the number of ISINs that will be created.”
With a view to being fully operational by the MiFID II compliance deadline of 3 January 2018, the DSB may preload some ISINs that are known to be required and plans to go live on 1 October 2017.