Following the signing of a partnership agreement to launch an entity identification joint venture last April, Avox and Cusip Global Services (CGS) have finally launched their new service based on the vendors’ Cusip Avox Business Reference Entity identifier (Cabre) codes. The new offering, which has been dubbed the Cabre Directory Service, aims to provide a universal identification system for global business entities including issuers, obligors and counterparties to replace the current patchwork of proprietary codes in the space.
The standard 10 character Cabre codes include a two character ISO domicile code based on the location of the entity and an embedded Cusip issuer number, if one is available. The vendors claim these codes will allow users to identify every entity involved in the transaction lifecycle of a financial instrument, thus providing a method via which to more easily track counterparty exposure and better meet regulatory requirements.
The current focus on counterparty risk in the market as a result of the financial downturn and events such as the fall of Lehman has underlined the need for common standards in the entity identification space. Discussions at events such as FIMA and WFIC have highlighted this desire from the industry for new business entity identification standards. However, up until this point, vendors have tended to focus on maintaining their own proprietary identifiers and avoided a truly joined up approach to the space.
Scott Preiss, vice president for CGS, which is managed by Standard & Poor’s on behalf of the American Bankers Association, confirms that interest in the new Cabre codes has indeed intensified over the last year since the JV announcement due to regulatory focus on single name exposure. “The financial industry recognises CGS’ extensive classification expertise and the value of Avox’s validation processes and methodology. Given their client driven system of maintaining global entity data, Avox is an ideal partner to augment our time tested system of unique issuer and obligor identification,” he contends.
Ken Price, CEO of Avox, which is a majority owned subsidiary of the Deutsche Börse Group, has high hopes that the market will invest in the new codes and expects the system to grow exponentially over the next few years. “The availability of a Cabre for each entity location will ultimately help our clients manage diverse areas of their organisations, such as financial controls, risk management, anti-money laundering and operations. With this partnership, we can leverage the community of user firms that provide intelligence about changes to business entities taking place every day in the market,” he claims.
The vendors see these codes as a near term solution in lieu of an ISO standard in the business entity identification (BEI) space. Preiss explains: “CGS continues to support an ISO standard BEI – and has done so for many years. The Cabre is recognition that market participants require a solution now for unique, global identification of business entities.”
The vendors therefore hope to be the driving force towards convergence on a common data standard in this space of the market via a crowd sourcing approach, where a community of user firms provide intelligence about changes to business entities taking place every day in the market. Not as an end solution but as a way of getting the ball rolling.
However, given the somewhat defensive stance of the industry at the moment with regards to vendor solutions and the intense scrutiny of the regulatory community fixed on proprietary codes, take up may potentially be slow to begin with. CGS itself is facing action by the European Commission as part of the regulator’s investigation of its International Securities Identification Numbers (ISINs) for North American securities. According to a memo at the end of last year, the Commission considers the vendor to be “abusing its dominant position” as the sole appointed National Numbering Agency (NNA) for US securities by requiring its European customers to pay licensing fees for the use of ISINs in their own databases.
Furthermore, Swift is also working on a standard for the entity data space at the moment and has been focused on the business case to leverage its Bank Identifier Code (BIC) as a legal entity identifier. According to Paolo Bernini, head of information products at the industry owned cooperative, it has been engaged in consultations to examine the universe of entities that actually need unique identifier. Swift is the registration authority for the BIC, as nominated by ISO, and because many firms have already invested in this code, they have been keen for Swift to get involved in developing a broader business entity standard off the back of this code.
Despite these challenges, CGS and Avox are unlikely to be deterred from pursuing their goal. Both vendors have been very aggressive in their approach to market and have been attempting to increase their market reach via strategic partnerships over the last year or so. In May last year, for example, CGS agreed to work with UK-based futures and options specialist FOW Tradedata to develop a new Cusip identification system for listed equity options in the US.
Moreover, in June, the vendor also extended its entity identification ambitions to the hedge fund market with the signing of a partnership agreement with hedge fund information provider HedgeFund.net. Since the announcement, the vendors have been working on generating a nine character Cusip and a 12 character ISIN for unique hedge funds and fund of hedge funds and their underlying classes.
To this end, they have been developing a process to receive inbound requests from Hedgefund.net to assign Cusips for the approximately 8,000 hedge funds in the vendor’s database. They have also been endeavouring to develop a standalone hedge fund web service for Hedgefund.net subscribers and the broader market.
This is all part of CGS’ plan to extend its reach into the world of industry identification and standardisation. Preiss explains: “Under the direction of the Cusip Agency Board of Trustees, CGS’s goal is to expand its identifier universe wherever needed by market participants. Eventually we see Cabres being linked to the hedge funds Cusips and other asset classes.”
On Avox’s part, the vendor has been keen to work with as many different players in the market as possible and for BEI in particular, it already has a number of additional non-exclusive partnerships with firms that provide entity identification, including Swift, Interactive Data Corporation and Markit.