Since the announcement of the launch of their entity identifier joint venture back in February, Cusip Global Services and Avox have been steadily working on increasing the coverage of their Cusip Avox Business Reference Entity identifier (Cabre) codes. According to Darren Purcell, European director for CGS, the vendors currently have in the range 300,000 such identifiers at the moment. He is hopeful that the recent acquisition of Avox by the Depository Trust & Clearing Corporation (DTCC) will boost the success of the endeavour due to its US reach.
Purcell reckons the DTCC buyout of Avox could give the Cabre project a boost. “Avox wasn’t particularly known in the US, but both Cusip Global Services and the DTCC are established brands in the US market. DTCC is also planning to gear up the operations for Avox, so we see it as a positive development,” he explains.
The Cabre Directory Service itself is aiming to provide a universal identification system for global business entities including issuers, obligors and counterparties in order to replace the current patchwork of proprietary codes in the space. To this end, 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.
“With the Cabre directory, we are focusing on expanding the coverage of that at the moment and we are over the 300,000 mark at the moment. We are trying to get to a point where we have all the big issuers and companies,” Purcell explains. As could be expected, this endeavour is fairly complex due to the desire of CGS to link the Cabre directory back to the Cusip underlying issuers, if available, and the related securities.
“You have a code to be able to identify the instrument and you have an embedded issuer code,” he elaborates. “The Cusip code is the only one to have an embedded issuer code and we have been doing a lot of work to ensure that our clients have the ability to fully leverage that capability. You will see, going forward, a lot more emphasis from our side on the benefits of the issuer code and how it can help clients maintain that issuer level linkage. The plan is then to link the issuer code to Cabre on a legal entity level.”
However, for any one legal entity, or one Cabre, there may be more than one Cusip issuer code and the vendor therefore needs to be able to allow clients to group these wherever necessary. A far from simple task made even more complex.
“We have certain clients testing the Cabre code and advising us on requirements but because it is a brand new identifier, we are also speaking with vendors about getting it on to their platforms. The benefits will be in using the Cabre codes via various vendor platforms,” adds Purcell. The logic of this is that CGS is keen to ensure as many routes to market as possible for the code. Although Purcell accepts that there is no quick solution as the code is not embedded in any system and it will take some time to work with clients to get them to adopt the code.
“One of the strengths of the Cusip database is its global reach and the relationships we have with hundreds of vendors and we will leverage those distribution channels for Cabre. It is having that network of vendors that we hope to bring to the Cabre project,” he contends.
However, the future of the Cabre in the long term has been called into question by a few in the market due to the Swift initiative to develop the Bank Identifier Code (BIC) into a legal entity identifier. Given that there has been some European regulatory level interest in the BIC’s potential, such as references to the code by the Committee of European Securities Regulators (CESR) in recent consultation papers, this could prove bad news for any other player in the space.
In the short term at least, Purcell is not concerned about the BIC in this regard. He notes that within the standards world, the market seems “slightly unsure” at the moment about whether BIC is the right identifier. “We are focusing on CGS’ services to meet our client requirements in the meantime, as the standards process is quite slow and we are concentrating on delivering on our content now,” he adds. “We understand it is not easy to modify existing content or create content from scratch – it is a huge effort. We have put a huge amount of new resource into the Cabre directory and we will continue to increase its coverage.”
He also has a word of warning for regulators seeking to mandate standards in this space: “Regulators need to consider that the standards that they mandate must be fit for purpose and they must have sufficient coverage and quality. There is a fine balance to be struck between mandatory adoption and meeting business requirements. For example, two years ago the Russian regulator mandated that if firms invested in non-Russian issuers, firms could only trade in instruments that had a specific CFI code. However, the coverage of the CFI codes at the time was not very comprehensive and it took time for them to be built up for the market.”
As failed efforts like GSTPA testify, standards are a tricky area indeed and more fool the regulator that steps into the ring and gets it wrong.
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