Cusip Global Services (CGS), the provider of Cusip securities identifiers owned by the American Bankers Association and managed by S&P Capital IQ, has set the cat among the pigeons by criticising proprietary symbologies for their lack of efficient operability. Rather, CGS reckons that standards, supported by organisations such as itself, are the only way forward towards efficient and reliable capital markets.
A report on the power of consistency authored by CGS’s director of business development Matthew Bastian, describes open symbology as a ‘false promise’ and states: “One flawed promise floated in recent years is that the standards process in financial markets can be reduced to, or is somehow synonymous with, the mere identification of financial instruments; that any firm can randomly generate thousands of codes, link them to instruments and, in the process, solve the industry’s reference data challenges.”
Bastian likens open symbology to the ‘free razor handle’ marketing ploy used by consumer products groups. Recipients of the handle focus on the fact that they got something free, when the gambit is to lure them into buying the more expensive razor cartridges.
“In a similar fashion, identifiers stemming from a proprietary environment can lock firms, perhaps unwittingly, into a silo of the data, analytics or services of the same provider as the symbols themselves. It’s only when the price of the razor cartridges – or in this case the data and analytics – go up that the consumer realises he may have beenmisled.”
His remarks echo those heard by delegates at A-Team’s recent Data Management Summit in London, where industry practitioners described open symbology initiatives as “marketing ploys”.
Promoting interoperable standards, such as Cusip, that Bastian says help firms avoid the trap, he writes: “The main advantage to consider with standards is the inherent interoperability, the notion that the standard can be quietly relied upon regardless of vendor environment.
Interoperable, standardised identifiers, for example, allow users the freedom to migrate from one supplier to another, or communicate with external firms, with the confident knowledge that the other party will be speaking the same language.”
The Cusip numbering system is not a standard under the auspices of the InternationalOrganisation for Standardisation (ISO), but has become an industry standard in US markets where it now covers over 14 million unique securities. As well as creating and promoting Cusips, CGS has supported the development of ISO standards underpinning identifiers such as the 12-character ISIN for cross-border trading and the classification of financial instruments, or CFI Code, that provides a structure for categorising financial instruments. In 1989, CGS extended the Cusips system to create CINS, the Cusip international numbering system used for non-North American securities traded internationally.
More recently, CGS has demonstrated its support for the legal entity identifier (LEI) system proposed by the Financial Stability Board. The company’s 10-character CusipAvox Business Reference Entity number, a joint venture with DTCC subsidiary Avox, falls short of the 20-character code finalised in the ISO 17442 standard, but the company suggests it could work as an agent of an LEI utility assigning both its own numbers and LEI codes.
Pursuing the elements of data quality, interoperability, sustained investment, industry input and collaboration that CGS believes are key to meeting future industry needs,Bastian notes again the shortfall of open systems that are not synonymous withinteroperable systems when it comes to standards or identifiers. The report states: “Indeed, the Siren’s call of ‘open standards’ can be a cynical ploy to sell or entrench much higher priced data and analytics.”
Back on CGS home ground, he writes: “Our databases are made available, under transparent and non-discriminatory terms, to any firm that needs to leverage the efficiency of CGS content.” Commenting that standards are ‘more than just a numbers game’ and that they are about ‘reliability, consistency and interoperability’, he concludes: ‘With the proper level of focus on that interoperability, as well as on quality, reinvestment, input and collaboration, few are the reference data problems that standards can’t help solve.’