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DSB Final Fees for ISINs for OTC Derivatives Higher than Expected

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The Derivatives Services Bureau (DSB) set up to create ISINs required for OTC derivatives under Markets in Financial Instruments Directive II (MiFID II) has finalised fees for user contracts running from October 2, 2017 to December 31, 2018. It notes, ‘we are mindful that the smaller than expected number of users contributing to the DSB’s cost recovery results in an increase in individual user fees’.

Explaining the higher than expected user fees, the DSB, a subsidiary of the Association of National Numbering Agencies (ANNA), says a large number of investment firms have subscribed to the DSB’s free data services, which enable OTC ISIN lookups and downloads. Some trading venues, which originally discussed subscribing multiple Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) as fee-paying Power Users with the DSB, have so far contracted significantly lower numbers.

User fees recover the DSB overhead costs. The total annual overhead on which the cost-recovery fees were calculated is €9.2 million, which is 4.8% higher than the €8.8 million previously stated. The additional sum reflects development and operating costs identified in Q4 2017 by regulatory imperative and industry requests.

The fee calculation was based on contracts in force as of January 5, 2018 and the user categories those contracts represent (see table below). Excess revenues caused by additional contracts signed after January 5, 2018 will go to defraying user fees for the next contract year.

User Numbers

The difference between the preliminary annual fees compared to the final annual fees are as follows:

User type Contracted firms 5 Jan 2018 Preliminary annual fees Final annual fees
Registered 205 Free free
Infrequent 15 €3,000 €3,000
Standard 10 €22,000 €37,500
Power 78 €65,000 €112,500

The current proportion of cost-recovery payments by business sector is as follows:

Sector #Firms Total Value %Cost Recovery
Investment Banks 56 €4,942,500 54%
Trading Venues 32 €3,009,000 33%
Other sectors including Asset Management and Data Management 15 €1,243,500 13%

Adding to the comment above about the increase in individual user fees, Emma Kalliomaki, DSB managing director, says: “We believe that all the user numbers will continue to grow. We are continuing to receive new inquiries for the DSB paid-for services from firms that are just realising they will be creating OTC ISINs, and we expect new users with the increase in systematic internalisers later in the year.”

On cost-recovery payments by business sector, she says: “The proportionately higher participation of banks, relative to trading venues in the cost recovery, validates the design of the OTC-ISIN as internally useful for business operations beyond satisfying reference data reporting obligations under MiFID II. In 2018, we will continue our collaborations with industry to ensure the DSB receives appropriate guidance on industry’s evolving needs.”

Later this year, the DSB will reopen the fee model consultation with the industry. The objective will be to refine the cost-recovery model for 2019, considering the data and usage patterns established in 2018.

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