As the Derivatives Service Bureau’s (DSB’s) first round of industry consultation on fee principles for the Unique Product Identifier (UPI) plays out, we talked to Emma Kalliomaki, managing director of ANNA and the DSB, about some of the issues involved in getting the UPI up, running and ready for its Q3 2022 release.
Early conversations between industry and the DSB ahead of the first consultation’s deadline of 5 March 2021, indicate concerns around practical aspects of the UPI, such as connectivity and the relationship of the UPI with OTC ISINs already issued by the DSB.
While the numbers of organisations that will require UPIs outstrips the number requiring ISINs, which are predominantly used in Europe whereas UPIs will have global reach, the consultation asks whether existing ISIN connectivity and distribution methods will work for the UPI and therefore reduce the costs of using the UPI service – the total cost will comprise a mix of costs for both access and functionality.
Kalliomaki says 470 organisations are currently connected to the DSB, some using a free and others a fee paying ISIN service. This number is expected to jump to about 40,000 organisations when the UPI is introduced. She comments: “We need the industry to thing about numbers and let us know if we are correct. Then we can look internally at how to scale our solution appropriately.” This will, in part, be the work of Etrading Software that provides the platform for the ISIN service.
The potential of a staggered approach to UPI adoption across jurisdictions is also up for discussion, along with anticipated workflows and the timing of UPI downloads. At the moment, 70% of DSB users are subscribed to the free ISIN data and user interface service, which offers file downloads at the end of the day (T+1) that provide access to ISINs and a product attributes archive. The cost of the service is distributed across the remaining 30% of users that have real-time programmatic connectivity to the ISIN engine.
Looking at the UPI , Kalliomaki expects T+2 to be the latest day some industry members would need the identifier for regulatory reporting and suggests distribution will span zero delay to T+2. The question is then whether a free file of UPIs should only be available at T+2 to ensure fair distribution of the cost of the UPI service in a similar way to the ISIN service.
Kalliomaki says: “Today, we propose payment for real-time access to UPIs through programmatic connectivity. If an organisation wants T+2 files, it could still do a real-time or manual search for UPIs, but for a completely automated service it would need programmatic access and would have to contribute to the cost of the service. It is difficult to find a balance [between free and paid services] here and we hope industry consultation will help to identify a solution.” The fee model, which like that of the ISIN must provide cost recovery for the DSB, will be reviewed after two years in action to see if any changes are needed.
Early commitments to the UPI come from ESMA which includes the UPI and Unique Transaction Identifier (UTI) in draft technical standards for EMIR REFIT; the CFTC, which notes the use of UPIs in technical specifications for swap data reporting; and ASIC, which also plans to use the UPI and UTI to improve derivatives reporting rules.
The DSB expects that initial regulatory requirements to use UPIs will lead to more beneficial business use cases as organisations link them to other identifiers such as classifications to better understand exposure and risk.
To make sure the UPI works well for your organisation don’t miss the opportunity to take part in the first industry consultation on the fee model, which closes on 5 March 2021, and the second, which will open on 10 May, 2021 to consider actual costs for the UPI service, and close on 9 July, 2021.