The European Fund and Asset Management Association’s (Efama) complaint against Standard & Poor’s practice of making end users of its International Securities Identification Numbers (ISINs) in Switzerland pay a licence charge and fees for the numbers is in the hands of the Swiss competition authority Wettbewerbskommission (Weko). A small scale dispute, perhaps, but one that could escalate if ISIN users in the US and Asia take up the case against S&P’s ISIN charges and if ISINs are considered as instrument identifiers by the Financial Stability Board (FSB) after it has finalised the structure and infrastructure of legal entity identifiers (LEIs).
This is not the first spat between the European Fund and Asset Management Association (Efama), the trade associations it is working with – namely the Association de Gestion Financiere, BVI Bundesverband Investment und Asset Management, the Commission des Services et Systèmes d’Information destinés aux Opérateurs de Marchés, the Information Provider User Group and the Swiss Information Providers User Group – and S&P’s Capital IQ business.
Following a complaint by the trade organisations about the company’s pricing of ISINs in Europe, the European Commission (EC) started proceedings against S&P on 12 January 2009, investigating whether the fees being charged by S&P for data-basing ISINs based on the company’s Cusip numbers were in breach of EU competition law. The EC published S&P’s commitments to settle the dispute in May 2011 before reaching a final decision in November 2011 that European ISIN data users should be protected under EU competition law and should not pay licence charges and fees to use ISINs. This, said Efama, would save the European financial services industry about $100 million a year in ISIN licence fees.
S&P’s deadline to meet the EC requirement was last weekend on the 15 April 2012 and Efama is keen that the Commission should continue to protect European data users and monitor the implementation of the commitments made by S&P. It also notes: “Efama deplores that S&P has failed to cooperate voluntarily with the financial services industry in the EU in the past and still does not want to address valid user concerns. In particular, S&P does not accept globally applicable commitments.”
Rudolf Siebel, managing director of trade association BVI, explains: “The original complaint was based on S&P being the only numbering agency in the world requiring licences and fees to be paid by users of its ISINs, which are used to identify US securities. S&P claimed the core of the ISIN, the Cusip element, was part of its intellectual property so it could charge end users for using ISINs. But the European Commission said the pricing was excessive and if other numbering agencies charged zero for their identifiers, so too should S&P. There were situations, for example, where European buyers of US securities were asked for payment for the ISINs even though the securities were bought from a trading partner.”
Describing Europe as a doughnut because Switzerland is not a member of the EU and is therefore not covered by the EC decision, Siebel says the complaint to the Swiss competition authority Weko was made last Friday, 13 April, and there has not yet been any response from S&P.
S&P’s Cusip Global Services business states: “We have neither seen nor are aware of any investigations or complaints against us in Switzerland.”
Siebel hopes the complaint will be resolved this year on the basis of facts established in the EC case. “Switzerland is an important market where many financial firms are incorporated and would like to benefit from licence and fee free ISINs,” he says. “The Commission’s decision should be extended to Switzerland and thee is no reason not to apply it in the US and Asia too, where users are still paying for ISINs. A different judgement may be needed in the US as the Cusip is used and the Commission decision covers the ISIN, but there are discussions among market participants in he US about why they should pay licence fees for Cusips.”
In terms of the LEI, Siebel suggests the ISINs issue provides conceptual ideas in LEI and instrument identifier development. He explains: “Our case shows regulators and the industry that the LEI should be free of licences and chargers. We said that two years ago and the case has influenced the FSB. It is also important to note that the LEI will be only one identifier used by regulators concerned with systemic risk. There will also be an instrument identifier and we hope that will be ISINs for US securities and other asset classes, making ISINs very important going forward. When it is time for FSB and G20 discussion on an instrument identifier, regulators will probably require it to be free of charge in all markets around the world.”
Siebel concludes: “Licence- and fee-free use of identifiers should be available to all users as identifiers are the lifeblood of global straight through processing. Without free identifiers, straight through processing is inhibited by artificial barriers. Data vendors deliver good services, but the money should not be in the identifiers, it should be in the content they deliver.”