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Firms Shy From Cost of Migration To New Ref Data Codes for MiFID

The Committee of European Securities Regulators (CESR) has published the responses to its public consultation on the use of reference data standard codes in transaction reporting under MiFID. By press time however CESR had not published its final decisions on the codes to be used, so it is as yet unclear whether the responses will prompt it to make any changes to the suggested line-up of codes in its December 2006 publication on the subject. 

As well as soliciting opinion from the industry on whether the ISO standards it suggested are the most relevant for transaction reporting under MiFID, CESR also asked for feedback on whether it would be beneficial for these standard reference data codes to be adopted not just for communication between CESR members, but also by firms reporting to competent authorities in the new environment.

If a consensus is determinable from across the 18 or so published responses, it is that it would be far preferable for the members of CESR to carry out any necessary mapping to enable them to communicate with each other using the agreed codes than for a mandatory conversion from existing to new codes to be imposed upon market participants in each affected country. The common view seems to be that while European integration and harmonisation would be encouraged by the adoption of the standard codes by all market participants, there should be a migration period during which this conversion can be effected, rather than such a time-consuming and expensive project being forced on firms before the November 1 introduction of MiFID.

There is certainly a desire among the respondents – spanning exchanges, financial institutions and industry bodies from across Europe – to avoid a situation whereby different codes must be used for transaction reporting to different competent authorities, again supporting the view that the CESR members need to be prepared to carry out necessary mapping exercises to cope with any deviations from the standard codes that are ultimately agreed upon.

Probably the least popular of the CESR suggested codes is ISO 10962 – the CFI (Classification of Financial Instruments) code, on the grounds that it has hitherto not been widely adopted. Several of the respondents reiterate the oft-cited problems with the BIC (suggested for entity identification) – that there can be multiple BICs per entity, that they historically haven’t covered funds or many fund managers, and that, particular on the BIC1 side, Swift hasn’t done a great job of maintaining the codes, so a degree of inaccuracy exists in the BIC directory today. That said, a few of the respondents acknowledge that Swift is seeking to address these problems, extending the BIC to cover funds and undertaking to address the problems of uniqueness and poor maintenance.

There are few mentions of the much-vaunted International Business Entity Identifier (IBEI) which some observers suggest is necessary for efficient transaction reporting under MiFID, but which is highly unlikely to be available in time (Reference Data Review, January 2007). A few respondents encourage ISO to carry on with the development of IBEI, with one suggesting it will be required to fill in any gaps in BIC coverage. There is also mention in the responses of the potential value of initiatives by individual National Numbering Associations to release their own “IBEIs” for the markets under their jurisdictions – the London Stock Exchange, Telekurs and WM Group are known to be either planning to or doing this already – along with the suggestion that CESR communicates with ANNA to ensure co-ordination of this activity.

The well-rehearsed problems with ISINs feature widely in the responses also – specifically, the issue of their slow creation, and their lack of coverage of instruments such as derivatives. And the now-familiar complaint about the S&P-imposed charge for CUSIP-based ISINs also rears its ugly head. A number of the respondents insist that any new codes must be available for use without market participants incurring any additional costs – though there is an acceptance that ancillary/infrastructure costs will have to be borne.

Worth noting is Swift’s suggestion in its response that CESR should look at reference data codes for transaction reporting under MiFID in the context of entire messages – ie there should be ISO 20022-based message formats encompassing all the fields required for transaction reporting. It is understood that CESR has already declined an offer from Swift to develop MiFID transaction reporting messages, but that Swift is nonetheless seeking board approval to build such a message set.

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