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GoldenSource Solves MiFID II Problem of Requesting ISINs for OTC Derivatives

GoldenSource is developing an ISIN request and enquiry solution for OTC derivatives that is designed to help firms within the scope of Markets in Financial Instruments Directive II (MiFID II) meet the transaction reporting requirement to use ISINs to identify OTC derivatives. The solution also considers concerns in the market about the speed at which ISINs will be allocated by the Association of National Numbering Agencies’ Derivatives Service Bureau (ANNA DSB), the complexity of MiFID II classification schemes, and the need to access OTC derivatives reference data.

Volker Lainer, vice president of product management and regulatory affairs at GoldenSource, says: “The topic of unique identifiers for OTC derivatives was perhaps the most discussed last year. In the middle of the year, ANNA was mandated to allocate ISINs as unique identifiers for MiFID II reporting and set up the DBS to handle this. When the DSB demonstrated it ISIN allocation system in the first quarter of this year, our clients asked us how they could get ISINs into their security masters, so we built a layer of integration with the DSB.”

This initial integration between GoldenSource and the DSB provides a solution that supports ISIN requests across the asset classes for which the DSB is providing ISINs. The solution includes an application programming interface (API) and defines an OTC derivative’s trading data that is required by the service bureau to allocate an ISIN. Once an ISIN is allocated, GoldenSource attaches it to an instrument that is then put into the GoldenSource security master and made available to the company’s MiFID II reporting solution or published to the client for use in their own reporting system.

As well as supporting requests for ISINs, GoldenSource is adding value around instrument classifications, which are complex within MiFID II as different types of schemes are used for different purposes. In the case of OTC derivatives, product types must be classified in line with ANNA DSB requirements.

Lainer explains: “Clients may have their own classification schemes or use Classification of Financial Instruments (CFI) codes. The GoldenSource solution can cross-reference codes and translate proprietary taxonomies into classifications that are required by the DSB.” He adds: “Technical integration with the DSB using FIX messaging is not complicated. The challenge is gathering required data and transforming it so that is can be sent to the DSB.”

The first release of the GoldenSource derivatives solution will be available towards the end of this months and will cover interest rates and foreign exchange. The other asset classes covered by the service bureau – equities, commodities and credit derivatives – will be added in following weeks.

Responding to concerns in the market about the DSB’s ability to allocate ISINs fast enough for firms to meet MiFID II transparency requirements for swift publication of pre- and post-trade information, Lainer comments: “We can’t speed up the DSB’s response time to requests for ISINs, but we won’t be a bottleneck.”

Beyond its initial integration with the DSB, GoldenSource is planning to expand the connection to provide access to the repository of OTC derivatives reference data being built by the service bureau. GoldenSource plans to have this functionality ready in the third quarter of this year, allowing users to request details about ISINs through the API, perhaps subscribing to a list of ISINs, to keep on top of any changes to their reference data. This request option is free of charge, although new ISINs must be paid for.

GoldenSource is offering the OTC derivatives solution as licensed software to both on premise users and those using its MiFID II managed service. In response to interest from firms that are not GoldenSource users, the company is also developing a slim version of its security master that will focus on OTC derivatives and use the API link for the sole purpose of sending data to the DSB and receiving ISINs.

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