The planned International Business Entity Identifier (IBEI) – a unique identification system for investing and trading parties in the securities market – has been a long-standing objective since Swift allowed non-banking entities onto their network and the London Stock Exchange (LSE) lost control of central market trading.
It’s not that long ago that to execute trades in the UK securities market, the counterparties had to be members of the LSE or deal through an LSE member. Deals were reported to the LSE and the then regulator Securities and Futures Association (SFA) and settled through central systems run by the LSE – profitable for the LSE and their members, but very expensive for investors.
Tradepoint broke the mould when it was allowed to set up and compete with the LSE for UK equities, changing the world of securities trading. About the same time foreign investors were becoming increasingly attracted to London because of SEAQ International. The Internet grew as a trading facility with ECNs and ATSs enabling them to establish a profitable business and undercut the main market. And large investment banks were able to attract massive order flow, which enabled them to cross that business to the benefit of the investor and of course the bank. The result has been significant fragmentation. And it continues to fragment into multiple pools of liquidity where wholesale pricing is the vogue but where best execution is far tougher to ensure and prove.
FIX was able to grow and flourish in this new electronic trading age of international investing that produced huge increases in trading volume world-wide. The markets have also witnessed the growth of derivatives and hedge funds along with CFDs and numerous other products adding a further degree of complexity to investing and trading identification.
This brief history lesson really sets the scene for the long and deep held need for a standardised identification of dealing parties at account level. For many in the industry Swift holds the answer with a solution that appears to be a natural extension of the BIC code.There are, however, shortcomings when this is applied to individual fund accounts.
Swift appears to polarise the market somewhat. The argument against Swift always centres on its market position, as it presents itself as an industry utility yet acts like a commercial vendor. It is seen by some as both judge and jury, able to maintain control of a closed private network, yet dictate prices and policy in a competitive and commercial market place. Until the market or Swift resolves the position of whom and what it is, it’s not likely it can be a provider of a unique identification code directory.
More recently the industry need for an answer to the unique investor account identification code has moved towards large commercial companies like Dun & Bradstreet, IBM, and Oracle who all have the capability and a desire to make plenty of profit. The problem with engaging large commercial firms is that any success will surely lead to others competing.
Could this be the tactic the industry should pursue? Those with long memories will know that Electronic Trade Confirmation (ETC) only developed because of the refusal of Swift to allow non-banks onto their network. Would a similar tactic for IBEI (or LEI or whatever acronym comes next), that produces the unique and indisputable identification of trading and investing parties produce a similar result?
The new MiFID directives include rather oblique references that relate to the identification of dealing parties and may eventually be one of the big drivers behind the implementation of IBEI. In the meantime the industry rush a legal entity identifier at account level continues at a pace that could take us into a second decade of discussions.