Financial institutions in Germany are gearing up for the introduction of the International Securities Identification Number later this month, an event requiring preparation that has been compared with the scale of the euro’s introduction.
Germany and Austria switch to ISIN on April 22, ahead of most other European countries. France and other countries linked to trading through Euronext will change at the end of June. The change is expected to provide a further boost to cross-border trading in Europe and internationally.
Going live with ISINs has required coordination between originators, vendors and the users to ensure that systems across the deal, through pre-and post-trade, and on to settlement areas, are capable of handling the new securities identifier format.
WM Datenservice in Frankfurt, which acts as Germany’s national numbering agency for securities, says that surveys it has carried out among institutions and information vendors show that some 40 per cent plan to switch totally to the use of ISINs, with the remainder continuing to use Germany’s existing Wertpapier Kennnummer (WKN) numbering format in parallel. WM itself has been providing 100 per cent ISIN coverage since last October and reports no problems thus far.
Georg Eisel, publishing director at WM Datenservice, says, “Moving towards ISINs has been a tremendous workload, with some institutions comparing it with the scale of the euro introduction,” says Eisel. “At this stage we have to be very careful as the change impacts a large number of systems, all of which have to be cleaned and checked. You are talking about 20,000 individual programs across the region.”
Eisel says that the ISIN format will be the standard for communication between institutions, with the WKN format being kept simply to provide them with flexibility in passing information around internal systems. “We’ll see how the market reacts but our intention is that it will only be for a short time, perhaps a few years,” he says.
WM provides data to banks, brokers and financial institutions, alongside information vendors and software houses, and has worked closely with them on the transition. “They indicate to us that they feel well prepared and ready to start,” he says. “Internally, it may be that they have had to build bridges, but externally, in terms of communication between the institutions and internationally, they are ready to go. This is a busy time.”
WKNs, which were originally introduced by WM in 1955, will be changed from its current six-digit numeric format to an alphanumeric format that will provide greater capacity and longevity. “With the classic six-digit system, we were simply running out of numbers and had no flexibility,” says Eisel. “Moving to an alphanumeric format is the easiest way to overcome these issues.”
Eisel says that the introduction of the standard will be another step in the harmonisation of Europe’s still separate trading markets. “We see a benefit in being able to provide STP to a not-yet-defined set of market participants across Europe and globally. More and more there is a demand for the ability to have information on global securities and the ISIN is a key element for crossborder trading settlement and information management,” says Eisel. “As a standard, ISIN has been established for more than 20 years, but the market is now saying that it needs it.
“ISINs will reduce the costs associated with cross-border trading and settlement, and that is what the market wants,” he said. “There is a growing industry in global asset and risk management, and the corporations here need to be able to manage their activities on a global scale.”