The decision by Reuters to license the use of its proprietary Reuters Instrument Codes (RICs) has drawn cautious welcomes from most involved in the reference data industry. But some question whether the contractual restrictions that Reuters hopes to enforce on the use of the codes will can be reconciled with their general adoption.
The vendor, however, says that it is “in the process of finalizing the paperwork” on a series of deals with international customers that will be announced in the coming month.
Reuters says that it is licensing the use of the codes in “an effort to establish a global standard for managing and tracking securities data across the lifecycle of a trade”. The licensing service forms part of Reuters Enterprise Information Products, including the Datascope business, which provides end-of-day and historical pricing data, cross reference data, terms and conditions, and corporate action information across all global asset classes.
Essentially, organizations already using RICs through their real-time market datafeeds will be allowed to build a database using them to track trade through to settlement and to cross-reference them. “If they are already using RICs for price discovery, then they can use them to follow data,” says Roland Dickens, director, enterprise information products, at Reuters. “But customers who have built master reference databases can only use the RIC to navigate to Reuters-sourced data.”
Some third-party developers and rival data vendors say that this is going to be difficult to police. “A lot of the smaller banks use data-mapping to source data from cheaper vendors, and it is hard to see how Reuters could practically stop them,” said one real-time software vendor.
Dickens says that the impetus to loosen its policy on RIC usage came from customers. “They were asking us why, if they could use RICs for price discovery, why couldn’t they use it for other purposes?” In fact, the vendor has been mulling over its RIC license policy since the mid-1990s when user groups and large customers began talking about using them for internal processing. But a series of skirmishes with rival data vendors, who tried to map RIC codes to their datafeeds in an attempt to provide low-cost alternatives, was one factor that led to it keeping the codes for use on Reuters systems only.
“There was a feeling that RICs were some sort of crown jewels and that to give them away would cripple the datafeed side of the business,” says one former Reuters executive who was involved in looking at the issue.
Dickens acknowledges that the company has taken some time to accede to users’ requests. “One factor was simply that reference data was not well understood back then,” he says. “Everyone told us that they wanted to use RICs, but they couldn’t articulate what they wanted to actually use them for.” Since the publishing of the Tower Group/Capco report at the end of 2001, however, things have become much clearer.
Other observers say that RICs cannot become a global standard because there isn’t the full instrument coverage. Reuters says the license will initially cover the use of the RICs for all global exchange-listed equities, “as this is the area that financial institutions have highlighted to be the most problematic”.
There are further issues relating to the structure of the data, but Reuters claims that the RIC structure is “one of the few established global codes that enable an instrument to be identified at exchange level, thus providing a one-to-one match for all financial instruments”. Dickens says that this gives an advantage over proposals such as the London Stock Exchange’s extension to Sedol, which requires an additional Market Identifier Code (MIC) to create a unique code.
Of the vendor codes that could be considered for widespread adoption, RICs do have the advantage that they do not need the addition of a further identifier. But this does not overcome the prime objection that bodies such as RDUG and Redac have to the adoption of a vendor symbology, which is that it would be proprietary and commercial interests would get in the way of widespread adoption. The restriction preventing the use of RICs to navigate to non-Reuter data, in particular, will be a stumbling block in many implementations.
Of the various proposals for a unique instrument identifier that are currently on the table, the use of RICs is probably the only front-office vendor option that could challenge the LSE proposal, but while it meets the criteria of uniqueness and timeliness that standards developers are looking for, it fails though its lack of commonality, despite having 500,000 users internationally.