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MiFIR: How ISINs Work: 1

Many people in the market seem to have a misunderstanding about what ISINs (International Securities Identification Numbers) are, how they work and what they can be used for.  That misunderstanding has now become critically important because ESMA has decided to recommend to the European Commission and the European Parliament that the use of ISINs should be mandated for the transaction reporting of all relevant financial instruments defined in MiFIR, the EU's Markets in Financial Instruments Regulation.  It is not clear at this point that ESMA fully understands how ISINs work either.

This may seem like an odd statement to make, but an ISIN is not really an international securities identification number.  For a start, the standard is not just intended for securities, and as financial markets are a regulated environment, it's important that we use terms that the regulations and the regulators use themselves, otherwise we run the risk of increasing compliance problems.  Take a look at a regulatory handbook, such as that produced by the UK FCA, and you'll find there what regulators consider to be a "security".  Derivatives aren't classed as "securities", and yet ISINs can be used for exchange-traded derivatives and benchmarks.  So ISINs are not just securities identifiers. And they are not just made up of numbers.

Most importantly, the ISIN Standard (ISO 6166:2013) does not specify anywhere what characteristics of an instrument need to be checked before an identifier can be allocated to that instrument and that instrument alone.  While the global LEI standard enables the creation of an identifier that is unique to an individual entity, ISINs are not necessarily unique to an individual instrument.

What ESMA wants from an identifier may not be what investment firms and trading venues need themselves, and mandating the use of only ISINs may result in additional compliance overhead and costs for market participants.

(Chris Pickles is an independent consultant and a member of the Open Symbology Team at Bloomberg)


Comments: (5)

John Lathouwers
John Lathouwers - T-Cam - Valkenswaard 07 December, 2015, 08:21Be the first to give this comment the thumbs up 0 likes I suppose that the ESMA is aware of the characteristics of instrument identifiers, e.g. ISINs, CUSIPs, SEDOLs, etc. The article would have had more value if it had detailed ESMA's requirements in order to understand the decision.
A Finextra member
A Finextra member 07 December, 2015, 09:31Be the first to give this comment the thumbs up 0 likes

I'm afraid that your supposition is incorrect, John.  ESMA is rather unaware of the characteristics of instrument identifiers, similarly to most people in the financial markets sector.  Information that is clearly inaccurate and incorrect about standards has also been given to ESMA to encourage it to make the recommendatuons that it has made so far.  To my knowledge, ESMA hasn't detailed its requirements at any point.

Roger Storm
Roger Storm - Euroclear Sweden - Stockholm, Sweden 07 December, 2015, 11:17Be the first to give this comment the thumbs up 0 likes

"The nice things with standards, is that there are so many" as someone nicely fraced it. The LEI, IBAN, ISIN, Mobile Phone numbers and Individual Identity of Legal representatives (nevcessary for appropriate AML and KYC) need to be seen as a comprehensive set of standards, accompanying the payment transaction leg, of a matching business transaction (goods, services of securities). Does ISO, EBA, ESMA, ANNA, EPC, etc. and their national and regional comittees still have an overall grasp and control over the developments, one wonders

A Finextra member
A Finextra member 21 January, 2016, 08:14Be the first to give this comment the thumbs up 0 likes

Standards are often presented as simple, easy-to-use things - but most of them are made out of beautiful but complex and delicately-balanced components and relationships. Engaging with standards at the purely-superficial level can be done in some use cases, but others require a climb up the learning curve. This debate is welcome on this forum - if any of you are connected to ANNA, ESMA or other relevant regulators, please invite them to join it!


Bruno  Schütterle
Bruno Schütterle - B.F.Schütterle - Kilchberg 25 January, 2016, 20:47Be the first to give this comment the thumbs up 0 likes

There was a ESMA questionnaire circulating about the identification codes. Many organisations have commented. It is for me absolutely not clear why ESMA has chosen the ISIN identifier as the only acceptable identifier in the EC territory. ESMA knows well about the issue and the antitrust case against CUSIP/S&P/MGH - I can confirm that NFPO (more than one I am aware of) that have clearly stated that there is an issue with ISIN - based on EC 39592 about CUSIP/USISIN. In April 2017 the agreement will expire and there is no automatic prolongation. NFPO fear the worst. I wonder with what proposal TC 68 (mandated by ROC where ESMA has to my understanding representation) will provide the industry with the solution for derivatives - as mapping with ISIN (IP and Copyright free ones?) need to be established. How do they want to avoid the CUSIP sequence in the USISIN? or do they need to remap all USISIN with a new sequence number. So the same happened with BBUID to be tranformed in FIGI - based on IP issues! So the IP mess is not disappearing  until the National Numbering Agencies change their statutes of ANNA Service Bureau. This will have to result in a free global USISIN usage without any fees and contracts including CSB serviced countries such as CDA - and no NNA may be in a "commercial" position to go against any NNA majority vote (see Oslo guess 2007)

This is only about the American Bankers Association royality deal over 20 years with CSB enabling a US commercial monopoly as a NNA!

Look in LEI you will find no country dominated entity issuing LEI in a monopoly situation - there is global competition - hence no monopoly possible (also due the fact that the LEI is free of charge)

Finally, check on the LEI - freely available for everybody without a contract and or sign in on bulk download. Learn something....

The instrument identifier mess should be cleaned up or the standard should be terminated and a new solution should appear in the industry. Derivatives will be a good way to start with the exercise....

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