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MiFIR: How ISINs Work: 2

Who allocates ISINs to financial instruments?  You could easily get half-a-dozen different answers based on the assumptions of people in financial markets.  As a starting point, ISINs are not issued by ISO (the International Organization for Standardization).  ISINs are issued by organisations that have been given the sole right to issue them for a particular country.

How did those organisations get the right to issue ISINs?  Sometimes it's a matter of tradition or default - for example, an organisation that issued domestic securities identifiers became the national issuer of ISINs because the domestic securities identifier that it created sits in the middle of every ISIN.  Back then, ISINs were allocated to securities (equities, bonds, warrants) but hardly ever to derivatives.  "Back then" is not necessarily a long time ago.  As recently as 2006, when preparing for MiFID I, regulators and market participants recognised that the then-standard for ISINs would not enable the unique identification of every instrument in the fast-growing derivatives market. That is one reason why an "Alternative Instrument Identifier" (AII) standard was created and was adopted by derivatives exchanges and regulators in Europe.

As derivatives markets and the number of derivatives instruments grew, so the role of the domestic ISIN issuer expanded - and perhaps not in the way that you might expect.  Even though the domestic ISIN issuer might have little or nothing to do with the derivatives market, it still had the sole right to issue ISINs in its country.  New derivatives exchanges could issue their own proprietary instrument identifiers, but they couldn't issue ISINs: only the organisation that had the sole right to issue ISINs in that country was permitted to issue ISINs.  These organisations are today referred to as "National Numbering Agencies" for ISO purposes.

Considering the above, perhaps it's not surprising that ISINs have not been widely adopted outside of the equities and fixed income sectors.

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

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