FISD General Meeting

1
FISD General Meeting

• June 22, 2001
• Reuters Information
• New York City

2
Meeting Agenda

• General Assessment
• Business Process Automation
• Market Data Policy Project
• Market Data Definition Language
• ANNA Service Bureau/ISIN

• Unique Security Identification/STP
• SEC Market Data Advisory Committee
• World Financial Information Conference
• Organizational Issues
• Open Forum

3
General FISD Assessment

• Significant progress made on active projects
• MDPP ready for launch
• MDDL version 0.9 ready for industry evaluation
• ISIN, ASB and unique security identification
• SEC Market Data Advisory Committee
• Billing automation project gains momentum
• World Conference in London
• NYC office and new staff

4
Business Process Automation

• Growing support for concept of billing automation
• Functional requirements specification
• Firms (inventory management, billing
  reconciliation, electronic bills, data
  optimization)
• Vendors (simplification of reporting
  requirements, automated data feed reporting,
  e-bills/statements, payments to 3rd parties)
• Exchanges (efficient data feed authorization,
  timely and accurate reporting, timely and
  accurate payment)

5
Billing Automation

• Definition/Mapping of Process
• Data capture requirements
• How data moves through system(s)
• How data is used to generate a bill
• What entities do to validate and pay the bill
• Issues that arise from current process
• Reporting requirements
• Timing cycles
• Data sets that dont match

6
Billing Automation

• Process simplification and data standards
• Reporting requirements/snapshot reporting
• Process simplification (flexible reporting dates,
  partial month billing, timing cycles)
• Standard data elements on data feed reports and
  invoices (XML standard)
• Transparency and consistency of rules
• Sizing of problem and value proposition
• Development of industry-wide solution

7
Market Data Policy Database

• Industry-wide reference tool on market data
  policy requirements and fees
• Status of MDP Database
• Policies for 30 exchanges (another 13 awaiting
  clearance)
• Web interface built and tested
• Access download built and functional
• Status of MDP Fees Guide
• Fees information for 37 exchanges (another 42
  awaiting clearance)

8
Market Data Policy Database

• Database beta test results
• Content is accurate, detailed and useful
• High marks on primary applications -- real world
  policy compliance policy comparison, development
  and adjustment business assessment
• Knowledge of contracts, market data business
  management and MDPP database structure are
  required to take full advantage of MDP database
• Addition of contract library will significantly
  increase value of database

9
Market Data Policy Database

• Initial Launch Strategy
• Access to online database and pre-formatted
  reports is open to entire industry with
  pre-registration
• MS ACCESS version restricted to FISD members
• Redistribution or incorporation into commercial
  product is subject to license
• Clear statements on both content and how to
  effectively use the database
• MDP Fees Guide is available to entire industry

10
Market Data Policy Database

• MDPP Maintenance
• Quarterly updates plus RMA added to exchange
  notification lists
• Notice of changes in MDP change log as received
• MDPP Enhancements
• Online library of source contracts (17 received)
• Proposal received for development of online
  library development and database creation
• Direct link to Exchange Contract Guide

11
Market Data Policy Database

• MDPP Enhancements
• Proposal received for development of online
  contributor interface to facilitate updates from
  contributing exchanges
• Development of MDPP training program in concept
  stage
• Development of MDPP customized research program
  in concept stage

12
Market Data Definition Language

• FISD activity formally launched January 2001
• Generic XML-based interchange format on the
  fields needed to describe
• Instruments/Asset Classes
• Corporate Events (affecting value and
  tradability)
• Market-Related Information (economic and
  industrial indicators
• Vocabulary and Technical Committees have been
  meeting approximately twice per month

13
Why MDDL?

• Mission
• Promote data interoperability
• Focus on broad field definitions for market data
  applicable to multiple classes
• Initial application is end-of-day and snapshot
  that can be extended (streaming and interpreted)
  as appropriate
• Users firm requirements
• Integrate data from multiple sources
• Shift resources from data formats to data
  quality

14
MDDL Development Process

• Goal of MDDL process is to develop a practical,
  realistic and achievable standard (evolutionary,
  not revolutionary)
• The initial focus is intraday snaps and
  end-of-day values -- but the vocabulary must be
  amenable for extensibility to streaming of real
  time data
• Vocabulary work has been on the definition of the
  domains for market data and their descriptors

15
MDDL Vocabulary

• MDDL Domains
• Category 1 -- Instruments (equities, collective
  investment vehicles, debt, contracts and units)
• Category 2 -- Indicators (indices, financial and
  exchange statistics, ratings, economic
  indicators)
• Category 3 -- Corporate events (notifications,
  descriptive data, fundamentals)
• Release 0.9 deals with global equities,
  collective investment vehicles (specifically
  mutual funds) and indices only

16
MDDL Vocabulary

• Descriptor Categories (instrument identification
  issuer identification valuations measures
  statistics dates times currency locations
  holdings loads fees industry classification
  asset class source status, indicators and
  features)
• Data field map (which descriptors relate to which
  domains)
• Data relationship map (descriptors that can be
  attributes of other descriptors)

17
MDDL Technical Approach

• Specification to support XML Schema and DTD
• Novel approach! (usually one or the other)
• Implies certain degree of simplicity
• Sets the stage for enhanced functionality
• Minimal required tags and content
• Example (excluding namespace attributes)
• lt?xml version"1.0" encoding"UTF-8"?gt
• ltmddl version0.9-betagt
• lt/mddlgt

18
MDDL Technical Framework

• Includes or Permits
• reference lists of commonly used material
• Internal AND External
• Element based approach to represent content model
• Property concept that inherits through hierarchy
• Multiple snaps and timeseries in each
  instance
• Content model mapped from Vocabularys Domains
• Schema Adjunct Framework for Data Dictionary
• Contains labels and other display related
  attributes

19
MDDL Status and Next Steps

• Release 0.9 (June 22, 2001) on equities, CIVs and
  indices
• Global evaluation and change management process
• Procedures for completion of standard and release
  of version 1.0 (November at WFIC)
• Documentation, maintenance and promotion
• Liaison with other XML groups

20
ISIN and Security Identification

• The core message (i.e. accurate and timely access
  to ISIN is essential for STP automation) has been
  successfully delivered
• Creation of the ANNA Service Bureau (ASB)
• Jointly managed by Telekurs Financial and SP
  CUSIP
• July 1, 2001 start date
• GIAM feed discontinued September 2001

21
ISIN and Security Identification

• Creation of ISIN User Group (four FISD members,
  three SWIFT members, six ANNA members)
• ISIN assignment and maintenance issues
• Product specification (phase one and beyond)
• Minimum mandatory data elements for ISIN
  assignment
• Indicative data elements and CFI code
• ISIN for futures and options?

22
ISIN and Security Identification

• Centralized customer support
• Contract and bilateral agreements
• ASB goal is a single contract between vendors and
  the ANNA Service Bureau (key issue is
  transferability)
• FISD proposal
• Level 1 ISIN (all data elements needed for
  unique identification) should be unrestricted
• Level 2 ISIN plus data elements in GIAM
• Level 3 Full ASB data set including
  cross-referencing

23
Unique Security Identification

• FISD Research Process
• Goal identify (at a granular level) what each
  segment of the information chain requires for
  security identification
• Perspectives of trading, investment/portfolio
  management, pricing, custody, settlement,
  depository, clearing, compliance, risk
  management, database management
• Five meetings and three conference calls since
  March

24
Unique Security Identification

• This is a complicated issue
• Instruments can be issued, priced, traded,
  settled and cleared in many ways
• Different types of identifiers are relevant at
  various levels and for a variety of functions --
  one size doesnt fit all
• Overall goal is efficiency and reduction of fails
  -- STP trade mechanics and cross-border
  processing are part of security identification

25
An Illustration
26
ISIN Alone is Not Sufficient

• ISIN DE0007236101
• ISIN is a unique issue identifier but not always
  a unique security identifier
• ISIN alone is not sufficient for unique
  identification because one ISIN can be shared
  among multiple offerings in multiple locations
• However, ISIN is important for front-office
  systems and for aggregation of global positions

27
Register Level Identifier

• Register is the place where legal records of
  security
• ownership are held. This is important for
  determining
• whether re-registration is required and is part
  of
• determining settlement compatibility
• Register can span different listed securities
  and
• different currencies
• ISIN Register is not sufficient for all
  functions
• because it cannot identify a specific listed
  security

28
Place of Official Listing

• The place of official listing (POOL) identifies
  the primary and
• secondary markets where the security is listed
• In this example the place of official listing is
  Frankfurt,
• Zurich and Paris
• POOL is needed to differentiate the security in
  the case of
• multiple listings (i.e. subject to different
  settlement, pricing,
• tax/corporate event treatment, allocation of
  national
• numbers)

29
Event Related Identifiers

• There are attributes associated with a financial
  instrument that are not identifiers but are
  critical data elements
• CSD Bridge Link details - used to determine if a
  security can be delivered from one place of
  settlement to another. Must be presented at time
  of trade decision to be useful for risk
  management
• Place of Trade -- needed as a practical matter
  for due diligence and market compliance (i.e. for
  trade execution problems, transaction related
  taxes, trade related statistics, etc.)

30
Five Core Elements
31
Instrument Identification

• ISIN is needed as the issue level identifier for
  aggregation of positions
• POOL and register are indicative data elements
  that are attributes of a security, known by
  issuers and can be collected
• CSD Bridge Link and Place of Trade are attributes
  of a transaction but important
• The fundamental security identification problem
  is the inability to derive POOL (and possibly
  register) from ISIN.

32
Possible Approaches

• Option 1 Create a new security ID number at the
  POOL/Register level integrated into a defined and
  maintained database of relationships between
  securities on a global basis
• Option 2 Create a standard symbology for
  identification of POOL/Register using marketplace
  codes (i.e. redefined MICs)
• More research is needed to identify the practical
  implementation issues associated with POOL

33
SEC Advisory Committee

• Schwab petition, Concept Release, Advisory
  Committee on Market Data,
• NYSE seeks to withdraw from CTA
• Core issues
• Governance of consolidators
• Competition among consolidators
• Market data policy, administration and contracts
• Transparency (what information)
• Fee structure and regulation

34
SRO Governance

• Non-issue
• CTA just implements what SRO boards dictate
• CTA process works
• Additional bureaucracy not needed
• Outside input to help analyze practical
  implications
• Revenue sharing is the only issue (not a
  governance problem)

35
Competing Consolidators

• An area of significant debate (unclear why)
• Within confines of NBBO -- little to be gained
  and significant risk associated with shift to
  multiple consolidators
• Risk areas sequencing, message gapping, design
  of internal software, validation tolerances,
  capacity, protocols and data formats, conversion
  management
• Risks are manageable, but whats the point?

36
Market Data Business Issues

• Issues are not well understood by SEC or members
  of the Advisory Committee
• Four key questions
• Who should determine the business practices of
  the exchanges
• New business considerations associated with
  information competition
• Opportunities for business process efficiency
• Role of regulators in business management
  oversight

37
Market Data Business Issues

• Market data contracts
• Market data business policies
• Prior approval versus vendor discretion
• User classification
• Unit of count
• Billing and reporting requirements
• Subscriber agreement
• Derived data
• Business process automation

38
Market Data Business Issues

• Conclusions
• Global transparency of fees, terms and
  administrative requirements is important
• Progress is being made to embrace e-commerce in
  market data administration
• A productive dialogue exists on exchange business
  requirements
• Business requirements of the new environment need
  thoughtful consideration

39
Market Data Fees

• Cost-based standard is appealing but impractical
• Transparency rather than rate setting
• Hard to separate pricing issues from market data
  policy, contracts, billing and administration
• Is current SEC fee oversight process sufficient?
• Mandatory minimum (NBBO and last sale)
• Enhanced data
• Commercial products outside core SRO functions

40
Transparency

• Transparency is the core issue
• Complete depth of book on production side
• Display rule
• Information competition on display
• must display versus must offer
• Best execution rule
• NBBO is important but insufficient
• Size benchmark (10,000, 20,000 50,000)?
• Other (high/low, average price, etc.)
• Whats the definition of core data?

41
World Financial Information Conference

• October 30 - November 2, London, UK
• Partnership with Dow Jones Newswires has been
  terrific on the content side
• Sponsors London Stock Exchange, Radianz, SAIC,
  SWX/ExFeed, Telekurs Financial, Veronis, Suhler
  Associates
• Program ready for roll-out
• REGISTER! www.fisd.net/wfic2001

42
Operational Issues

• FISD Associate Director Bill Mangan
• FISD Coordinator Tom Andresen
• New York City Office
• Organizational relationships growing
• Next General Meeting
• September meeting in Europe
• Is this necessary?