For the reference data community, 2024 is set to be a significant year

A summary of the year's biggest developments in reference data, from the Cusip lawsuit, to the UPI, to Isins for crypto.

When I started at WatersTechnology six months ago, sources in the reference data world would often thank me for my interest. I, of course, should have been thanking them for theirs. This time last year I was in college, writing about sumptuary laws in the 18th century—that is, laws designed to curb and punish luxury and extravagance—but this year, I’ve decided to go in the opposite direction.

I find myself now submerged in a world of cocktail parties, industry gossip, elbow-rubbing, and the ever-surprising—even exciting—realm of reference data. Below is a brief summary of 2023’s developments in the lifeblood coursing through our financial system—and alas, I don’t mean the champagne at The Ned in London.  

The UPI was introduced 

On October 16, the Derivatives Service Bureau, an arm of the Association for National Numbering Agencies (ANNA), released the unique product identifier. The UPI, which had been in the works since shortly after the 2008 Financial Crisis, was designed to identify over-the-counter derivatives. Now, you might note that the industry already has identifiers for OTC derivatives. 

But what makes the UPI different than its predecessor, the OTC International Securities Identification Number—also issued by the DSBis its simplicity.

In contrast to the OTC Isin, which includes some data elements required only under Mifir and Mifid in the UK and EU, the UPI has fewer data elements and will be required by more jurisdictions globally than the OTC Isin. The UPI cuts out much of the information included in the Isin, including the expiry date, a point of contention among critics of the OTC Isin. This older identifier repeatedly generates new OTC Isins for certain assets, such as interest rate swaps, which require a new expiry date each time the asset inches closer to maturity. This poses problems for data aggregation, among other issues. More on that later.  

Backers of the UPI believe it holds promise and excitement. It’s small, cute, and simple, and its future will be put to the test in Europe this coming January as the EU prepares to implement a consolidated tape for OTC derivatives.

“Who knows how the UPI can evolve in time?” Joseph Berardo, co-chair of the DSB product committee and director of credit product management at Intercontinental Exchange, told WatersTechnology in October. “But the fact that you’re starting out with this point that you’re trying to cover these gaps, is a good, good step in the right direction.” 

In the final weeks of 2023, the Isin and the UPI were handed a challenge by the European Commission. As the EU prepares for the consolidated tape project to take shape, only one identifier, the OTC Isin or the UPI, will be used for price discovery on the eventual tape. 

The decision is set for January 9th. But to give you a preview, as one of my contacts at a Tier-1 bank told me, this may be the first nail in the coffin for the OTC Isin, and it could dictate the future of the DSB, derivative identifiers, and even the view regulators have over OTC derivatives markets.

Anna, DSB launch crypto Isins

In a small but important move, the DSB and ANNA released Isin identifiers for digital assets. As this story my colleague Theo Normanton and I wrote, points out, this was an important breakthrough for a still largely unregulated market.  

As for its effect on reference data broadly, Simon Forster, global co-head of digital assets at TP Icap, told WatersTechnology that those in the traditional financial world often take back-office necessities like identifiers for granted. Bringing identifiers to crypto, he noted, could help those in traditional finance see just how crucial small regulatory tools like identifiers are for the functioning and maturation of the industry.

“[Isins] are the foundation for more traditional asset classes,” Forster said.

He added that the new Isins will help TP Icap scale the processing of OTC crypto derivatives in the UK. “We would put those transactions through probably our [organized trading facility], but fundamentally on one of our regulated venues, and in order to satisfy our regulatory reporting, we need to have ANNA Isins. This is one barrier that’s removed for us in terms of entering that space.”

For all the (many) lessons learned from crypto and those surely still to be realized, we might say it, at the very least, has taught TradFi a lesson in gratefulness for the back office.

Cusip lawsuit progresses

Turning our attention to the US, this year saw the second chapter in the Cusip class-action lawsuit, a not-so-small-scale drama that continues to play out in a courtroom in the Southern District of New York.

As covered by WatersTechnology’s new European editor, Rebecca Natale, federal judge Katherine Polk Failla ruled that the lawsuit, which has targeted Cusip for its much-maligned licensing fees and an alleged monopoly over US stock and bond identifiers, has enough merit to proceed on an anti-trust basis, with sections of the Sherman Act of 1890 at the heart of it all.

The saga began in March of last year when New York-based broker-dealer Dinosaur and Swiss Life, and then Connecticut-based asset manager Hildene, filed two class actions days apart from each other against CGS and S&P Global, CGS’s long-time operator; the American Bankers Association (ABA), CGS’s patent holder and creator; and FactSet, the data and research provider that purchased CGS from S&P in 2022 for nearly $2 billion. The European Commission had previously stipulated that S&P divest CGS as part of its merger with IHS Markit, ending a 53-year operation of CGS by S&P on behalf of the ABA.

In addition to their claims that the quartet of companies had violated sections 1 and 2 of the Sherman Act, the plaintiffs also alleged—in a combined complaint—breach of contract and state business law violations after also seeking a ruling on whether individual Cusip codes are copyrightable. In her written opinion, Failla dismissed all claims except for the complaint related to Section 2 of the Sherman Act, which will be allowed to proceed to discovery.

Failla wrote in her response that there are two elements for making out a Sherman Act Section 2 claim for monopolization: the possession of monopoly power in the relevant market and the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident. To prove such a claim, the plaintiffs must show proof of a concerted action deliberately entered and specifically intended to achieve an unlawful monopoly, and the commission of an overt act in furthering the conspiracy.

“The antitrust concerns of this case instead arise because defendants, through their restrictive agreements with third-party data vendors, have created a system designed to prevent any competitive uses of Cusip numbers,” she wrote in the filing. (You can read the full story, here.)

The case is still taking shape, with additional parties given until March 2024 to join the class-action suit. While there wasn’t much news to report on this case in 2023, the fact that it is being allowed to move forward means that 2024 could carry massive consequences for the reference data community. 

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