The Derivatives Service Bureau or DSB is a global numbering agency for OTC derivatives. As a legal subsidiary of the Association of National Numbering Agencies (ANNA), the DSB aims to serve the needs of market participants through the allocation of various data standards driven identifiers, including: ISINs, CFI, FISN as well as other ISO stndards used to identify, describe or classify financial instruments.
Recently, the DSB held its first consultation of the year to gain input from the industry on how it should share its services for 2020 and the results are in! In this Q&A, Malavika Solanki, member of the DSB Management Team, shares insight into the results of the recent consultation including likely changes to regular activities and new areas DSB will explore.
Q. What were the original drivers behind this consultation?
A. The DSB serves two distinct categories of users for each of OTC record creation and consumption. Consumers access the DSB for end of day data and/ or search the DSB for all or part of the OTC record which contains the OTC ISIN, the CFI, the FISN and the full set of associated user input and derived attributes. OTC ISIN creation activity is driven by the sell-side (in terms of the number of OTC ISINs created), with a broader range of data consumers, who comprise over 70% of all firms accessing the DSB’s services.
The spectrum of DSB users includes credit institutions, small brokerages, private wealth management firms, boutique asset managers, large, multi-segment and/or multi-market trading venues, custodians, data vendors, clearing houses, derivatives firms from across the buy and sell-sides and universal-bank style sell-side institutions with multiple business segments within a single group holding structure.
DSB consultations provide a direct opportunity for all industry participants to shape the DSB’s areas of focus in the following year. This is the third series of annual consultations, with the questions to industry drawn from user requests and this year’s consultation timeline published in March. As a general approach, industry participants have three primary means of shaping the DSB’s services:
(ii) participation in the annual consultation process
Q. In the press announcement, you mention that it was recommended that DSB follow two BAU activities: 1. expansion of the use underlying data sources used by DSB and 2. suggesting other aspects DSB should focus on as part of data review activity. Can you explain these findings and what the actions are for DSB based on the suggestions?
A.A clear majority of respondents stated that they were broadly satisfied with the list of underlying identifiers currently available when creating OTC derivative identifiers via the DSB.
Some users noted that they would wish to see enhanced DSB support for US indices (equities), additional commodities indices and support for OTC derivatives on digital assets. The DSB proposes to work with the PC to review each of the requests for additional underlying data made above on a case by case basis as part of its business as usual (subject to PC prioritization) and provide updates to the user community in due course.
Respondents’ opinions were evenly split on whether they wished any data review process to commence. Areas where respondents wished the DSB to focus its data review efforts included:
- Addition of a tag to show which OTC interest rate derivatives are forward starting, once the DSB’s enhancements to RTS-23.Field41 have been implemented
- Increased efforts to review data quality input by users, in particular, their use of the delivery type and IR term of contract attributes
- Provision of guidance on the use of reference rate term unit and common normalization methodologies
Given the mixed responses, the DSB proposes to work with the PC to review each of the requests for additional underlying data made above on a case by case basis as part of its business as usual (subject to PC prioritization) and provide updates to the user community in due course.
Q. Can you share some of the areas that need additional feedback and why? For instance, how might DSB support MiFID II taxonomy mapping, required ISIN and LEI support.
A. Users have integrated with the DSB service at varying points in the trading lifecycle from pre-trade through to post-trade, regulatory only purposes. Some DSB users have requested that the DSB maintain and publish the mapping between each DSB product template and the associated sub-asset class as specified by the ESMA MiFID II taxonomy.
Such a service would provide a central data source for OTC derivatives users and could be maintained on an ongoing basis as new OTC derivative templates were added to the DSB (for ISIN or CFI purposes) – for use in either machine readable and/or human readable contexts.
A majority of respondents requested that the DSB investigate provision of a mapping between DSB product templates and MiFID II taxonomy. Respondents who wished the DSB to investigate further, noted the following benefits to industry:
- provision of this type of mapping would deliver improved transparency and assist end users in choosing the appropriate DSB template for a given asset/sub-asset class as categorized in RTS-2 of MiFID II
- assist in addressing the current industry gap between market participants and data vendors, at source i.e. at the DSB
- deliver downstream benefits in areas such as liquidity assessments, SI Calculation data and reportability decision-making processes
The DSB notes the general interest in such a mapping between ISIN and MiFID II Taxonomy, but is also mindful of the negative responses, which focused on having further clarity on cost and value. In light of industry interest, the DSB proposes to undertake time-boxed analysis for a period of six months, with direct industry input via the DSB PC and TAC.
The DSB PC sub-committee (with industry experts) will assist in determining how a mapping could be both created and maintained, with the DSB TAC determining how best to facilitate distribution and publication of mapping data, alongside existing DSB MiFID II product templates. In conjunction with producing workflows and output format, the analysis will also determine best approach for low-cost implementation and maintenance through the involvement of the DSB TAC.
If we now move to discussing whether and how the DSB could assist industry by leveraging the ISIN-LEI mapping facility now available to industry, users had mentioned two areas of interest – provision of an LEI for Single Name CDS instruments and validation of the CDS Single Name template for which OTC reference data is being created.
All respondents requested that the DSB investigate development of a link between the DSB and the ISIN-LEI service in order to provide the LEI in all instances where it is available. Users seeking additional information noted that it would be desirable to link a single name Credit Default Swaps’ (CDS) underlying reference bond’s ISIN to the bond’s issuer LEI within DSB product templates, to assist end users to investigate discrepancies where the same product has two different ISINs because one counterparty uses the LEI as the Reference Obligation but the other uses the ISIN of the specific bond.
The next potential scenario is the use of LEI-ISIN mapping to assist with additional data validation of Single Name CDS ISINs being created by the DSB. Users have suggested that the DSB should leverage the recently developed ISIN-LEI mapping facility to support data submission for Credit Default Swaps (CDS), so that use of the DSB’s Corporate CDS product template only allows underlying corporate bond ISINs to be input by users. The same principle also extends to the use of each of the Municipal and Sovereign CDS product templates.
Such an enhancement would mean that a user attempting to create a Corporate CDS would not be able to submit an underlying bond ISIN associated with an LEI mapped to a sovereign issuer. Most respondents welcomed further efforts to improve data quality, with some noting that the impact of using an inappropriate DSB product template is the creation of an inappropriate CFI code and badly defined ISINs.
Users requested that further analysis be undertaken to determine the proportion of OTC ISINs that are subject to these types of errors. The DSB views the user requests for further analysis as being achievable with existing DSB business as usual resources and will therefore look to progress the suggested analysis as part of the existing PC secretariat, subject to prioritisation by the PC. The range of possible next steps are likely to include guidance on appropriate product template selection, validation vs. underlying issuer type (if available), etc
Cybersecurity is a big area for the financial services space. How can DSB assist supporting cybersecurity efforts in the OTC derivatives data arena.
The DSB consulted on 5 proposed changes related to the DSB’s cyber-security governance arrangements, based on user and regulatory feedback received in the past 12 months. Cybersecurity is also a growing area of focus for all industry participants and the DSB is conscious of its role in providing its users with secure and reliable access.
Some specific cybersecurity areas of focus in the second consultation are the use of multi-factor authentication by the DSB GUI to match best practice cyber-authentication guidelines, potential extension of the DSB’s Software Development Lifecycle (SDLC) to embed security considerations throughout the SDLC and potential adoption of the ISO 2700X standard as a framework for addressing information security risks.
Q. There is a second DSB consultation now. What is the aim of this consultation and how will this take the DSB forward and help the industry at large?
A. This second consultation opens on 5th July 2019 and will close on 29th July 2019, with a final consultation report to be published on 19th August 2019.
The first consultation sought to obtain industry views on a broad range of topics arising from user feedback during the prior 12-month period, with industry responses published on the DSB website. Requests for feedback were sent to the DSB’s user community, comprising more than 3,100 individuals across 420 organizations.
This second consultation is intended to summarize the industry responses received and to undertake further consultation to determine appetite for enhancing the DSB’s services within the communal cost recovery ring-fence.
The final report will present the results of this round of consultation and confirm the approach that industry wishes the DSB to take on each consultation theme.
In light of the broad spectrum of institutions utilizing the DSB, it is hoped that a representative set of firms will seek to respond to this consultation. All responses should be submitted to the DSB Secretariat at email@example.com no later than 5pm UTC on Monday 29th July 2019.