The emergence and uptake of identifiers for financial instruments, products and transactions continues to develop in the financial industry. Born out of the need to support compliance with regulatory reporting requirements and boost transparency and efficiency in post-trade processing, these identifiers are still evolving. In this article, we offer an update on some of the key identifiers in the derivatives and financial space (OTC ISINs, UPIs, UTIs and DTIs) to shed light on current challenges in uptake, usage and what’s next for each identifier in the remainder of 2023 and beyond.
OTC ISINs
An International Securities Identification Number (ISIN) offers financial institutions a way of identifying individual instruments via a 12-character alphanumeric code. Financial institutions use these codes, which are defined by the ISO 6166 standard, to identify a variety of financial instrument types including derivatives, equity, debt and indices. ISINs are necessary for transaction reporting and market abuse monitoring.
The Derivatives Service Bureau (DSB), which is a global numbering agency for OTC derivatives, is the only provider of ISINs for OTC derivatives globally. As of September 2023, some 111,120,709 unique ISINs had been created, the majority in equity, FX, and rates derivatives.
Emma Kalliomaki, managing director, DSB commented: “ISIN is an international standard that has been in place for 40 years and which underpins the traditional financial markets. It keeps the financial markets running smoothly and plays a key role in the trade lifecycle. OTC ISIN is part of the broader standard but is very specific to the centralised model for OTC derivatives.
ISIN has undergone some evolution with the arrival of other standards like the legal entity identifier, (LEI) for example, to form a suite of identifiers. Standards continue to evolve and that keeps them relevant for the financial markets where things move quickly. These standards work individually as standalone identifiers and standards, but they also complement each other so firms have a means of identifying, classifying, and describing financial and referential instruments. From a data management point of view, it is very powerful to be able to have a consistent, unambiguous way of identifying your database of financial and referential instruments.”
UPIs
Unique Product Identifiers (UPIs) are a new identifier to uniquely identify the product included in an OTC derivatives transaction required now or in the future for the reporting to relevant trade repositories (TRs). The identifier will work in concert with Critical Data Elements (CDE) and Unique Transaction Identifiers (UTIs), as they are also identifiers or data elements that will be reported to global regulatory authorities.
The DSB, which issues UPIs, opened its production environment on October 16th, 2023, three months ahead of the first reporting deadline, to give firms the opportunity to transition out of the testing environment and test their internal data integration, with time to iron out any issues before the deadline. Firms will be able to create or request UPIs as soon as they are in the live environment, and the DSB is simultaneously pre-populating the UPI universe to ensure the identifiers become available as quickly as possible.
UPI reporting deadlines are staggered around the world, with the first deadlines in the US, EU and UK in January, April and September 2024 respectively. Firms need to test and certify their data integration and workflows to make sure they are ready.
Emma Kalliomaki commented: “UPI operates at a different level of granularity than other identifiers, providing specification at the product level. Within the DSB OTC framework, the Classification of Financial Instruments (CFI) offers high-level classification, the UPI allows for global aggregation for monitoring systemic risk at the product level. Below that sit the OTC ISINs, which are even more granular.
Each identifier type has a different purpose, and there can be multiple ISINs for a single UPI. From a data management point of view, firms must integrate the data appropriately to allow for a UPI to be represented against multiple ISIN records and at that different level of granularity. Firms need to consider how they manage that integration and make sure the different identifiers are used for different reporting purposes. They need to think about the outputs coming from the DSB, the input into the workflow, and ensuring the downstream processes and the reporting output is appropriate for the different jurisdictions. The whole data integration and data management piece will really start in earnest once they start receiving the production data.
DSB estimates there will be roughly 113 million ISINs for 700,000 UPIs. After the initial universe of UPIs is generated, approximately 5,000 UPIs will be generated per month on an ongoing basis.”
More on UPIs:
UPI Update: How is Implementation Progressing? – Derivsource
UPI Update: DSB Enables UPI Creation in Production Environment – Derivsource
UTIs
Unique Transaction Identifiers (UTIs) are an identifier assigned to securities trades that comes in the form of a unique alpha-numeric code including up to 52 characters. This identifier, which is part of the ISO “stable”, is already in use for transaction reporting in the securities markets. In the 2017 Technical Guidance Report on the Harmonisation of UPIs, CPMI IOSCO states: “The primary purpose of the UTI is to uniquely identify individual OTC derivatives transactions required by authorities to be reported to TRs, in order to enable aggregation of these transactions and analysis, so that authorities can use reported information to fulfil their legal obligations and prudential requirements.”
The UTI provides firms with better visibility on the transaction lifecycle and enables them to detect and manage settlement disputes in a proactive manner. It also increases efficiency through increased straight-through processing (STP).
The most recent UTI development came as part of the Australian Securities and Investments Commission (ASIC) Rewrite of its derivatives transaction reporting regime. Industry feedback around challenges of allocating UTIs for packaged transactions and those not confirmed electronically, led the ASIC to increase the reporting window from T+1 to T+2, and in some cases T+4, in order to reduce the implementation burden.
S&P Global Capitech
Jonathan Tsang director, S&P Global Cappitech, commented: “From our engagements with customers, it is apparent that they are keen to tackle the challenge of UTI sharing and harmonise them globally. The various regime rewrites happening next year have provided catalysts to implement global UTI harmonisation. Under EMIR Refit, participants will need to disseminate UTIs by 10am UTC T+1 and they will also be prohibited from using temporary UTIs. If we move across to the APAC region, the regulators there are mandating dual sided reporting and incorporating UTI generating responsibility across jurisdictions in their respective waterfalls. In addition, customers see this as an opportunity to streamline their existing OTC operational processes which can be very manual and onerous.
In order for market participants to tackle the UTI challenge, analysis should be performed on their trading activity by checking any flows where UTIs are not delivered STP through trading platforms, confirmation platforms or central counterparties (CCPs). Any participant trading in the OTC bilateral space will encounter this as they typically receive UTIs in differently formatted paper confirmations via email three or four days after the reporting deadline. From a reporting control perspective, participants should look at activity where they consistently miss their reporting deadlines due to a lack of a UTI or where there are large volumes of UTI remediation post report submission. UTI remediation is a process to cancel and rebook reports which have a UTI that does not match the other counterparty’s when you are the UTI receiver. Lastly, they should also understand what jurisdictions their counterparties report under and what scenarios where they would be the UTI receiver.
We at S&P Global are helping customers navigate the UTI sharing challenge by ensuring that UTIs are pre-matched before submitting to the trade repository through our Global UTI Connect service. We first introduced the concept of UTI pre-matching for our Securities Financing Transactions Regulation (SFTR) customers and will leverage the expertise to help customers achieve this for their OTC derivatives activity.”
DTIs
The rise of blockchain and distributed ledger technology in the financial markets gave rise to a need for a new identifier to show where digital tokens are issued, traded, settled, and stored. The Digital Token Identifier (DTI) was developed to provide consistent identification of digital tokens, blockchains and other distributed ledgers, provide a clear link between tokens and underlying assets, and to address legal, governance, technical, operational and security risks of a token’s ledger.
e-Trading Software
Various regulators are exploring adding reporting requirements for digital assets trading, including the U.S. Inland Revenue Service (IRS) and U.S. Treasury, and the Australian Treasury. The EU Markets in Crypto-Assets (MiCA) Regulation published in June 2023 provides a framework for crypto-assets not covered by existing EU rules. The Financial Service Bureau (FSB) and the International Organization of Securities Commissions (IOSCO) are also currently focused on strengthening market integrity and investor protection in the crypto-asset markets.
Denis Dounaev, DTI product owner, e-Trading Software commented: “Over the last year, the DTI registry has gone from 1000 tokens to 1800 and is expected to hit 2000 by the end of the year. Several private blockchains have also been onboarded and work is underway to understand how these tokens are created so they can be added to the registry. DTI recently redesigned the forms for user submission tokens based on feedback from the industry. Work has begun on an API to allow firms to download or search the registry, and later create tokens, which will go live in 2024.”
Digital Token Identifer Foundation
Rowan Varrall, associate director, Digital Token Identifier Foundation commented: “Over the last year, the DTI standard has been referenced in both industry and regulatory technologies that are coming out. DTI adoption has grown with announcements from SIX Digital Exchange, and the backbone communications systems FIX and Swift. Other exchanges are adopting DTI to enable the consistent code identification across systems. Significantly, DTI is also being embedded in regulations. The European Securities and Markets Authority (ESMA) recommended the DTI for identifying crypto assets, and alongside the ISIN for identifying the token itself in the distributed ledger technology (DLT) pilot regime.”
More on DTI’s from DerivSource.
About the DSB and ANNA
The Derivatives Service Bureau (DSB) allocates reference data for the OTC derivatives industry, including International Securities Identification Numbers (ISINs), the Classification of Financial Instruments (CFI) and Financial Instrument Short Name (FISN)—all globally recognised and adopted ISO standards for identifying, classifying and describing financial instruments. DSB is a legal subsidiary of the Association of National Numbering Agencies (ANNA). ANNA is a global member association which aims to foster standardisation within the financial services industry. It promotes ISIN, FISN and CFI codes through ongoing collaboration with market participants, regulators, and other standards bodies.
