Information Requirements for Improving Operational Efficiency and STP

1
Information Requirements for Improving
Operational Efficiency and STP

• Michael Atkin
• SIIA/FISD
• WRG Conference ? January 28, 2003

2
Agenda

• STP is about business process efficiency
• There is a data problem to address
• The Reference Data Coalition (REDAC)
• Data standards are at the core of this issue
• ISO 15022 Data Field Dictionary
• MDDL the language of STP

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STP is an Efficiency Issue

• STP is not an event, its a business requirement
• Only bad things can happen between trade and
  settlement
• Trade failures
• Trade repairs and settlement delays
• Corporate events and marketplace dynamics
• The goal is to reduce errors, eliminate manual
  processes and reduce risk
• STP focus has not eliminated the problem of
  rejected trades
• The industry will still spend more than 7.4
  billion on STP through 2005 (Tower Group)

4
Costs are Real

• 50 of instructions need repair (6/repair)
• 10 of transactions result in mismatches
  (16/mismatch)
• 15 of transactions fail to settle on time
  (50/settlement failure)
• Each cross border trade can involve up to 50
  different people, processes or systems
• 30 of trade failures are a direct result of
  inaccurate reference data
• Source Tower Group Surveys September 02

5
Reference Data in Context

• Data elements to define customers, securities and
  transactions that flow through systems
• Reference data is a component of every process in
  any transactions and investment management cycle
• STP and securities administration automation are
  not just about connectivity
• There is a data problem to address
• Shorter settlement cycles mean more automation is
  needed
• Data must be compatible across multiple functions
• Automation falls short if the data is wrong

6
Pervasive Discussion

• SIA/ISITC-IOA are examining the problems
  associated with multiple listed securities
• SMPG is dealing with these issues with SWIFT
• BMA portal project is about set-up for bonds
• LSE is extending SEDOL to deal with the
  requirement for a market level identifier
• UK based RDUG is defining the strategic issues
  associated with reference data
• DTCC is exploring this problem
• Vendors are working on independent commercial
  solutions
• And there is more to come!

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Reference Data Coalition (REDAC)

• Global coordination across all functions in the
  transactions lifecycle is required
• Formation of the Reference Data Coalition
• Ensure that data reference requirements are well
  defined and clearly articulated
• Ensure that operational and commercial issues are
  addressed
• Evaluate and promote coordination among the
  standards activities
• FISD is the Secretariat of REDAC

8
Data Standards are Needed

• The goal is to define the data elements needed to
  precisely describe assets and account entries
• The lack of data standards are big problems
• Standards for identification (unique security and
  business entity relationships)
• Standards for content (common vocabulary and data
  relationships)
• Standards for trade messages and SSI

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Standards for Identification

• Numbering systems (too many) are at the core of
  reference data
• ISIN alone is not sufficient
• ISIN is a unique issue identifier, not a unique
  security identifier
• Place of listing for multiple listed instruments
• Register identifier for precise security routing
• Some data attributes are missing

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Standards for Entities

• International standard identifiers linking legal
  entities with issues do not exist
• Entity identifiers are needed to manage portfolio
  and enterprise-wide risk
• ISO standards are desired, but the IBEI process
  is troubled
• BEI business case and guidance from the industry
  is needed

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Standards for Content

• The goal is a common understanding of all
  reference data attributes and
• A single, uniform and transparent glossary of
  terms and data relationships
• Take advantage of the benefits of XML
• Integrate multiple sources
• Feed multiple applications
• Avoid costly data translation and data
  normalization
• MDDL will be the XML standard for reference data

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ISO 15022 Data Dictionary

• Agreement on ISO 15022 DFD as central repository
  for financial terms and definitions
• 15022 is the accepted standard for transactions
• But 15022 does not define the descriptive
  attributes of a security
• Without a standard well wind up with a reference
  data mess of competing self-interests
• And that is a big problem!

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Reference Data and 15022

• ISO TC68/SC4 agrees
• A new reference data project team under WG 10 has
  been created
• FISD is the convener of the project team
• Mission is to define a unique list of reference
  and corporate action data elements
• And integrate them into the new ISO 15022 XML
  repository
• MDDL will become the basis for reference and
  corporate action data within 15022

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Pay Attention/Get Involved

• The light is shining on reference data issues
• REDAC will act as a global coordinator
• MDDL and FIXML will be integrated into the new
  ISO 15022 Data Field Dictionary
• The REDAC Advisory Committee and the 15022
  Working Group are now being formed
• The IBEI process is heating up
• A rare opportunity exists to manage this
  convergence

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FISD Activity on Reference Data

• Convener of ISO 15022 Working Group on Reference
  and Corporate Action Data
• Chair of ISIN User Group within ANNA
• Members of ANSI X9D
• Secretariat of the Reference Data Coalition
  (REDAC)
• Architects and owners of MDDL
• Member of Cross-Industry Protocol Group
• Working with BMA, LSE, CUSIP and others on
  security master file conversion to MDDL

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Contact Information

• Michael Atkin
• Financial Information Services Division (FISD)
• 202-789-4450
• matkin_at_siia.net
• www.FISD.net www.MDDL.org