Information Requirements for Improving Operational Efficiency and STP: Information Requirements for Improving Operational Efficiency and STP Michael Atkin SIIA/FISD WRG Conference ● January 28, 2003


Agenda: 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


STP is an Efficiency Issue: STP is an Efficiency Issue STP is not an event, it’s 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)


Costs are Real: 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


Reference Data in Context: 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


Pervasive Discussion: 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!


Reference Data Coalition (REDAC): 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


Data Standards are Needed: 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


Standards for Identification: 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


Standards for Entities: 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


Standards for Content: 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


ISO 15022 Data Dictionary: 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 we’ll wind up with a reference data mess of competing self-interests And that is a big problem!


Reference Data and 15022: 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


Pay Attention/Get Involved: 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


FISD Activity on Reference Data: 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


Contact Information: Contact Information Michael Atkin Financial Information Services Division (FISD) 202-789-4450 matkin@siia.net www.FISD.net; www.MDDL.org