Not just here and now, but now and then
Reg data transformation and history
Here and now…
EMIR reporting for listed derivatives required the use of the ISO standard Classification of Financial Instruments or CFI code and following its 2015 update under ISO 10962, its use is further mandated under CSDR (European Central Securities Depositories Regulation) and extended under MiFID II, as an essential component of compliant transaction reporting. The CFI code is also part of the reference data information of T2S, the new European securities settlement engine. The CFI code classifies financial instruments via a set of common descriptive terms, facilitating asset-class groupings.
Under EMIR, sourcing the CFI code from regional national numbering agencies (NNAs) was problematical for firms, even when engaging with its international organising association. This was primarily due the CFI code not being required to be issued by a Registration Authority and therefore not falling under the regular duties of the NNAs.
The initial ISO standard 10962, with its detailed CFI code construction methodology, allowed the independent creation of a global database to meet immediate client needs for a single source of global CFIs for the impending new regulatory transaction reporting requirements for derivatives. This enabled the widespread and effective adoption of fit for purpose, engineered CFI codes, in the new context of MiFID I, to end user reporting firms, service intermediaries, Trade Repositories and other regulatory reporting points in the trade flow, all within a powerful community data model.
The 2015 CFI provides more granular details on instrument structure, namely the introduction of over-the-counter derivatives contracts, including swaps, spot, forwards, strategies, and complex options. CFI codes help investors by providing consistent characteristics of financial instruments, by simplifying electronic communication between participants, improving straight through processing, allowing securities to be grouped for coherent reporting and encourages market participants to take advantage of other International Standards, particularly international securities identification numbers (ISINs).
Under MiFID II, there is no material change in the framework of CFI issuance, except that so-called “official" CFIs can be produced by a relevant ISIN allocation agency, where an instrument is identified using ISO 6166 (ISIN identifier).
The 2015 CFI1 Code = PROVEN2
Purposed for transaction reporting at granular level
Regulatory identifier chosen to harmonise investment Instruments
Open compatibility with ISDA taxonomy and FIX Protocol
Variation to allow CFI self-assignment responsibilities
End user community impact minimised in upgrade changes
New CFI code reinforces ISO family of identifiers alongside ISIN
1 ISO 10962:2015 update 2 For illustrative purposes only
Industry opinion agrees that consistent, good quality data is an essential part of transaction reporting and so a well proven CFI database is of significant benefit to the industry and to support clients in fulfilling their enhanced compliance obligations.
…now and then
The sourcing, updating and implementation of the new CFI code should already be on what must be the mother of all regulation to do lists, but if it has not yet made it on to the radar, then firms should be seeking transition services data sets which provide an effective way of either updating an existing CFI database with the extended codes, to first-time allocate the new CFI code to their financial instrument database, or to provide quality assurance for instruments in trading scope. For easy integration the transitional CFI data sets can be enriched with a customer’s symbology of choice, subject to third party licensing where applicable, for front, middle or back office systems.
…now and then
Under market surveillance legislation a Competent Authority can investigate the transaction reporting records of firms up to seven years in arrears and can impose material fines based on their findings. Firms would be wise to procure a source of time series historical archive of all CFI allocations to tradeable products from EMIR market start to the present day. For easy integration, archive data can be enriched with a customer’s symbology of choice, subject to third party licensing where applicable, for front, middle or back office systems. Timely access to accurate historical data will materially assist in future regulatory investigation cases and can be used in regular internal back testing to proactively remediate non-compliance by identifying and potentially reducing future liabilities arising from regulators’ fines.