IAA Calls on Agencies to Study FIGI, CUSIP Before Selecting Common Identifier

October 22, 2024

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What You Need to Know

In 2022, Congress passed the Financial Data Transparency Act (FDTA) directing the federal financial agencies to adopt joint data standards in a first phase of rulemaking by the end of 2024, including a common standard for a financial instrument identifier. The joint data standards are intended to make the data the agencies collect more uniform and accessible across the agencies. The FDTA requires each individual agency to adopt its own rules for its own data collection requirements in a later rulemaking phase.

The agencies have proposed FIGI (Financial Instrument Global Identifier) as the common identifier in this first phase. The IAA submitted a comment letter yesterday urging the agencies to withdraw the proposal and issue a reproposal only after further study of the issue.

 

Key Points

The IAA makes the following points in our letter to the agencies:

• Financial instrument identifiers function as a public utility and should not set commercial terms. Financial instrument identifiers function as a public utility and should be nonproprietary and/or available under an open license, to the extent practicable. This is the standard the FDTA calls for and it’s one the IAA strongly supports. Identifiers are essential to an adviser’s business. They’re necessary for the clearing and settlement of trades, the pricing of securities, risk management, back-office functions, accounting, client and internal reporting, regulatory reporting, and more.
• More study is needed before choosing FIGI. The proposal states that FIGI is nonproprietary and available under an open license. But, unfortunately, the agencies have not analyzed whether FIGI is fully free across all asset classes or whether it will work well in our complex global markets. The agencies also have not assessed the potential disruptions to the markets of switching from the current most commonly-used identifier, CUSIP.
• The agencies should explore whether CUSIP could commit to being open license for end users. CUSIP is proprietary and is not available under an open license, so, currently, CUSIP would not meet the statutory requirements. However, the agencies have not analyzed whether CUSIP’s commercial licensing practices – it sets its own prices and other terms without regulatory oversight or accountability – could be modified so that it could meet these requirements, potentially with less market disruption than switching to a new identifier would entail. This has been accomplished for end users in Europe.

 

The IAA Has Your Back

We will continue to engage with the agencies on this important issue. We will also work with the SEC in the second phase of the rulemaking to ensure that it considers the costs and impacts of choosing an identifier on smaller entities, and, if a common identifier other than CUSIP is ultimately adopted, that it provides an ample transition period. Please contact IAA Associate General Counsel Laura Grossman at laura.grossman@investmentadviser.org with any questions or comments on this member alert.