At the start of 2019, the Financial Instrument Global Identifier (FIGI) lost its initial bid to become accredited by the International Organization for Standards (ISO). Since then, it’s been a series of steps forward and back for the Bloomberg-backed initiative.

In the win column, Brazil chose to adopt the identifier this summer, but thus far that’s been the only country to jump on board. And in the loss column, a second attempt to accredit the FIGI through a different ISO technical committee was never voted on.

As a result, Bloomberg is adjusting its strategy as it hopes to gain approval and adoption in countries that have been more welcoming to the identifier: the US, the UK, Russia, and India, which comprise four of five countries that voted in favor FIGI accreditation last year. The fifth was Brazil. Other countries that may be open to either fully adopting FIGI or allowing firms under their jurisdictions to use it for specific use cases, such as for regulatory reporting, include a small number of countries who abstained during the 2019 ISO vote, such as Canada and Australia, says Richard Robinson, chief strategist of open data at Bloomberg. Overall, about three-dozen countries represented by their respective national numbering agencies cast votes last year.

Perhaps luckily for Bloomberg, the US Securities and Exchange Commission (SEC) has included a question regarding the FIGI in two recent rule proposals, prompting the market to weigh its options on reference data identifiers, at the same time the data giant is working with a US standards body to make things official. 

What is clear, though, is that there’s no straight-forward path to adoption in the near future.

Strike 1, Strike 2

The FIGI is a 12-character alpha-numeric code intended for uniform identification of financial instruments, comparable to commonly-used identifiers like International Securities Identification Numbers (ISINs), which are used mostly outside the US, and CUSIPs, which primarily serve the American and Canadian securities markets.

Bloomberg introduced the identifier—then known as the Bloomberg Global Identifier—in 2009, and acted as its sole registration authority until 2014, when the Object Management Group (OMG) standards consortium adopted it, giving it the FIGI moniker. The data giant is the registration authority and certified provider under the OMG, which has put forth 11 standards in the past 15 years that are now ISO-accredited.

As reported last year by WatersTechnology, FIGI accreditation hit a stumbling block after a technical committee of the ISO, TC 68, voted against the identifier. Following the TC 68 defeat, the FIGI was registered with another ISO technical committee, ISO IEC/JTC 1, and was waiting for that committee to initiate a ballot. JTC 1 is a joint technical committee that specializes in standardization in the field of information technology. The vote never happened.

“A proposal was made to ISO/IEC JTC 1, but it did not proceed because it was out of scope for the committee, which deals purely with standardization on ICT [information communication technology] and not on financial services,” says a spokesperson for the ISO. “After doing a search for FIGI in our system, we couldn’t find any ongoing proposals [to any ISO committees],” they added.

The fact that JTC 1 passed on a vote may have been unexpected to some. Last year, Peter Warms, former head of Bloomberg’s legal entity identifier (LEI) and FIGI ID services, who has since joined the Global Legal Entity Identifier Foundation (GLEIF), told WatersTechnology that JTC 1 was a more natural fit for the FIGI—due to its very technical nature—and wasn’t appropriately appreciated by TC 68, which deals with financial industry standards. Warms declined to comment for this story.

While Bloomberg was unable to win ISO support for a second time, the FIGI scored an important win this past July as the Brazilian Association of Technical Standards (ABNT), Brazil’s standardization body and ISO representative, launched the identifier in its home country, which means that all Brazilian financial instruments in every asset class are assigned a unique FIGI code. The move marked the first instance of national adoption thus far.

Winding Road

As Bloomberg tries to push the use of the FIGI beyond Brazil, it will look to win converts through a two-pronged attack: cost and flexibility.  

CUSIPs can carry hefty licensing fees for end-users based on the number of unique identifiers “accessed, stored, maintained, processed, or otherwise used by or for the benefit of an end-user customer,” according to the CUSIP Global Services website. For example, an end-user who uses the CUSIP numbers of more than 40,000 securities throughout four or more business lines in three or more regions would pay $477,750 in licensing fees. FIGI, on the other hand, is based on the MIT open-source license and is available free of charge for use by all market participants.

While the cost component might seem too good to pass up, much of the opposition to the FIGI relates less to its merit and more to its utility. In other words: If it ain’t broke, don’t fix it. As previously reported, other already-existing standards—such as CUSIP, ISIN, and SEDOL—are often heavily entrenched within firms’ infrastructures due to legacy technology practices and prior lock-in to a specific identifier forced by a data provider. Understandably, some market participants take the view that the time and operational costs associated with adding another identifier to their repertoires, or switch over to another entirely, are too high and complex compared to the resulting pay-off.

There is also the worry that Bloomberg, ever large and looming in its industry presence, would be made even more imposing if it were to become a kingmaker in identifiers. An identifier can be linked to various types of data—exactly what Bloomberg is in the business of—making their data more attractive to clients.

And on top of that, the conversation around data standards are often dominated by industry groups and the standards producers, as the consumers are hesitant to get involved. End-users know that time is money, and they spend their time making money—so let the standards organizations focus on identifiers, let the front office get returns, and let the middle and back offices deal with whatever the organizations decide.

As such, the path to FIGI adoption has been winding. Similar to its approach in Brazil, Bloomberg is now engaged in a standardization process in the US, which, if approved, would make the FIGI an equal counterpart to the 50-plus-year-old CUSIP system, which was adopted as a national standard by ASC X9, a committee responsible for developing standards for the financial services industry that’s part of the American National Standards Institute (ANSI). ANSI represents the US as an ISO member in TC 68 and voted in favor of the FIGI last year.

A spokesperson for Bloomberg declined to comment on the process because it is ongoing. Steve Stevens, executive director of X9, did not respond to requests for comment.

New Life?

While the fruits of that process remain to be seen, the FIGI may find a workaround in the US through the SEC.

The SEC has posed a question specific to the FIGI to market participants in two recent proposals, which cover potential changes to forms 13F and N-CSR, which are both filed by investment managers. The relevant questions in both proposals are essentially the same: should the SEC consider omitting each of these form’s requirement to provide a CUSIP number for each reported security? Should managers and funds be permitted to provide alternative identifiers, such as the FIGI, in lieu of a CUSIP? Would permitting voluntary use of an alternate identifier have a beneficial effect for investors, reporting managers and funds, or users of the data? Why or why not?

While the N-CSR proposal has received a modest amount of subdued responses, none of which directly respond to the question of FIGI, responses to Form 13F have been overwhelming. A handful explicitly mention the FIGI—both for and against—but many overlooked it, as the identifier doesn’t come up in the document until question 25. Similarly within the N-CSR proposal, the question of FIGI is not found until question 293.

The basis of the 13F proposal—to raise the reporting threshold required of investment managers from $100 million AUM to $3.5 billion—has been met with a resounding “no,” from a majority of respondents, which included the likes of Nasdaq, Refinitiv, and the New York Stock Exchange, whose statement was undersigned by 381 NYSE-listed companies. Those critical of the proposal emphasized that raising the threshold would seriously diminish market transparency and adversely affect small public companies and small investors. Under the new rules, only 550 of world’s largest investment managers would report their holdings.

Bloomberg’s own comment, signed by Gregory Babyak, global head of regulatory affairs, agreed with these concerns, urging the Commission to “withdraw the 13F proposal.” However, Babyak wrote, “while there are insufficient reasons to support raising the reporting threshold as currently contemplated by the SEC, its proposal to require filers to provide additional identifying information is a step in the right direction to modernize 13F disclosures,” and “rather than to specify the use of a particular identifier, the Commission should let filers choose the identifier to be reported in Form 13F by setting out the appropriate metrics for their use.”

Kathleen Callahan, acting FIX operations director for the standards body FIX Trading Community, responded solely to question 25, saying that FIX supports both the FIGI and CUSIP systems and that the FIGI should be considered for reporting as an alternative additional identifier to the CUSIP. A small handful of respondents from vendors and former buy-siders also stated their support for the measure.

While the FIGI question was overlooked in responses by many of the actual end-users who file this form—the majority were not institutional investors—some said they would prefer to stick with using only CUSIPs, such as Faryan Amir-Ghassemi and Michael Perlow, CIO and CTO, respectively, of Epsilon Asset Management, a small quant hedge fund based in New York.

“We believe the current standard of security identification does an appropriate job of balancing unique security identification with the costs associated with a commercial provider of said identifiers,” they each wrote in their own statements.

Counterpunch

The point of Form 13F is to provide investor transparency. Through the form, hedge funds and other investment managers disclose their public equity holdings, which lets investors and public companies know who has significant stakes and where, says Spencer Schulten, executive director and US head of financial crimes compliance at consultancy Capco. However, it’s not that simple in practice, says Schulten, who was tasked with preparing 13F forms quarterly for a private equity firm he once worked at.

“[The idea behind 13F is] everyone sort of knows what everybody [else] has via CUSIP. Obviously that’s not easy to do if you’re trying to look across every asset class because CUSIPs are different for different types of securities. So if you truly wanted to see what a potential hedge fund or corporate raider was holding, you would need to know the different asset classes of that same issued security by the company,” he says.

FIGI might stand to solve that problem because Bloomberg’s identifier is designed as an unchanging way to identify securities across all asset classes. As Bloomberg’s Babyak pointed out in his 13F response, options, for example, are not covered by CUSIP numbers, and as result, reporting them is typically done using the CUSIP of the listed equity.

The rest of the SEC’s proposal—upping the threshold—runs counter to that spirit of transparency. The whole thing just doesn’t make sense, Schulten says.

“It’s very confusing to me that you have a situation where you’re raising a threshold—and you’re essentially decreasing transparency—but then you’re asking whether a different type of identifier would be useful for investors. I don’t believe it would be. I don’t believe it would at all,” the consultant says.

In its own comment letter filed to the SEC regarding Form 13F, CUSIP Global Services (CGS) said it was aware that other respondents to the proposed rule may challenge the “proven soundness” of the CUSIP system by pointing out that derivative instruments, like options, must be reported by using the CUSIP number of the underlying equity, but that it was willing to help remedy that issue.

“While this long-standing practice has never in our experience been cause for concern, it is also easily addressed: valid CUSIPs are available for all listed option contracts traded on US exchanges, including index, equity, and ETF options. ABA/CGS would gladly work with the Commission to add these CUSIPs to the published list of reportable securities as necessary,” said the comment, co-signed by Scott Preiss, global head of CGS, and Tab Stewart, SVP of financial services standards at the American Bankers Association (ABA). CGS is operated by S&P Global Market Intelligence on behalf of the ABA, which owns the CUSIP standard.

In the response, which addresses only the question posed by the SEC regarding FIGI, the two submit that the use of additional identifiers, including FIGI, could prove “extremely disruptive” to Form 13F reporting and to market participants. Inconsistency in the manner in which different investment managers report holding the same common stocks—for example, of Microsoft—could diminish transparency, it said. The second reason they cited was fungibility; the CUSIP number that corresponds to Microsoft, 594918 10 4, is the same on every execution venue. By contrast, the FIGI ultimately assigned to any stock depends on the US exchange where the shares are purchased, meaning various FIGIs exist for the same Microsoft common stock. CGS presented ten examples of FIGIs that correspond to Microsoft stock.

“This multiplicity of identifiers is a feature of the FIGI system and would likely lead to inefficiency and errors in the reporting and monitoring of investments under management, thus undermining the very purpose of Form 13F,” the comment said. A CUSIP representative was not available for further comment in time for publication.

Rising Tide or Breaking Wave

Perhaps 13F was an unfortunate place to renew buzz about the FIGI from the SEC. The regulator hadn’t formally mentioned the identifier for about three years, and the first time it does since then, the overall proposal is met with considerable backlash, possibly making the identifier piece an afterthought for some. But Bloomberg’s Robinson contends that recent mentions at all of the identifier signal regulators’ growing awareness of and interest in open data, or data that is free of fees and licensing restrictions.

“Gladly, that topic [of open data] is coming top of mind. This might have just been the first time that they were able to express it in a consultation,” he says.

Indeed, the inclusion of the FIGI in the SEC’s requests for comment comes as a bit of a surprise, as Bloomberg and the regulator have not been in talks about identifiers for well over a year. David Franasiak, a lawyer who has done lobbying work for the FIGI on behalf of Bloomberg, says neither he, nor his firm, Williams and Jensen, has done any work relevant to the FIGI or other identifiers this year or in the last few years.

“While we have not contacted anyone in government about the product on Bloomberg’s behalf over the last several years or more, I am not surprised that regulators are interested in soliciting views of market participants regarding low-cost and effective system alternatives to CUSIPs,” he says.

There are also signs that financial institutions are coming around to the idea behind the FIGI on their own. In the month of August alone, the OpenFIGI API returned 8 billion hits. Year-to-date, that number breaches 55 billion. That means that more than 55 billion times since January 1, someone has used the API to search for the corresponding FIGI to another identifier, such as a regular ticker, ISIN, or CUSIP. Each one of those hits returned that FIGI along with the associated descriptive metadata.

“It just goes up month after month after month,” Robinson says.