Aiis to the Right

Reg data transformation and history

Despite the majority of the industry’s practitioners’ opinion that the proven Aii is being replaced with the somewhat inferior ISIN symbology, MIFID II regulations have mandated ISIN use for all markets, including those existing that use the Alternative Instrument Identifier (Aii), i.e. Athens Derivatives Exchange, Euronext Amsterdam, Euronext Brussels, Euronext Lisbon, Euronext Paris, Eurex and ICE Futures Europe – LIFFE. This means firms and service intermediaries will have to replace existing Aiis for these key EU venues to remain compliant in their more onerous transaction reporting.

Prior to MIFID I go live, the then FSA co-developed a solution to enable the regulator to monitor transaction reporting for key EU markets under MiFID. This was as a result of responses by specific European exchanges to the European regulator, which was CESR at the time, to decide upon or agree what the type of instrument identification they could use to report their products, or the traders of those products and how to report those products through the reporting workflow. The solution was Aii, being the Alternative Instrument Identification as we all know it well today. The challenge was that there was nothing in the market at the time, as described by the UK regulators, but the FSA collaborated with an independent specialist data vendor to produce the source of Aiis that is still in widespread use today.

• ISO 10383 Market Identifier Code (MIC) of the regulated market where the derivative is traded

• Exchange Product Code - the code assigned to the derivative contract by the regulated market where it is traded

• Derivative Type - identifying whether the derivative is an option or a future

• Put/Call Identifier - mandatory where the derivative is an option

• Expiry Date - exercise date/maturity date of the derivative

• Strike Price - mandatory where the derivative is an option

• A two-letter country code, drawn from a list (ISO 6166) prepared by the International Organization for Standardization (ISO). This code is assigned according to the location of a company's head office. A special code, 'XS', is used for international securities cleared through pan-European clearing systems like Euroclear and CEDEL. Depository receipt ISIN usage is unique in that the country code for the security is that of the receipt issuer, not that of the underlying security

• A nine-digit numeric identifier, called the National Securities Identifying Number (NSIN) and assigned by each country or regions. If a national number is composed of less than nine digits, it is padded with leading zeros to become a NSIN. The numeric identifier has no intrinsic meaning it is essentially a serial number

• A single check-digit. The digit is calculated based upon the preceding 11 characters/digits and uses a sum modulo 10 algorithm and helps ensure against counterfeit numbers.

Industry opinion agrees that consistent, good quality data is an essential part of transaction reporting and the well proven, collaborative Aii database has been of significant benefit to the industry and its participants and hence it is expected to continue to support clients’ historical compliance obligations.

Reference data for transition of MiFID I Aii to ISIN market reporting

The sourcing and use of a transition services data set is an effective way of either updating an existing Aii database with the replacement ISINs, or to provide quality assurance on demand to validate correct mapping of Aii to ISIN for instruments in scope. For easy integration, the transitional ISIN 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. Firms may wish to set up data feeds to perform this migration or opt for on demand lookup for missing records.

MiFID I reporting introduced the Alternative Instrument Identifier (Aii) in November 2007 and it has been an essential component of compliant transaction reporting to date, but it is to be replaced under MiFID II with a series ISIN under ESMA/2015/1464 Regulatory technical standard.

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 should seek a time series historical archive which includes all Aii allocations to tradeable products from MIFID I market start to the present day. For easy integration, the 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.

Contact us about your MiFID II or any other regulatory reporting data requirements.