As requested during the March 14 ANNA User Group meeting, FISD has been conducting an open inquiry into the requirements for unique security identification. We have held two working meetings in NYC, one in London and two via global conference call. Participants included representatives from the following organizations:

ADP, Bank of New York, Bloomberg, Bridge Information Systems, Capital Group, Chase Manhattan Bank, Citicorp, Credit Suisse First Boston, The Depository Trust Company, Goldman Sachs, HSBC, Investors Bankers Trust, J.P. Morgan/Chase, Lehman Brothers, Mellon Trust, Merrill Lynch, Metamatrix, Moody's Investor Service. 110 Ltd., Standard & Poor's/CUSIP, State Street Bank, S.W.I.F.T., Reuters, Swiss America Securities, Telekurs Financial, Thomson Financial, T. Rowe Price, Wachovia Securities

Our first objective was to document the security identification requirements for each segment of the industry by specific function (e.g. trading, investment management, pricing, settlement, clearing, compliance, position holding, risk management). Our second objective was to determine which of those identification requirements was an attribute of a security (e.g. in the domain of numbering symbology) and which was an attribute of a trade (e.g. in the domain of STP). Our third objective will be to translate the requirements into a proposed industry-wide solution.

Based on the results of our inquiry so far, we believe that a three-level product identification scheme will be required to help the industry meet the objectives of automation, cost-mitigation and reduction of trade failures -- including:

• unique issue level identifier (ISIN);
• identifier for place of official listing and
• register level identifier for settlement compatibility

The Problem

Financial instruments can be issued, priced, traded and settled in many ways. As such, different types of identifiers are relevant at various levels and are used to convey information about the market on which the security is listed, the clearing system through which the trade will clear, the CSD where the trade will settle and the register to record changes in security ownership. There are a number of reasons why a multi-level product identification scheme might be desirable. In particular:

1. New exchanges, ECN's and ATS's operate in markets where previously there was only one exchange. That means that a single security may be registered and traded on more than one exchange/ECN/ATS in the same geography. The proliferation of cross-border marketplaces also means that current identifiers (such as ISIN, CUSIP, SEDOL) can't be relied on to uniquely identify the market where an instrument trades.
   
   
2. Exchanges are developing multiple trading linkages allowing their members trading access to securities held on other exchanges. In essence, securities registered on one exchange may be traded on a linked exchange. Registers of securities are not exchange or country dependent and the same security can be registered across [in] one or many locations and traded in each. Where an instrument is held in more than one register, settlement issues can arise if client orders are taken/filled without explicit reference to the register required. At the point of trade (where reference is made to the register of the security) the speed of the transfer of different listed securities can be gauged. This would then prompt a decision on the suitability of settlement dates [of the ongoing delivery]. Where an instrument in one register can be traded on multiple markets, efficient operations processes will require a common identifier at the market level.
   
   
3. In addition, inter-depository links allow settlement to occur in multiple locations. In essence, the means of settling trades in an instrument is becoming less a property of the instrument, and increasingly driven by the market or counter-party preferences.
    
4. Finally, there are pricing/valuation/currency variations for a single instrument trading in multiple locations. Security pricing needs to be referenced at the market level

Consequently, the relationship between a security, an exchange, the price and a settlement system has become a multiple of the possible permutations of register, exchange/market center and settlement system for a security. As a result, ISIN alone no longer provides an unambiguous pointer to trade and settlement location -- or security price. The expectation is that historically rare trade failures associated with incorrect sourcing and delivery of securities will become a more significant problem.

Illustration

Issue	Siemens Ords
ISIN	DE0007236101
Register	DE			FR
Market	Frankfurt	Zurich	Tradepoint	Paris
RIC	SIEGn.f	SIEGn.S	SIEGn.TP	SIEG.P
SEDOL	5727973	5735233	5727973	5751615
CCY	EUR	CHF	EUR	EUR

This is an example of SIEMENS ordinary shares.

• issue identifier (per the ISO-6166 standard and the ISIN Guidelines for fungibility) but not always a unique security identifier. One ISIN can be shared among separate issuances of a single security. As an issue identifier, the ISIN is important for front-office systems and for aggregation of global positions.
  
  ISIN alone is not sufficient for unique identification because one ISIN can be shared among offerings in multiple locations.
  
  
• The register is the 'place' where legal records of security ownership are held. (The Register is often the "home" CSD but not necessarily so). This is important for determining whether re-registration is required and in determining settlement compatibility. Register can span different listed issuances, with the possibility of different issue currencies. The compatibility qualifier needs to be part of identification to help route the security to the correct place of settlement and holding.
  
  ISIN + Register is not sufficient for unique identification because it cannot identify a specific listed security (or issue currency of each issuance).
   
• The place of official listing identifies where the security was originally listed. In the above example, there are three places of official listing -- Frankfurt, Zurich and Paris. The place of official listing is needed to differentiate the security in the case of multiple listings. A market issuance in multiple locations will be subject to different pricing, tax and/or corporate event treatment. Some could argue that the Register value can be derived from a market indicator. The key problem is the availability of the Register value to all market participants.
  
  ISIN + Official Listing is probably sufficient for unique identification since it is unlikely that two different registers will be used for an issue in a single place of official listing.

The preliminary conclusion from the discussions seem to suggest that all three elements -- ISIN, place of official listing, and register identifier -- are needed to uniquely identify a specific security.

Other Components of Uniqueness

Participants created a number of detailed documents outlining all the criteria needed to satisfy uniqueness as part of the inquiry process. The analysis included the requirements from the investment management, trading, custody, numbering assignment, pricing and risk management processes.

In summary, there was virtual agreement that issue identification, place of official listing and register/home CSD are all attributes of a security and required for unique identification. The other attributes including trading venue, settlement location, and place of safekeeping/clearing agency are all required for determining uniqueness but are attributes of a trade and in the domain of STP. For example:

• Place of Trade: Required for trade reporting and to determine entitlements
   
• Place of Settlement: Used in conjunction with ISIN will provide a specific settlement location identifier. Also can be used in pre-matching for T+1.
  
  In addition, there are other attributes associated with the security rather than the trade, that are not strictly "identifiers," but that may help clarify the identification.
   
• Currency: All forms of currency are needed -- home market, settlement, trading, and holding. Used for dividend payments, trade routing, position keeping.
   
• Holding details: Including place of incorporation, country of issue, issue type, trading incremmnet/lot size, unit/par, mat/demat, bearer/registered, DR designation and restrictions (such as limits on foreign ownership).