Since the implementation of the Markets in Financial Directive (MiFID II) in the UK in 2018, the country has used the OTC International Securities Identification Number (ISIN) for identifying reportable instruments. Now, the International Swaps and Derivatives Association (ISDA) has pointed out the shortcomings of the ISIN in a recently published paper. The association is suggesting to the European Commission and the UK Financial Conduct Authority (FCA) that a switch be made to unique product identifiers (UPIs) in January 2024.
According to the ISDA, one of the biggest weaknesses of the ISIN is its “overly granular nature”, which sometimes result in the same product receiving a different ISIN every day due to changes in attributes such as its maturity date. The association believes that UPIs “augmented with some key trade-level attributes” would “provide a far superior platform” compared to the ISIN.
The paper writes that “these additional attributes would ensure that OTC derivatives could be identified and aggregated in a way that is most useful to market participants while providing sufficient granularity to distinguish between different products”. There are about 700,000 UPIs, compared to 112 million OTC derivative ISINs.
In addition, the UPI was established by global regulators and is governed by the International Organisation for Standardisation under ISO4914. This, according to ISDA, makes it “a suitable standard for OTC derivatives moving forward”. Conveniently, due to a number of upcoming derivatives reporting rewrites in 2024 that will mandate the use of UPIs, many market participants are already working on assigning UPIs to their existing reportable trades.