MiFIR: How ISINs Work: 3

It’s surprising how many people think that ISINs (International Securities Identification Numbers) are free.  In practice, very little around ISO standards is free, other than the time and effort that volunteers around the world give in helping to develop ISO standards.  Even a copy of the specification of the ISIN standard has to be bought, and you’re then not allowed to share it with colleagues unless you’ve bought a corporate licence for its use.

In general where costs are involved, ISO (the International Organization for Standardization) prefers there to be a cost-recovery model around standards.  Organisations that issue ISINs can charge for issuing each ISIN, or can charge everyone for looking at or using ISINs, or can do both – but the ISO principle is this shouldn’t be a for-profit business opportunity.  Whether this gets policed effectively is an open question, answered in part by the fact that the EU competition authorities have already had to involve themselves with questionable situations around the cost of ISINs.  Also, a cost-recovery model doesn’t necessarily imply cost-efficiency.

As an example of a cost structure, take a derivatives exchange that launches a new strike price for an exchange-traded option.  It may have to pay the local ISIN issuer for an ISIN for that new contract.  Then the ISIN issuer can charge licence fees for every exchange, investment firm, data vendor, etc everywhere in the world who wants to use that identifier to support trading, investment operations, clearing, settlement, etc.  Each firm involved along the processing chain can be charged fees.

So when a regulator mandates the use of ISINs by all market participants, this may sound like a “licence to print money” for ISIN issuers.  And MiFIR involves a lot more instruments and asset classes and issuing a lot more ISINs than MiFID I did.

(Chris Pickles is an independent consultant and a member of the Open Symbology Team at Bloomberg)