B.I.S.S Research White Papers

How to always win Monopoly

Richard Robinson

Richard Robinson

A senior business executive with more than 25 years of experience in the financial industry, with a rare perspective that spans working in operations and technology positions at global custodial banks, international brokers, investment managers as well as core industry utilities.
(you just need to have the rules changed)

Monopoly – “the exclusive possession or control of the supply or trade in a commodity or service.”

Cartel – “an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.”

Bloomberg may be a powerhouse in the data space, and often complaints are around its all-in-one pricing and business model around the terminal. But truth is, it is nowhere near a monopoly. There are plenty of established and start up firms that offer a la cart competing offerings focused on one specific function or a group of functions or data. And in many cases, firms purchase data about the same things from Bloomberg and other sources – because it is part of a smart data quality regime.

No one really forces a firm to buy a terminal – or an IKON, or any other data product. The value provided by the data – its quality, completeness, availability – is what makes it a necessity. 

Similarly, a utility like SWIFT – which has the exclusive relationship with ISO to manage standards like ISO20022 – may seem like it has unreasonable control. But you can use ISO20022 without any payment to or membership with SWIFT – and do not need to use the SWIFT network to send messages based on the standard. SWIFT, therefore, provides many value added services and is also subject to fairly strict regulatory oversight, and is not a monopoly.

This is in contrast to something like the ISIN – which has limited scope other than to standardize the format of individual national numbers – and is owned and operated by a single closed global trade association (ANNA – Association of National Numbering Agencies). And each association member owns the single monopoly for issuing ISINs within its marketplace. Where there is a marketplace not using ISIN, ANNA decides on if it gifts that marketplace domain to one of its 4 most powerful members, or anoints a local association member the monopoly status.

This wouldn’t be so much of a concern – except that some regulators are now mandating the use of the ISIN, CFI and FISN (all under exclusive control of ANNA) in more and more processes. Thus, creating a coercive monopoly.

This data mandate obligates all financial firms to use the association’s services. It mandates firms that used other, more appropriate solutions, to abandon their work and pay to prop up and support an unvetted service, and one that is untested in the realm of real time critical market infrastructure. The mandates  also fail to have any critical evaluation of unsubstantiated claims regarding costs and conformity to open data principles, nor do the mandates provide for any formal governmental oversight of what is now, ostensibly, a required step in every financial firm’s workflow.

ANNA, when subject to such criticism, wraps itself in the protective clothing of ‘standards’ and ISO. The trade association uses the talking point that “it has over 120 ‘independent members’ across the globe” to counter accusations of its monopoly status as well as to infer it has strong governance over its technical infrastructures and data quality. Data quality that its own annual reports call into question repeatedly.

But this is simply a sly two-step, a facade. When members are monopolies in their own right, pooling those firms together in a single ‘trade organization’ doesn’t make it less monopolistic – quite the opposite. It would be like claiming that OPEC consistently encourages competition between its members for pricing oil.

ANNA arguably holds a stronger cartel position than OPEC, as it controls pricing centrally, via the ANNA Service Bureau and the Derivatives Service Bureau, and individual members do not have the ability to undercut that pricing or provide competing services. Again, this wouldn’t be an issue if financial firms had a choice on if they wanted to use ANNA’s services. Even OPEC has some competition from alternative energy providers and independent nations. But European data mandates remove any optionality. There is no current example of a government enforced coercive monopoly like that which ANNA now holds over the financial industry.

Further, there is no formal oversight of the ANNA Service Bureau (ASB), the Derivatives Service Bureau (DSB), or ANNA (the trade association) by any governmental regulatory authority. ANNA’s Annual Reports are not publicly filed or available. Their practices and pricing are not regulated or reviewed by any government authority. Its data quality and governance practices are not evaluated under any regulation that all Systemically Important Financial Institutions (SIFI’s) are subject to, such as BCBS 239.

And it’s technical infrastructures face no scrutiny – especially with the DSB, which is being built out by a firm that rents office space in a mixed use London building and has no formal accreditations in delivering what is now, made by regulatory fiat, a critical and systemically important part of the industry workflow – where any technical or commercial failure could feasibly bring the industry to a complete halt.

Anyone can rent space in an office building, and buy some cloud space on Amazon Web Services. But doubtful anyone would mandate its use as a critical component of properly functioning, systemically important infrastructure based on some nicely worded assurances and a paid-for self-audit.

If ANNA provided a service that firms found value in throughout the trade lifecycle – from pretrade, through trade, on to settlement, why did industry associations across the world protest the mandated use of its services? (Note, there was support for the mandated use of ISIN by one industry group; BVI, limited to the German investment community, has written in support of ISIN mandates. In the past, though, BVI has led multiple complaints against ANNA of monopolistic behavior).

Faced with these arguments, ANNA will fall back on claims of how it helps the industry, and helps the regulators with transparency and standardization.  Their marketing says to ignore all these ‘minor issues’ about licensing restrictions, fit for purpose, and data quality. Then, they quickly compare what ANNA does to the LEI to explain away any lingering concerns. Don’t look behind the curtain.

Problem is – the LEI works because it has a well thought out delivery and governance program, and is for a completely different purpose and function. Understanding exactly where certain legal obligations exist, where no previous, freely available and shareable method existed before is certainly different than a randomly assigned identifier that doesn’t relate directly to a contractual obligation, nor is free to use or share. Further, the GLEIF structure is highly transparent, as well as being structured to promote competition and therefore counter such things as price manipulation and access. GLEIF also has direct representation and control by global regulators.

If the LEI operations were to work like ANNA’s ASB or DSB, it would look much different. First, there would be only one LOU in any one jurisdiction. Then firms would be required to first register their LEI with the one LOU that existed in its region, paying whatever that LOU decided to charge. Then, all firms would need to purchase an additional license from a central distribution engine to receive any of the LEIs that had been issued globally, and not have a choice on what they pay for that, the method of access, and be limited in how they use and redistribute those LEI’s. And there would be no governmental oversight.

Luckily, that is not how the GLEIF operates. But this is how ANNA and its ASB and DSB work. Just being a ‘standard’ doesn’t confer some magic making it good and wholesome.

LEI and ISIN are both ISO standards. But that is where the similarities end, and trying to equate the now-coercive monopoly operated by ANNA with any other ISO standard Registration Authority is unfair to ISO, as well as the RA’s and MA’s that faithfully manage other ISO standards, from SWIFT (ISO15022/20022) to the GLEIF, and even SIX Interbank  (MA for currency codes, ISO 4217).

There’s nothing inherently wrong with the ISIN. But the errors come into play in how it gets applied to users’ needs, attempts to make it a one-size-fits-all solution, the structure of the organization that manages and distributes it, and blanket mandates on its use without regard to the concerns raised above in this article.

If ANNA and the regulators are serious about mandating ISIN as a standard for reporting, then regulators should follow the path led by their collective work in the LEI; ANNA should give up its management and ownership of the ASB and DSB to a foundation and oversight committee established by the FSB. And in following in the LOU path, an accreditation process should be opened for any and all providers to compete to issue ISINs and contribute to the maintenance and upkeep of the overall infrastructure, as well as the standard itself.

The only other option is to remove the mandate and allow firms to use the standards that firms determine fit their needs, based on voluntary consensus means that conform to true open data principles. Promotion of standards is a good thing – but mandates that stifle innovation, ignore the legacy embedded realities, and eliminate competitive markets go against the spirit of what standards are supposed to help accomplish in the first place.

Richard Robinson

Richard Robinson

A senior business executive with more than 25 years of experience in the financial industry, with a rare perspective that spans working in operations and technology positions at global custodial banks, international brokers, investment managers as well as core industry utilities.