Investment Operations

OFR EXPANDS REFERENCE DATABASE TO HELP IDENTIFY INCONSISTENCIES IN FINANCIAL TERMS

Post Trade Transparency

The Office of Financial Research has added a third data source, the Financial Information eXchange (FIX) Protocol, to its Financial Instrument Reference Database (FIRD), which analysts say is an important enhancement that will allow users to compare how three international bodies provide metadata for five commonly used asset classes: equities, debt, options, warrants, and futures.

“The expansion of the FIRD will shed more light on where those in the financial services industry speak the same language and where they do not,” said James Martin, OFR’s Deputy Director of Operations, performing the duties of the OFR Director. “A common language for financial instruments used across the financial markets will improve data quality and, as a result, financial stability monitoring,” Martin added.

A financial instrument is a financial contract in which the terms and conditions are publicly available, and the roles of one or more of the counterparties are assignable without the consent of any of the other counterparties, such as common stock of a publicly traded company, government bonds, or exchange traded futures and options contracts. Financial instrument reference data describes the terms and conditions of these contracts. Some contracts have standard terms, definitions, and formats, while others do not. These inconsistencies can hamper regulatory oversight of firms, markets, and the financial system as a whole. These inconsistencies also impede companies and investors in managing their risk.

The FIRD, a Dodd-Frank Act requirement, helps to identify where reference data is standardized and where there are inconsistencies. The FIRD’s foundational version, launched in December 2020, leveraged ISO 20022, an international data standard for financial messages, to provide the terms and definitions for five commonly used asset classes: equities, debt, options, warrants, and futures.

In 2021, the ACTUS Financial Research Foundation’s data dictionary was added, and today, the OFR added data elements from the FIX Protocol, a messaging standard used by financial market participants for the electronic communication of indications, orders, and executions.

The FIRD now shows how three data standards–ISO 20022, ACTUS, and FIX–provide metadata definitions for each of the five asset classes. This allows users to compare definitions used in the financial sector and identify where there are inconsistencies. The format, design, and functionality, said OFR, make the text searchable, and the definitional relationships and properties clear.