November 17, 2017

Financial Stability Board
[email protected]

Re: Consultation on UPI Governance

The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG” or “AMG”)1 appreciates the opportunity to provide the Financial Stability Board (“FSB”) comments on the consultative report regarding Unique Product Identifier (“UPI”) governance.

SIFMA AMG appreciates the FSB’s coordination on international level to develop guidance for trade reporting, and strongly supports the establishment of global standards for data, and the regulatory goal of utilizing a globally-harmonised product identifier for derivatives. SIFMA AMG particularly appreciates the efforts to work across jurisdictions to ensure a consistent approach resulting in one solution to address regulators’ need to have certain data aggregated into a single field.

As we mentioned in our comment letter to the CPMI-IOSCO on the second consultative report on UPI, we urge regulators as they move forward with developing the UPI to “take into consideration the product identification work that has been undertaken by other industry parties, and to consider a single framework to cover multiple product identifiers and usages in all jurisdictions.” A framework of a single identifier would be most beneficial for both the industry and regulatory oversight, as it would improve consistency and data quality, reduce the potential for errors and unnecessary cost and complexity in reporting technology, systems, and communication flow.

We have provided below our specific responses to the questions asked in the UPI Governance Consultation.

Q1: Do you consider any further criteria should be included in the above list?

Q2: Are there ways in which any of the key criteria should be modified? If so,
which ones and how?

SIFMA AMG generally agrees on the criteria for UPI governance arrangement as laid out in the consultation.

Q3: Should the UPI system operate on a cost recovery model? If not, what is the suggested alternative and how does it fit with other governance criteria?

As noted in the consultation, “fees charged by the UPI Service Provider(s) should be based on cost recovery and should be allocated among stakeholders fairly.” SIFMA AMG agrees that a cost recovery model is right.

Q4: How should cost recovery be defined in the context of UPI? How should a UPI Service Provider be permitted to recover its costs? Should a start-up, infrastructure, and initial creation of UPI Code costs be treated differently than ongoing maintenance and other continuing costs of operating a UPI Service Provider?

Ideally the chosen UPI Service Providers would already have suitable technology, infrastructure and connectivity in place to create UPI Codes to minimize start-up costs. We recognize that there will, however, be costs in setting up the service. The governance arrangements should minimize the opportunity for commercialization of the UPI and maximize efficient use of resources to obtain good quality of data for least cost to the industry.

Q5: How should costs be allocated amongst shareholders.

Cost should be allocated equitably amongst shareholders.

In addition to the cost of setting up the system and infrastructure of the UPI Service Provider(s), there are costs for industry participants to bear for implementation of the UPI code. Integrating the code into existing trade processing, reporting and communications systems and technologies will introduce an initial cost for market participants. There is an on-going operational cost supporting the level of connectivity required for the UPI process, and additional cost for each upgrade or change to the UPI protocol or technical standard. These costs should also be considered when making decisions about UPI governance arrangements.

An additional consideration for encouraging regulators to optimize the identifier framework to a single identifier, UPI, would be to enable the industry to build other use cases for utilizing UPI along the trade lifecycle infrastructure. If there is no need for mapping competing identifiers which is error prone and costly, there is then a better justification for the cost of integrating the UPI deep into the trade processing lifecycle beyond regulatory reporting purposes.

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1 SIFMA AMG’s members represent U.S. asset management firms whose combined global assets under management exceed $34 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.