A consolidated data layer is a requirement in a modern investment management process. All data in the investment and research process needs to be available to the back, middle and front office. Implicit in this statement is the requirement that the underlying symbology has been created and is being maintained. But what does this actually mean? And more importantly, what does it entail?
The 3 crucial aspects of Symbology
I have written an article about our simple yet powerful data model, where I refer to symbology, specifically emphasising how our data model caters towards this important requirement. But what is symbology?
In short, symbology is a catalogue identifying (in a systematic order and hierarchy) all the entities to associate data with. It is the door that everyone in asset management needs to walk through before they can navigate and explore the data in the organisation. The 3 facets to symbology include:
- the mapping of various codes for the same instrument, issuer and company in the investable universe.
- the creation and maintenance of the corporate hierarchy tree. The tree details the ultimate parent responsible for the corporate debt and ESG reputational risk. Further, the tree specifies which financials statements can be allocated to say, a specific bond issue.
- the effect that corporate actions have on the parent company, issuer, instrument and more generically, the corporate hierarchy tree under consideration.
Code Types
The first aspect is a well known problem. The problem arises due to the fact that multiple vendors and exchanges provide differing codes or identifiers for the same entities trading on an exchange. For example, one could use the Reuter’s Instrument Code or Bloomberg Ticker Code for the same instrument. The challenge arises when multiple vendors are supplying data and using their own proprietary code standards. In these cases, data must be associated with the correct entity.
For example, one needs to map
- ESG data delivered with a Bloomberg Ticker Code and
- Worldscope Fundamental Data delivered with a Reuters Instrument Code
to the same entity.
Corporate Hierarchy Tree Structure
The second aspect involves the corporate structure of the company under consideration. This involves building and maintaining the corporate tree structure. This in effect details where every instrument, issuer and company fits into the tree.
There are differing opinions on the number of levels in the hierarchy tree. At Quintessence, we have identified 6 levels in this structure.
- The top of the pyramid comprises the Ultimate Parent that has a LEI (Legal Entity Identifier). MiFID imposed the rule that all legal entities wishing to transact in European financial markets involving any kind of securities or derivates needed to register for an LEI number.
- The second level comprises all issuers held by the parent entity. Once again, an LEI is required but various vendors also provide a proprietary ID/Code for these issuing entities.
- The third level comprises the Share Class Level. Here the ISIN (International Securities Identification Number), CUSIP (USA and Canada) and Global Share Class FIGI (Financial Instrument Global Identifier, formally the Bloomberg Global Identifier) are used as code types.
- The fourth level comprises the entities grouped by country. Here the SEDOL (Stock Exchange Daily Official List) serves as a NSIN (national securities identifying number) in the United Kingdom. In Germany, the WKN (Wertpapier-Mitteilungen) serves as the NSIN. In France, the ISIN is used as the NSIN. It must be noted that multiple SEDOLS can exist for a single ISIN if the security is listed in multiple countries.
- Many fund managers choose to combine the above fourth level with the fifth level comprising the market level identifiers. Here, the Composite FIGI is used to link multiple exchange level FIGIs within the same trading level venue.
- The base of the pyramid comprises all entities (tickers / instruments) assigned to an Exchange.
A partial instance of the Corporate Hierarchy Tree for SIEMENS is shown below.
Corporate Actions and their effect
The third aspect involves corporate actions. Simple corporate actions such as share splits and consolidations can be managed easily enough using an adjustment factor timeseries on the entity. This timeseries is used to enable comparison between past and present prices and financial line item estimates. But when a corporate action involves a merger or unbundling, managers need to track what happened to the issuer and how the fundamental and estimate data is retrospectively assigned. In the most generic sense, corporate actions can be seen as events that change the corporate hierarchy tree structure over time.
And that in a large nutshell is SYMBOLOGY. Without it, it is very difficult to consolidate all your data. It is also an essential feature of any risk process. Quintessence and our awesome consultants can help you meet this challenge head-on.
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