Exchange Market Information - Equivalence and Equality

By: Tom Skinner, Managing Director, pTools Sep 2023

There is an increasing burden on exchanges to produce trusted and verifiable market information to a global standard that meets regulatory and user requirements, which represents both a challenge and an opportunity.

Market information can be described broadly as all aspects of exchange activity other than the pricing platform environment. In order to be accepted as the trusted pricing platform for trading, the exchange must also produce accurate market information relating to details of traded financial instruments and securities, company and individual executives’ identity, fund managers, regulated news and announcements. Additionally, there is now both demand and an opportunity to engage in newly evolving services relating to sustainable finance, such as the certification of carbon credits and the listing of tokenised assets within the rapidly evolving digital asset classification.

The need for accuracy and reliable data quality is significant and granular. Firstly, accurate market information is the backbone of trust and also KYC, AML, sanctions screening, settlement and custodianship. Much of the detail of market information is structured in global standards often underpinned by ISO standardisation and this includes, importantly, the global ISIN standard maintained by ANNA and the global LEI standard maintained by GLEIF. These two standards are the twin pillars of securities definition and entity definition, and together they provide foundational information on what is the nature of the financial instrument and also ‘who owns whom’ and ‘who is who,’ as defined by the detailed entity definition. Both are part of an array of standards that include the Financial Instrument Short Name (ISO 18774) from the Association of National Numbering Agencies (ANNA) - FISN, Classification of Financial Instruments (ISO 10962) from the Association of National Numbering Agencies (ANNA) – CFI and Committee on Uniform Security Identification Procedures from CUSIP Global Services – CUSIP and Entity Legal Form from GLEIF - ELF. Together these naming and numbering conventions, the global financial symbology, link exchanges across national territories and importantly inform a standard for market information that can be leveraged by all exchanges.

In addition to regulatory compliance, a key driver for the adoption of global standards for market information is the equivalence determined between larger exchanges and smaller ones, between exchanges in developed markets and those in emerging markets. Equivalence is also a technically defined framework, for example, under European Union legislation within the EU Markets in Financial Instruments Directive - MIFID II, and the EU Markets in Financial Instruments Regulation – MIFIR; the aim of the EU being to manage the cross-border financial activity of market players in a way that respects the standards and rules the EU regards as best practice internationally.

In the context of market information and symbology for securities, listing, identity, settlement and more, meeting a global standard of equivalence allows an exchange to confidently maintain that the standard, for example, for securities issuance in a given exchange is exactly similar to the global standard adopted by major capital markets. Similarly, equivalence in entity definition across markets determines a level of equivalence that underpins key aspects of verifiable trust including KYC, AML, sanctions screening within instruments, entities and announcements that are driven by the same technologies used by the largest exchanges in the world, technologies including artificial intelligence and natural language processing, notarisation and blockchain, risk mitigation/scoring and data quality management all within a verifiable rules-based framework for data protection and transparency.

In that context, a further backdrop to the overhead of market information needed to meet market and regulatory expectations is the advance of globally shared infrastructure services. There exists an inherent conflict between, on the one hand concepts of data sovereignty including territorially based data protection and, on the other hand, the development of global data management infrastructure. In some senses, the sovereignty of exchange operations must come to terms with the global footprint of infrastructure services. An obvious and current example is the advance of artificial intelligence as a formal functionality within technology solutions and applications automation. Currently, most AI services rely on a large scale corpus of data that has been used to teach systems effectively. Although there will be a natural demand for 'walled-garden' AI solutions that use a discreet corpus of data provided by an exchange, the intelligence behind the AI will likely require use of the original functionality derived from original globally defined systems. In the same way that email has become a global cloud service, albeit that it is based on individual ‘private’ email accounts, so, many new technology services, for example AI services, will evolve on similar global scale infrastructure, nevertheless designed to offer individual services that guarantee privacy that exchanges will adopt where appropriate.

All financial-services firms have in recent decades become much more technology driven and in a greater number of exchanges, technology represents one of the core capabilities sitting on top of core market knowledge and trust. As technology infrastructure itself becomes ever more global, technology will increasingly become an external service to the exchange, rather than an internal competence, even though this may seem unlikely for those who are wedded to internal systems and data sovereignty. There remains a strong real-world value in exchanges acting in territories and markets to which they bring knowledge, reliability and trust. However, there is a certain momentum in globally defined technology services that continues to impact exchange market information services that cannot be ignored. Understanding this dynamic is a challenge in itself, however the globalisation of technology is aligned with the globalisation of standards and the resulting equivalence that can be gained.

The challenge is how to adopt global market information standards in the context of new technology services, and where appropriate to understand how to externalise services so that the exchange core market competence is further defined and developed. The opportunity, however, is for even the smallest aspect of exchange market information technology or infrastructure to be exactly correlated in terms of standards and technology solutions and services, such that there is by definition an equivalence in the shared market information infrastructure. Such equivalence speaks to a certain equality that, although offering no guarantee of the flow of capital, enables an exchange to act with confidence and to guarantee assurance of verifiable trust in market information to a standard that is irrefutable and equal to that of any market and any exchange globally.


The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.