Managing & Integrating Data

How can symbology transform the trade life cycle?

Laura Stanley

Director of Symbology, LSEG

The importance of symbology is growing as a result of its applications in regulatory compliance and its ability to support business efficiency. Firms are increasingly finding ways of using symbology in artificial intelligence and machine learning innovation. But what is symbology and how does it work?

  1. Symbology may sound mysterious, but fundamentally it is the use of data-based identifiers to connect data together.
  2. Symbology can help financial firms connect corporate entity based ESG data with financial instruments.
  3. Understanding what symbology is, and how identifiers function, is the first step towards unleashing their power across the trade life cycle, and more.

What is symbology?

Symbology is the use of data – identifiers, metadata, and other data formats – to connect information to a core data point – such as a legal entity or a financial instrument.

Financial services firms need symbology for a wide variety of use cases, such as trading, compliance, and clearing and settlement.

For example, symbology can use data known as identifiers. These are essentially a series of letters and/or numbers that can look much like a supermarket bar code on a box of cereal.

This identifier is a form of reference data that is then connected to a central data point. So, an identifier might be a string of letters and/or numbers that identifies the specific legal entity – like a company – that is associated with a financial instrument that is being traded.

Examples of identifiers include Legal Entity Identifiers (LEIs), Permanent Identifiers (PermID), Refinitiv Instrument Codes (RICs), Stock Exchange Daily Official List (SEDOL) and International Securities Identifier Numbers (ISINs).

Symbology can also consist of metadata – which is data that provides information about other data but is not that data itself.

For example, our intelligent tagging uses natural language processing, text analytics and data-mining technologies to derive meaning from vast amounts of unstructured content, including research reports, news articles and more.

It then adds a Permanent Identifier (PermID) in the form of metadata to entities in textual content, tagging the people, places, facts and events so that they can be searched for. For example, in all articles about XYZ company, the CEO will be tagged with their own PermID.

How can symbology help?

Today’s data-driven use cases – and tomorrow’s innovation with AI and machine learning – often rely on symbology, whether identifiers or metadata are used. Let’s look at one use case to see how this might work in practice.

Buy-side firms with ESG fund mandates or systematic ESG strategies have a substantial data challenge, driven by environmental compliance requirements such as the EU’s Sustainability Finance Disclosure Regulation (SFDR) and the EU Taxonomy. However, these rules create a data mismatch.

ESG scoring and engagement work is performed on a company entity level. However, investments are processed on a financial instrument level. Understanding the link between an instrument, its corporate issuer, the immediate parent and the ultimate parent is essential for connecting the ESG scoring work to actual investments.

Unfortunately, a systematic solution for linking an ESG database based on companies to individual instruments can be challenging and expensive to implement.

Our symbology capability helps firms overcome this data gap challenge in two ways.

First, it offers excellent global coverage of instruments, entities and hierarchies, delivering the data that firms need.

Secondly, the new Issuer Mapping Symbology Solution has sophisticated derivation logic that enables firms to link a fixed income instrument to the parent company entity to which the ESG rating will be given – the ESG Statement Parent.

Being able to connect ESG corporate parent ratings to the financial instruments associated with individual organisations is an essential step in ESG compliance. Getting this wrong could lead to serious compliance failures as well as issues with customers, investors, and other stakeholders.

The EU was one of the first jurisdictions to produce a taxonomy, but the U.S. and the UK are in the process of putting their own environmental-oriented regulations for financial services firms in place.

LSEG supports a variety of approaches. For example, we can enable firms to systematically link multi-asset instruments to our global entity and hierarchy database for their securities of interest. This enables firms to link the instruments to the LSEG company data in their ESG database.

An additional service enables firms to link their benchmark or fund holdings constituent data to entity issuer data, allowing clients to evaluate comparative ESG scores and ESG data.

Connecting financial instruments to corporate entities for ESG tracking with symbology is an elegant solution for a challenging data problem for the financial services industry.

Symbology and the future

LSEG is an innovator in using symbology in fresh ways.

PermID breaks new ground by creating identifiers for a number of information objects, such as people, places, companies and more. This broadening of the application of identifiers allows symbology to be applied in a wider range of use cases – for instance, in artificial intelligence and machine learning-driven analytics. A further example is that news can be searched for specific companies or people, and sentiment around them can be tracked.

Other uses for PermID and other identifiers are being explored, such as supporting automation across the entire trade lifecycle — including trade execution, trade processing, price validation, trade reconciliation and reporting. The use of PermID for market analysis and trade idea generation is in its exciting early stages.

How we can help

We have decades of experience in symbology. We issue our identifiers and support a range of industry identifier initiatives. We also help clients better understand how to engage with identifiers throughout the trade lifecycle and work with those who are seeking to use symbology in new and innovative ways.

The identifiers that LSEG has established are:

  • PermID – These are system-assigned, permanent identifiers created across a broad range of objects of information.
  • RIC – The Refinitiv Identification Code is a market-level identifier for instruments and pricing sources.
  • SEDOL – The Stock Exchange Daily Official List is an alpha-numeric code assigned for issuers, securities and markets. In operation for over 40 years.

LSEG also supports a number of industry standards, including ISIN, CUSIP and LEI. If your organisation is interested in finding out how it could improve the way it engages with symbology across the trade life cycle, or use symbology in innovation, please contact us.

Symbology services : We support a number of identifiers to enable you to deliver on your firm’s use cases, such as connecting data across the trade life cycle.

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