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?
- Symbology may sound mysterious, but fundamentally it is the use of data-based identifiers to connect data together.
- Symbology can help financial firms connect corporate entity based ESG data with financial instruments.
- 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.
Republication or redistribution of LSE Group content is prohibited without our prior written consent.
The content of this publication is for informational purposes only and has no legal effect, does not form part of any contract, does not, and does not seek to constitute advice of any nature and no reliance should be placed upon statements contained herein. Whilst reasonable efforts have been taken to ensure that the contents of this publication are accurate and reliable, LSE Group does not guarantee that this document is free from errors or omissions; therefore, you may not rely upon the content of this document under any circumstances and you should seek your own independent legal, investment, tax and other advice. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon.
Copyright © 2023 London Stock Exchange Group. All rights reserved.
The content of this publication is provided by London Stock Exchange Group plc, its applicable group undertakings and/or its affiliates or licensors (the “LSE Group” or “We”) exclusively.
Neither We nor our affiliates guarantee the accuracy of or endorse the views or opinions given by any third party content provider, advertiser, sponsor or other user. We may link to, reference, or promote websites, applications and/or services from third parties. You agree that We are not responsible for, and do not control such non-LSE Group websites, applications or services.
The content of this publication is for informational purposes only. All information and data contained in this publication is obtained by LSE Group from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data are provided "as is" without warranty of any kind. You understand and agree that this publication does not, and does not seek to, constitute advice of any nature. You may not rely upon the content of this document under any circumstances and should seek your own independent legal, tax or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the publication and its content is at your sole risk.
To the fullest extent permitted by applicable law, LSE Group, expressly disclaims any representation or warranties, express or implied, including, without limitation, any representations or warranties of performance, merchantability, fitness for a particular purpose, accuracy, completeness, reliability and non-infringement. LSE Group, its subsidiaries, its affiliates and their respective shareholders, directors, officers employees, agents, advertisers, content providers and licensors (collectively referred to as the “LSE Group Parties”) disclaim all responsibility for any loss, liability or damage of any kind resulting from or related to access, use or the unavailability of the publication (or any part of it); and none of the LSE Group Parties will be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, howsoever arising, even if any member of the LSE Group Parties are advised in advance of the possibility of such damages or could have foreseen any such damages arising or resulting from the use of, or inability to use, the information contained in the publication. For the avoidance of doubt, the LSE Group Parties shall have no liability for any losses, claims, demands, actions, proceedings, damages, costs or expenses arising out of, or in any way connected with, the information contained in this document.
LSE Group is the owner of various intellectual property rights ("IPR”), including but not limited to, numerous trademarks that are used to identify, advertise, and promote LSE Group products, services and activities. Nothing contained herein should be construed as granting any licence or right to use any of the trademarks or any other LSE Group IPR for any purpose whatsoever without the written permission or applicable licence terms.