Understanding the new Aii code

Understanding the new Aii code

The Market Identification Code, the Exchange Mnemonic, the Derivative Type, the Put/Call Identifier, the Expiry Date and the Strike Price. It’s a real cocktail of financial jargon.

The creation of the Alternative Instrument Indicator (AII) code is an issue that is all too alive in the derivatives markets. The regulations ushered in by the Markets in Financial Instruments Directive [MiFID] outline that by the end of 2010 if your firm is trading derivatives on an exchange that does not use ISINs, you will be required to report the transactions using an AII. When you realise that this will include two of the biggest exchanges in Europe, LIFFE and Eurex, you begin to see the scale of the issue.

So, is there a way your firm avoid the costly delays and risks that are going to be created from AII?

For some time now, the London Stock Exchange has been allocating its universal identifier, the SEDOL code, against millions of Exchange Traded Derivatives from over 80 exchanges worldwide. In addition, this includes linkages to AIIs and the underlying ISINS to automate reference data management. This feed also includes the CFI code, increasingly recognised by firms for whom security type identification is a key part of their processes.

The feed is delivered every morning, providing clients with timely and accurate reference data. Through the Exchange’s reconciliation platform, UnaVista, firms can also have an immediate cross reference tool of two million SEDOL codes to facilitate their transaction reporting. The web-hosted system is able to create a golden copy of data checked against the firm’s own systems and the Exchange’s database.

The Exchange has created a solution that identifies discrepancies before trade inception, minimising the risks and costs associated with late settlements and trade failures. Now firms don’t have to worry about establishing their own AII codes, making this cocktail of codes taste a little sweeter.