In Transatlantic Dispute, Fee Transparency May Suffer
April 27, 2009
When the European Commission announced in January that it is investigating the Cusip Service Bureau (CSB) for possibly abusing its role as the issuer of ID codes for North American securities, it included the standard preface: The opening of proceedings does not imply that it has conclusive evidence.
But for Standard & Poor's, which operates national numbering agency CSB for the American Bankers Association, that's hardly reassuring. While the EC said that S&P may be inappropriately forcing European firms to pay licensing fees to use its international securities identification numbers (ISINs), Jeff Mitnick, associate general counsel for S&P parent McGraw-Hill Companies, wants to dispel the notion that the fee structure is unfair.
For S&P, the validity of CSB's business model--and its transparency--is at the heart of the case. "The CSB charges customers a single, annual licensing fee for obtaining ISINs from data vendors, regardless of the number used," explains Mitnick, who also represents CSB.
CSB does not charge if a customer gets the information directly from the agency, according to Mitnick. Nor will it levy fees on firms that use CSB's Web-based look-up service. Firms only pay, he says, when they access ISINs using a bulk database, data feed or downloader, either through CSB or a third-party provider. That fee is tiered by the number of ISINs obtained, but for the average European institution, the sum doesn't exceed $30,000 per year.
Critical Data
ISINs are an industry standard and a necessary element of cross-border transactions. For five years, the European Fund & Asset Management Association and regional investment management and data management trade groups have complained that CSB should freely distribute ISINs and other reference data, either directly or through vendors like Bloomberg, Reuters, Interactive Data Corp. and Telekurs.
The Association of National Numbering Agencies and the International Organization for Standardization, which has accredited the ISIN as a standard, have declined to intervene.
If CSB is found to be in violation, say sources close to the EC, it could be forced to pay hefty penalties or change its business policy on the Continent. That could mean that the numbering agency will not be able to distribute its data to vendors, or require that they give rebates to CSB. It is unclear how the EC's decision could affect the numbering agency's U.S. operations.
Dampening Development?
If other registration authorities choose to introduce fees for their services, it could also hamper the adoption and development of industry standards, says Robert Cumberbatch, director of European business for Interactive Data. "Developing standards do come at a cost, which should be recouped," he says.
"CSB's database business--a firm using the information to populate their securities master files--is separate and distinct from its role as a national numbering agency," says Mitnick. "The CSB has a right to protect the intellectual property of original content."
The New York Stock Exchange has a similar business model, as do many database vendors. Exchanges and depositories that act as numbering agencies don't charge members for the ISINs they issue, but they do levy fees for a range of commercial services that incorporate the ID codes. Switzerland's Telekurs and Germany's WM Datenservice, which also act as information vendors, are paid for commercial data feeds that include ISINs and descriptive information.
