Discussion Topic: Financial Instrument Reference Database

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) requires the Office of Financial Research (OFR) to prepare and publish reference databases for financial entities and financial instruments. Neither database may contain any confidential data. The Global Legal Entity Identifier (LEI) Foundation plans to create an entity database available free to the public.

The OFR has explored approaches to create a Financial Instrument Reference Database (FIRD) with the greatest benefits and lowest cost to the public and private sectors. We want to develop a FIRD that relies on voluntary, collaborative, public-private engagement and a framework that uses existing resources while enabling future extension.

In 2014, the OFR proposed a strategy for preparing and publishing a FIRD as mandated by the Dodd-Frank Act. The strategy’s framework has three essential components:

1. Ontology. An ontology is a view of the concepts, relations, and rules for a particular area of information, irrespective of how that information may be stored as data. It provides a common language for all users by defining terms, conditions, characteristics, and relationships of each instrument that will be in a database.

2. Identifiers and Data. Descriptive data for each financial instrument, including a unique, non-proprietary identifier, that can be mapped to proprietary identifiers widely used in the market.

3. Valuation and Analytical Tools. Analytical software allows users to query, browse, compare, and model financial instrument data. For example, mathematical algorithms could be created to accurately represent each instrument in the database. Each algorithm would link daily changes in an instrument’s credit risk, market risk, and other risk factors to the instrument’s cash flow obligations.

The FIRD will orchestrate the interchange among these components. That interchange varies depending on the type of data request, as defined by use cases.

The OFR has begun outlining the acceptance criteria for the components needed to publish a database. Our objective is to set general criteria, not to preselect or endorse any particular contributor’s solution. We are still in the early planning stages, and expect to develop specific criteria for each category of component as well as broad criteria that will apply to all components and how they work together.

We also expect contributors to agree to provide web access and a high level of availability so that information will be accessible to the public free of charge and at some defined service level. And, we would expect the contributor to use standard interfaces, which the OFR would specify, to allow the components to share data. These, and other criteria to be determined, will drive the acceptance process.

We are asking the Committee to provide advice on the following questions:

  1. We expect the public to use the FIRD to identify, explore, and value financial instruments. What are other examples of how the public may use the database?

  2. What methods should we use to validate or measure the success of the FIRD in solving public needs?

  3. Are the FIRD components we have proposed the best way to respond to the public’s needs? How do you expect the components to interact?
  4. What communities in the general public should we look to for guidance about which uses of FIRD are the most important, both for inclusion and for prioritization?

  5. What should be the initial scope and eventual goal for the coverage and quality of the components?

  6. What are the most important considerations to develop acceptance criteria for each component?