Chi-X is Smarter

 

Dual ISINs

In some instances an International Securities Identifying Number (ISIN) is not sufficient to provide a unique identifier for a security and all its associated characteristics, such as location of settlement.

 

Examples include:

 

EXAMPLE STOCK LOCAL CODE ISIN CCY MIC INDEX CSD
1 Corus Group CORS GB00B127GF29 EUR XAMS AEX 25 EoC NL
2 Corus Group CS GB00B127GF29 GBX XLON FTSE100 EoC Crest
3 Royal Dutch Shell A RDSA GB00B03MLX29 GBX XLON FTSE100 EoC Crest
4 Royal Dutch Shell A RDSA GB00B03MLX29 EUR XAMS AEX 25 EoC NL
5 Dexia DX BE0003196134 EUR XPAR CAC40 EoC Fr
6 Dexia DEXB BE0003196134 EUR XBRU EoC Bxls
7 Unilever UNA NL0000009355 EUR XAMS AEX 25 EoC NL
8 Unilever NV UN NL0000009355 EUR XLON FTSE Eurotop300 CBF
9 Unilever ULVR GB00B10RZP78 GBX XLON FTSE100 EoC Crest
  • CBF Clearstream Bank Frankfurt
  • EoC NL - Euroclear Netherlands

As can be seen the same ISIN can be traded in two different locations, with different currencies and settled in different locations. This has important implications for fungibility.

 

Settlement Location for Dual ISINs

It is possible to trade Royal Dutch Shell in various locations with different settlement locations:

  • Euronext Amsterdam – Euroclear Amsterdam
  • London Stock Exchange – Euroclear Amsterdam
  • Chi-X – Euroclear Amsterdam
  • SWX Europe (formerly known as Virt-x) – Euroclear Bank
  • Deutsche Börse - Clearstream Banking Frankfurt

The market model Chi-X has adopted recognises domestic settlement liquidity.

 

Chi-X considers numerous factors in selecting the appropriate settlement location. Typically this includes consultation with all Clearing Participants on where the current settlement liquidity is. For example, although it may be possible to settle a stock at an International Central Securities Depository (ICSD) the majority of the stock may actually be held at the domestic Central Securities Depository (CSD). In order to avoid the costs of transferring stocks between CSDs Chi-X will favour the dominant settlement location.

 

Chi-X will also consult with our Central CounterParty clearing house (CCP), the European Multilateral Clearing Facility (EMCF), to ensure there is sufficient settlement liquidity at this location to ensure all stocks are delivered. Using a CSD other that the market norm can result in settlement tightness and hence increased failure to deliver rates which in turn reduce the quality of our market.

 

All Chi-X stocks are completely fungible with the Recognised Exchange Traded or Primary Market equivalent. If a stock is traded in a different currency to the Primary Market equivalent it is not fungible and therefore unlikely to be available to trade on Chi-X.

Chi-X Services in Dual ISINs?

Chi-X will only list one ISIN / currency combination. That combination will always settle at the local CSD. To date the combination of the ISIN and currency codes are sufficient to create a unique key.

 

Dual listed products with the same currency (e.g. ABN Amro in Germany) will not be offered by Chi-X. Chi-X hold the view that different lines of stock settling in different locations should be classed as different trading instruments.

 

There are no plans at present to have dual listings with the same ISIN and Currency but this scenario may change as we encounter this issue on the back of adding additional markets. Should the need arise to trade a dual listed security, our stock list will uniquely identify this based on Chi-X symbol, RIC or a composite key of ISIN, Currency and Primary Market MIC could be used. No change to the existing market model will be made without further Participant consultation.

Practical Implications

Working through the above examples:

 

1.     Corus Group. Unique ISIN and currency combination settles in EoC NL.

 

2.     Corus Group. Unique ISIN and currency combination settles in EoC Crest.

 

3.     RDS ‘A’. Unique ISIN and currency combination settles in EoC Crest.

 

4.     Royal Dutch ShellA. Unique ISIN and currency combination settles in EoC NL.

 

5/6.   Dexia. Identical ISIN and currency combination. At this juncture Chi-X will only make the CAC40 constituent         available for trading (subject to the commencement of French services)

 

7/8.   Unilever. Identical ISIN and currency combination. At this juncture Chi-X will only make the AEX25 constituent         available for trading.

 

9.     Unilever. Unique ISIN and currency combination settles in EoC Crest.