Commentary by: Chris Edmonds | President, Fixed Income & Data Services, ICE

Hard as it may be to imagine today, there was a time in the not-so-distant past when securities traded without unique identifiers. Our more venerable colleagues may just about recall how capital markets operated before CUSIPs were introduced 1968, and the “Paperwork Crisis” that precipitated their creation.

Surging trading volume in the mid-1960s overwhelmed broker-dealer back offices, leading to soaring trade fails, significant client losses and the failure, closure or takeover of approximately 300 New York Stock Exchange member brokerages.

The logjam in trade clearing and settlement became so intense that in 1968 the NYSE resorted to closing on Wednesdays, but even this did not provide sufficient breathing room to work through the backlog. The ultimate solution was for financial markets to establish “identification standards that could be used to identify and aggregate data,” leading to the creation of CUSIPs.

Almost 60 years later, the private credit sector finds itself facing similar - if not quite as intense - challenges. If the asset class is to reach its full potential as a $40 trillion addressable market, it will need to be undergirded by a robust and rigorous reference data ecosystem. The foundational element of that ecosystem are unique deal identifiers, which is why ICE IDs are now in production across the private credit landscape.

The ICE ID is a permanently unique, proprietary identifier assigned at the individual deal level at origination. The identifier is carried across the asset's entire lifecycle, replacing fragmented data workarounds with a single market standard.

ICE extracts terms and conditions, along with other asset-level data directly from underlying deal documents to create a fully permissioned universal security master. This can offer greater transparency, consistency and scale to private credit origination, lending, servicing, investor relations and other critical activities.

That’s the high-level overview, but a closer look at how ICE IDs work in practice reveals the progress we’ve already made just one month after the identifiers first went into production.

As of mid-August, more than 4,000 ICE IDs have been established, spanning more than 1,000 distinct private credit deals with a notional value of $1.05 trillion. Approximately 14,500 deal documents have been processed so far, replacing the inefficient process of manually extracting unstructured data from documents to assess investment potential with automatic extraction of salient asset-level data to create the security master.

The process of assigning ICE IDs follows a three-step process (numbers for illustrative purposes only):

Stage 1: The ICE Private Credit Intelligence platform ingests thousands of unstructured deal documents and analyses the terms and conditions to determine that only a small handful of documents pertain to each individual deal.

Stage 2: Accordingly, the platform identifies hundreds of unique deals within the ingested documents and determines that perhaps two to three ICE IDs should be issued for each deal.

Stage 3: ICE Private Credit Intelligence then generates thousands of unique ICE IDs that span approximately 500 different fields. The core data categories that cover the foundational transaction information encompass fields such as entity; coupon; rating; call; put; covenants, etc.

The remaining fields cover additional information on the transaction, such as whether the deal has convertible or floating-rate components, credit-sensitive elements and information on the deal waterfall and assignment fees.

Back in April, I wrote that the goal of ICE Private Credit Intelligence is to build a private credit data infrastructure layer consistent with the experience of public credit markets. The live production of ICE IDs represents just the first step in the process of building that infrastructure.

Now that we have established a standardized private credit instrument identifier, the next phase will see the development of high-quality, normalized reference data across both private credit originators and the transactions themselves.

This will provide the foundation for the creation of efficient transfer and settlement mechanisms as well as transparent pricing in what has heretofore been a largely illiquid and opaque asset class.

This is just the beginning of an exciting new era for the private credit market and I look forward to sharing more details on each of these new infrastructure elements as they move closer to launch.

Exchange-traded funds have seen a proliferation of data enabling more liquidity and product breadth, while regulatory and tax frameworks are supporting transparency. ICE is a key provider of indices, pricing data and platforms to the sector, with DWS recently launching three new Xtrackers fixed income ETFs benchmarked to ICE Indices. ICE’s Varun Pawar spoke to Olivier Souliac, Global Head of Indexing - Xtrackers at DWS to learn more.